Potential Investment from CEZ Group could fund Cinovec through to a decision to mine. But is it a good deal?

European Metals Holdings Ltd (LON:EMH) has reached a conditional agreement with CEZ Group, one of the largest power utilities in central and eastern Europe for a potential strategic investment into the Cinovec Igneous Lithium Project in the Czech Republic.

The strategic partnership, if signed, will see CEZ Group invest €34.06mln (£32.88ml) in return for a 51% interest in the Czech subsidiary that holds the rights for the project (Geomet s.r.o.).

The proposed investment by CEZ Group would be enough to cover the cost of moving the Cinovec Project through to a construction decision, significantly reducing the projects funding risk for European Metals shareholders.

But is it a good deal? European Metals would be giving up the ownership of the project and would be a minority shareholder, so investors will want to know that investment is favourable to the company.

Large resource

The Cinovec Zinnwaldite Project, has a total JORC 2012 compliant mineral resource estimate of 695.9 million tonnes (mt) at a grade of 1% lithium carbonate equivalent (Li2CO3 E), which makes it the third-largest igneous lithium deposit globally, with a contained Li2CO3 E content of 7.2mt.

So CEZ Group is potential acquiring its 51% interest in the project at a value of US$10.3 per tonne (t) of lithium carbonate equivalent in resource.

This compares to our estimate for the average lithium deal value for the year to date of US$95.1/t Li2CO3 E.

So, at first look, the deal looks cheap compared to other lithium deals completed this year.

However, the range of lithium deal valuations varies from US$5.8/t Li2CO3 E to US$224.2/t Li2CO3 E, which is a large range.

While this deal is towards the lower end of the value range, the majority of these deals were completed earlier in the year, when sentiment towards the lithium space was not as negative.

Also, many of these deals were for other types of lithium projects such as brines and spodumene deposits, which are given a higher market value than zinnwaldite deposits.

The only other deal involving a zinnwaldite project this year was done at an average price of US$5.8/t Li2CO3 E, so the European Minerals – CEZ Group deal is 78% increase onRead More – Source