EMH’s Lithium project is ideally located in the heart of Europe in Czech Republic – very close proximity to Major Automakers who are all switching to Electric vehicle production.
ASX:EMH
Last Price:
$0.655
Date of Initial Coverage
03-Mar-21
Initial Entry Price
$1.100
Returns from Initial Entry
-40%
EMH significantly re-rates to $1BN+ market cap on reaching a successful Final Investment Decision for its hard rock lithium project strategically located in the heart of Europe.
Opened: 20-Jan-2022
Shares Held at Open: 261,000
What does EMH do?
European Metals Holding (ASX: EMH) is developing the largest hard rock lithium resource inside the European Union.
Located in the Czech Republic on the border with battery metal hungry Germany, EMH’s project is well advanced and is moving towards becoming the first local EU battery grade lithium producer to deliver to an emerging local industry.
What is the macro theme?
The EU is rapidly switching from fossil fuel powered transportation to Electric Vehicles (EVs), as part of the “European Green Deal” which should make Europe carbon neutral by 2050.
This transition towards green-energy has become a key driver of the need for a local source of lithium, especially as the EU currently has no local supply and requires imports from China and South America. As a result we expect domestic suppliers of the raw-materials that are critical for battery production to thrive.
Why did we invest in EMH?
Strategically important location
EMH’s Lithium project is ideally located in the heart of Europe in Czech Republic – very close proximity to Major Automakers who are all switching to Electric vehicle production.
Advanced development ready project
EMH’s project is arguably the most advanced near term lithium producer in the EU. The project is currently having a PFS (Pre-Feasibility-Study) updated & has already commenced works on a DFS (Definitive Feasibility Study).
EMH is yet to sign an offtake partner
With the lithium market currently a sellers market, projects that have lithium in the ground and close to being development ready are attractive offtake options for buyers looking to secure lithium supply. EMH is yet to sign an offtake partnership which we think is a key catalyst for this year.
What do we expect EMH to deliver?
Objective #1: DFS (Definitive Feasibility study)
We are hoping the FEED (Front-End Engineering Design) is completed and it forms the basis for a completed DFS which we hope to see before the end of 2022.
Objective #2: Progress on development financing
We also want to see EMH make meaningful progress on a funding plan for the construction of the project. This funding could be delivered in various forms – debt, grants, or even direct investment by new partners. By the end of 2022, we expect the financing strategy to be a lot clearer.
Objective #3: Offtake agreement
After the DFS is completed and a final-investment decision has been made we expect to see some progress made with respect to the signing of offtake agreements.
What could go wrong?
Regulatory risk
EMH’s lithium project is a fairly advanced stage project which means it is in the final stages of permitting before it is ready for a final investment decision. There is a risk that the project gets held up in the permitting process and the regulators reject the company’s mining license applications.
Financing risk
EMH’s asset is fairly advanced & is approaching a stage where a final investment decision needs to be made, deteriorating market conditions may deter financiers from making a large capital investment which will mean the project is unable to be put into production.
Commodity risk
EMH is a mining company, generally these businesses are price-takers for their product & lithium is no different. In the event that supply outstrips demand EMH’s project may be considered uneconomic (Stranded).
Processing Risk
EMH’s project is a mica hosted lithium resource. Mica lithium deposits can be difficult to process and more costly relative to other lithium resources. [New 1-Dec-2022]
Scale-up Risk
While EMH has been able to produce battery grade lithium products, its flowsheet has only been tested at a lab scale. There is always a risk that the flowsheet results produced in a lab can’t be scaled and/or the performance of the flowsheet is weaker once scaled up to a level that’s suitable for EMH’s resource. [New 1-Dec-2022]
What is our investment plan?
Our plan is to hold a position in EMH over a 5 to 7 year period, through the construction of the project.
We have held for almost one year and have taken a small amount of profit having sold down 13% of our total holding (as per our standard investment strategy). We may look to sell a further 7% during 2022, hopefully into a share price rerate on the back of the company delivering on the three key objectives for 2022 listed in this memo.
Disclosure: The authors of this memo and owners, S3 Consortium Pty Ltd, and associated entities, own 261,000 EMH shares at the time of publication. S3 Consortium Pty Ltd has been engaged by EMH to share our commentary on the progress of our investment in EMH over time.
✅ Initial Investment: @$1.1
✅ Top Slice
🔲 Free Carry
🔲 Take Profit
🔲 Price increases 300% from initial entry
🔲 Price increases 500% from initial entry
🔲 Price increases 1000% from initial entry
✅ 12 Month Capital Gain Discount
🔲 Hold remaining Position for next 2+ years
| Date | Share Price $ | Title |
|---|---|---|
| 01-Dec-2022 | $ | Lithium in the heart of Europe: Counting down to EMH’s feasibility study |
| 21-Nov-2022 | $ 0.765 | IVZ reaches 10 bagger status, lithium day wrap and more... |
| 22-Jan-2022 | $ 1.500 | Our Investment Approach, Energy Cold War, Ukraine, Supply Chain Crisis |
| 20-Jan-2022 | $ | EMH Raises $14M and Edges Closer to Lithium Production |
| 27-Nov-2021 | $ 1.490 | New COVID strain, Santa Rally, Market Thoughts |
| 24-Nov-2021 | $ | EMH Life Cycle Study Paves Way for Low Carbon Lithium |
| 14-Oct-2021 | $ | EMH Upgrades its Lithium Resource as Lithium Prices Soar |
| 11-Aug-2021 | $ | Lithium Boom: EMH offtake surely coming soon? |
| 28-Jul-2021 | $ | Czech government announces support for electric car gigafactory - 64km away from EMH’s lithium project |
| 03-Jun-2021 | $ | Rumours of New Battery Factory 64km away from EMH |
| 03-Mar-2021 | $ | We Just Invested in This ASX Stock - Here is Our Initiation Report |
| 03-Mar-2021 | $ | EMH is Leading the Pack to be the First Local EU Lithium Producer |
