In an Oct. 29, 2018 research note, Eric Zaunscherb, a Canaccord Genuity analyst, reported that Critical Elements Corp. (CRE:TSX.V) successfully produced battery-quality lithium hydroxide in pilot plant testing.

The company’s ability to now produce lithium hydroxide and lithium carbonate, both having been proven through testing, “provides it flexibility based on demand by strategic partner(s) and/or offtakers during the project financing phase, a distinct competitive advantage during ongoing negotiations,” Zaunscherb added.

The analyst pointed out that lithium hydroxide and lithium carbonate are the primary end products that cathode and battery manufacturers use. Currently, lithium carbonate is preferable over lithium hydroxide but “demand appears to be shifting toward lithium hydroxide,” he said.

Zaunscherb reviewed the pilot plant program and outcomes. The testing for lithium hydroxide was conducted, using a thermal leaching process, on spodumene concentrate from a 50 ton bulk sample from Critical Elements’ Rose lithium-tantalum project located in Northern Quebec. Zaunscherb reiterated that Rose currently boasts Proven and Probable reserves of 26.8 million tons at 0.85% Li2O along with “excellent metallurgy and a 17-year mine life with significant upside.”

Testing yielded both high recovery rates and high purity of lithium hydroxide, Zaunscherb indicated. Recovery rates of spodumene concentrate to lithium hydroxide, were 93%, or 80% overall, which exceeds industry benchmarks, of 70% to 75% and 65%, respectively. The purity of lithium hydroxide produced was higher than 99%. “With fewer purification steps to produce a high-quality product, Rose ore’s highly amenable metallurgy should translate to a comparatively lower capital and operating cost profile,” he wrote.

Currently, Zaunscherb noted, Critical Elements is now working on the engineering design of a lithium hydroxide conversion facility and the completion of the feasibility study for the phase 2 lithium carbonate or lithium hydroxide plant to be built in 2020. The feasibility study is expected to be ready by year-end.

The company is trading at a significant discount to covered peers, Zaunscherb highlighted. Canaccord Genuity’s target price on the Speculative Buy rated company is CA$1.50 per share. “As Critical Elements continues to derisk the project, determine the final flowsheet and land its strategic partner(s), we believe it will trade more in line with peers,” he said. “As such, we see delivery of the phase 2 feasibility study as a potential rerating opportunity for the company.”

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Disclosures from Canaccord Genuity, Critical Elements Corp., Flash Update, October 29, 2018

Analyst Certification: Each authoring analyst of Canaccord Genuity whose name appears on the front page of this research hereby certifies that (i) the recommendations and opinions expressed in this research accurately reflect the authoring analyst’s personal, independent and objective views about any and all of the designated investments or relevant issuers discussed herein that are within such authoring analyst’s coverage universe and (ii) no part of the authoring analyst’s compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the authoring analyst in the research.

Analysts employed outside the US are not registered as research analysts with FINRA. These analysts may not be associated persons of Canaccord Genuity Inc. and therefore may not be subject to the FINRA Rule 2241 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Required Company-Specific Disclosures (as of date of this publication):

Critical Elements Corporation currently is, or in the past 12 months was, a client of Canaccord Genuity or its affiliated companies. During this period, Canaccord Genuity or its affiliated companies provided investment banking services to Critical Elements Corporation.

In the past 12 months, Canaccord Genuity or its affiliated companies have received compensation for Investment Banking services from Critical Elements Corporation.

In the past 12 months, Canaccord Genuity or any of its affiliated companies have been lead manager, co-lead manager or co-manager of a public offering of securities of Critical Elements Corporation or any publicly disclosed offer of securities of Critical Elements Corporation or in any related derivatives.

Canaccord Genuity or one or more of its affiliated companies intend to seek or expect to receive compensation for Investment Banking services from Critical Elements Corporation in the next three months.

An analyst has visited the material operations of Critical Elements Corporation. No payment was received for the related travel costs.

Canaccord Genuity has been engaged by Critical Elements Corporation as financial advisor to pursue, engage and evaluate global strategic partners and investors to advance the Rose Project to production, and will receive fees contingent upon the successful completion of such financing transactions.

Disclosures are available here.