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Cornish Lithium IPO: everything you need to know and how to buy shares


MongiIG

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As the EV revolution accelerates and energy security takes political centre stage, one of the UK’s only lithium explorers could be an exceptional opportunity.

ipoSource: Bloomberg
 
 Charles Archer | Financial Writer, London | Publication date: Wednesday 19 October 2022 

Cornish Lithium IPO: how to buy shares if the company lists

1. Do your research on Cornish Lithium
2. Decide whether you want to trade or invest
3. Open an account
4. Search for Cornish Lithium on our platform or app and open your position

If you want to buy Cornish Lithium shares and own them, you'd open a share dealing account. If Cornish Lithium lists in the UK and offer a primary market, you'd be able to buy shares at the IPO price with us ahead of the listing for zero commission.

Otherwise, you can invest in Cornish Lithium stock right away on the day of the listing. It'll cost £3 commission if you've traded 3+ times in the previous calendar month, or £8 if you have not.

If you want to trade Cornish Lithium shares with derivatives, you would open a spread betting or CFD trading account. Spread bets are commission-free, while CFDs incur a £10 commission on UK shares.

When trading, you can go long or short and you'll trade on leverage. This means you could gain or lose money much faster than you'd expect, as your trade size is much larger than your initial outlay.

What is Cornish Lithium’s business model?

Cornish Lithium is an explorer, and eventual potential developer, of environmentally sustainable lithium found in both hard rock mines and geothermal waters across the county of Cornwall.

The private company has secured agreements with multiple owners of mineral rights across the county and is utilising modern technology in combination with historical maps to re-evaluate the historical tin mining region for its lithium potential.

Cornish Lithium has the rights to explore for lithium within 300km of Cornwall and is currently using 3D models to test the best locations for extraction boreholes to be drilled. Some initial drilling is ongoing, and promising results are being evaluated.

The company has benefitted from cash injections from TechMet Limited worth £18 million since November 2021, raised £12 million via crowdfunding, and received ‘additional funding from Innovate UK through the Automotive Transformation Fund’s (“ATF”) Scale up Readiness Validation competition (“SuRV”).’

CEO Jeremy Wrathall, also the company’s founder and a former investment banker, enthuses that government funding ‘will accelerate our progress towards the commercial production of battery grade lithium hydroxide in the UK. We believe that a secure, sustainable domestic supply of lithium is essential for the development of a resilient electric vehicle supply chain for the British automotive industry. The award of this grant provides further validation of the Trelavour Project’s potential.’

The company is planning to conventionally mine lithium at Trevalour near St Austell, and use experimental tech to extract lithium from geothermal waters (brine) near Redruth.

It's constructing a demonstration plant at its maiden lithium hydroxide resource, Trevalour. While only nominal amounts of lithium were produced last year, Cornish Lithium has hailed its sources as ‘globally significant grades.’

During its lithium brine exploration, the company has found 220mg/litre in some geothermal waters, far less than the 2,000mg/litre in a typical South African, but more than enough to be commercially viable.

Despite the promising start, it’s worth noting that until the company turns profitable, it remains a relatively small, speculative player.

lionSource: Bloomberg

Why is lithium important?

Lithium is a silvery alkali metal, with unique chemical properties that make it an ideal component in the batteries that power electric cars, laptops, phones, e-bikes, and dozens of other applications. However, most of the lithium mined today is destined for EV batteries.

The metal comes in multiple forms and is typically non-fungible; one source of lithium is not the same as another. The two main types are spodumene, otherwise referred to as hard rock lithium, and brine, an accumulation of lithium-containing groundwater extracted as a salt. Cornish Lithium is planning to mine both types.

Lithium is typically sold in two chemical forms: lithium carbonate, and lithium hydroxide. The hydroxide version comes with a price premium, as it is better for use in EV battery manufacturing.

For context, lithium extracted from spodumene can be made into either the hydroxide or carbonate form, while brine-origin lithium must be turned into carbonate before being converted into hydroxide.

This makes spodumene far more economically efficient. However, it’s important to note that brine extraction is almost always more environmentally friendly.

