Leo Lithium flunks ASX debut amid a deepening lithium rout

The closely watched Leo Lithium (ASX: LLL) IPO has flunked its ASX debut after opening -23% to 54 cents at 11:00 am AEST.

The stock is trying to stablise around the 55-60 cents mark at noon.

Leo Lithium intraday price chart

Introducing Leo Lithium

Leo Lithium was born out of the logical separation of Firefinch’s (ASX: FFX) lithium and gold projects, allowing shareholders to gain separate exposure. The demerger has been viewed as value accretive as it establishes a pure-play lithium developer.

Leo Lithium’s Goulamina Project is expected to be one of the world’s largest spodumene projects, forecast to produce 506,000 tonnes per annum (tpa) of spodumene in Stage 1, increasing up to 831,000 tpa under Stage 2.

To add some perspective, the $6bn Pilbara Minerals (ASX: PLS) expects to produce 340-380,000 tonnes of spodumene in FY22. Near-term expansion plans are expected to increase production capacity to 560-580,000 tpa in the September quarter 2022. 

Some key financials for Goulamina, according to the updated Definitive Feasibility Study, include:

• Ownership: Leo Lithium (45%), Ganfeng (45%) and State of Mali (10%)

• Mine life: 21 years minimum

• Post-tax NPV: US$2.9bn (A$4.1bn)

• Capital cost (stage 1): US$255m

• All-in sustaining costs: US$365 per tonne concentrate

• Spodumene pricing assumption: US$1,250/t for first 5-years, US$900/t long-term

Leo Lithium's joint venture partner, Ganfeng has reserved the right to receive 50% of Goulamina's life of mine spodumene and will receive rights to the remaining 50%, subject to financing and the project reaching commercial production.

Near-term catalysts

A final investment decision for Goulamina was approved in January 2022, with an expected first production to commence in the first-half of 2024.

In parallel with project construction, an extensive drilling program has been planned for 2022, including infill drilling, resource upgrade and extension along strike.

Deflating lithium valuations

Lithium valuations are sinking across the board, headlined by emerging darlings like Lake Resources (ASX: LKE), Arizona Lithium (ASX: AZL) and Sayona Mining (ASX: SYA).

Lake Resources, which was included into the S&P/ASX 200 on Monday, is down a grueling -55% in the last four sessions.

While the upside catalysts of elevated lithium prices, supply threats and surging EV sales can't be forgotten. Broader market weakness and fears of an economic slowdown have turned investors away risky and fast growing pockets of the market, lithium included.