How fast could lithium demand rise?

With all fossil fuels expected to be used up before the turn of the century, lithium is becoming an increasingly important metal to help power the green revolution. Legislation across the developed world has been passed to ban the sale of new ICE cars during the 2030s, including in the UK.

The IEA’s 2021 Global Electric Vehicle Outlook report saw EV sales double last year to 6.6 million, and exponentially further growth is expected over the next decade.

In the US, President Biden has invoked the 1950 Defense Production Act and delivered the 2022 Inflation Reduction Act, both of which offer significant financial incentives to businesses and individuals to induce them to move to EVs. Similar legislation could well follow in the UK, if proven successful.

Accordingly, lithium prices are near record highs, having risen fivefold compared to pre-pandemic levels. However, it is not currently traded as a commodity given its non-fungible nature, so putting a true price on the metal is not an exact science.

But for perspective, Benchmark Mineral Intelligence reports that Chinese battery-grade lithium carbonate is now at a record $74.475 a tonne, having more than doubled year-to-date.

However, this price is influenced by falling lithium production due to energy and water shortages in China. There is no globally agreed price for the metal.

lithiumSource: Bloomberg

Who are Cornish Lithium’s competitors?

Cornish Lithium is contending with many global operators, including Ganfeng Lithium, Tianqui Lithium, and Albemarle, alongside dozens of regionally important producers.

However, there simply isn’t enough lithium production today for anticipated future demand. In addition, recent political events such as Shanghai port closures, pandemic supply chain challenges, and the Ukraine war have all demonstrated the fragility of relying on global supply chains.

Cornish Lithium cannot realistically compete against the global giants in terms of revenue or production but could still warrant an investment given global supply shortages. And it has a huge advantage in the location of its lithium, easily accessible within both the UK and the EU.

In addition, it could benefit from strong ESG credentials. Most of the world’s lithium supply comes from Australia and South America and transporting the metal around the world is heavily carbon intensive. As lithium mining isn’t particularly environmentally friendly in many cases already, a domestic supply could easily be viewed as a greener source.

On a smaller scale, Cornish Lithium’s key competitor is British Lithium, the other UK lithium explorer, which is also exploring lithium mining in Cornwall. Like Cornish Lithium, the company remains private, and speculative.

Commonly, exploratory miners like Cornish Lithium and British Lithium use their IPOs to generate enough cash to prove mine feasibility and establish initial profitability. Once confirmed, larger competitors often swoop in with cash offers, and both companies are likely to be popular acquisition possibilities given their unique geolocation.

It’s worth noting that while lithium is relatively abundant, it is only concentrated in an economically feasible amount in very few areas around the globe. Exploratory projects are expensive and often end in failure. And even when feasibility is established, new mines take up to ten years to begin extraction.

Why is Cornish Lithium delaying its IPO?

The wider IPO market has suffered in 2022, as tightening monetary policy has put a squeeze on growth. IPO launches are significantly down, and Cornish Lithium is not immune to wider market pressures.

While the company had planned to launch its IPO this year, Wrathall has told the Times it’s now ‘unlikely to happen’ until 2023, explaining that ‘the problem is the markets are all over the place, very difficult to read…in times of great uncertainty, when we don’t need to IPO, we decided that we wouldn’t for the time being.’

Further, he notes that ‘tech has fallen out of favour — anything remotely tech-focused has been really hammered — and I think that we get lumped into that basket, as sort of a quasi-tech company. The lithium price has been off the charts and yet lithium equities are way below their previous peaks.’

The hard truth is that the company is not currently generating revenue. And if it expects to start producing lithium at Trevalour over the next few years, it will need hundreds of millions of pounds of funding.

Of course, further private investment could well come from forward-thinking car companies looking to diversify their lithium sources, who are looking to the EV future where lithium supply remains scarce and demand even higher than today.

However, while Cornish Lithium made a £1.5 million pre-tax loss in 2021, it ended the year with £11.7 million in cash. It can continue to operate without additional funding for the foreseeable, without further liquidity injections.

But it’s likely that IPO cash will eventually be needed, and further that the IPO will be a popular investor event.

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