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Atlantic Lithium Limited - Case Study
Written: 19 August 2023
Atlantic Lithium Limited (ASX:A11) is a very new entrant to the ASX, having listed in late 2022 and only just approaching it's one year anniversary on the market here. The company is developing a lithium project in Ghana which is expected to be funded to production via an existing deal with Piedmont Lithium (ASX:PLL). It hasn't all been successes for Atlantic however, as they were recently the target of a short-seller campaign that questioned their practices in Ghana.
Despite these turbulences, new entrants to the ASX can be interesting to examine; many may have great assets yet due to their low profile, may be under-appreciated by the market. Let's have a look to see if Atlantic is in fact a “Triple Threat”.
Threat 1: Spending to grow
Atlantic is a newly listed ASX company so we only have a few periods of financials to examine whether management are efficiently using shareholder funds. Nevertheless, we should examine this metric as it shows how much investment in growth the coming is making per dollar of admin/people costs. Generally speaking, the higher the better as it means that more money is being invested to grow the company rather than staff it.
Atlantic has a interesting situation where Piedmont Lithium contributes to project exploration costs. As such, we are going to look at the amount invested into exploration (both capitalised and expensed) relative to staff + admin costs.
Atlantic has a interesting situation where Piedmont Lithium contributes to project exploration costs. As such, we are going to look at the amount invested into exploration (both capitalised and expensed) relative to staff + admin costs.
Period
Exploration cost (A)
Development cost (B)
Staff cost (C)
Admin Cost (D)
(A+B)/(C+D)
Q2 CY23 Link
$4,764k
-
$295k
$1,197k
$3.19
Q1 CY23 Link
$3,075k
-
$310k
$1,188k
$2.05
Q4 CY22 Link
$5,933k
-
$308k
$2,106k
$2.46
Q3 CY22 Link
$5,826k
-
$449k
$1,060k
$3.86
As we can see, Atlantic spends circa $3 per dollar into growth per dollar of staff and admin costs. This means that around 75% of funds are invested into growth which is a solid achievement given they are undergoing capital intensive studies and development preparation works. As such, it shows that funds are spent in effective areas and management are not sitting idly.
About spending to grow
Threat 2: Setting goals
When it comes to mine development, it is important to highlight the key deliverables management expects to achieve in the short and medium term and frame it in the context of the company vision.
This is very important as it reduces the likelihood of investors misunderstanding the company's strategy and ensures everyone can make a accurate judgement whether it is a good fit for their own portfolio. In addition, once management demonstrates their ability to hit goals, it creates creditability around future promises which in turn generates a management premium on the stock price.
For Atlantic Lithium, management have communicated that the main activities in the way to production are:
This is very important as it reduces the likelihood of investors misunderstanding the company's strategy and ensures everyone can make a accurate judgement whether it is a good fit for their own portfolio. In addition, once management demonstrates their ability to hit goals, it creates creditability around future promises which in turn generates a management premium on the stock price.
For Atlantic Lithium, management have communicated that the main activities in the way to production are:
- MRE Upgrade in 2023
- DFS in 2023
- Mining license in 2023
- Production in 2024
We can see this in their first ASX investor presentation on 12 October 2022. Link.
This was also reiterated in the 27 October 2022 presentation (link). Then in the 6 Feb 2023 Mining Indaba presentation (link), the company added a few additional goals that they will aim for on the way to production.
- DMS plant FEED in mid 2023
- Transmission line construction in late 2023
- Earthworks, power and mining contractor mobilisation in 2024.
Using capital effectively is very strong quality and shows that the company is maximising growth with shareholder funds.
✅ MRE upgrade announced on 1 Feb 2022 in line with goal 1 (link) with potential for further upgrades (link)
✅ DFS announced on 29 June 2023 in line with goal 2 (link) which incorporates the DMS plant FEED goal
▶️ Mining license submitted in late 2022 and expected by the company in Q3 CY23 (link)
✅ MRE upgrade announced on 1 Feb 2022 in line with goal 1 (link) with potential for further upgrades (link)
✅ DFS announced on 29 June 2023 in line with goal 2 (link) which incorporates the DMS plant FEED goal
▶️ Mining license submitted in late 2022 and expected by the company in Q3 CY23 (link)
▶️ Transmission line underway with funds invested in Q3 CY23 (link)
The remaining goals will be assessed closer to 2024 as guided by Atlantic. Overall, the company seems to be very on track however which is a positive sign for the things to come.
About setting goals
Threat 3: Director on-market buying
Despite the short time being listed, Atlantic Lithium has demonstrated impressive on-market support by its directors. This is a very encouraging sign as it shows that the company's directors are willing to back the vision with their own capital and therefore align their fortunes with shareholders. In addition, it shows that they believe the value for them is not in the salary, but in future equity appreciation.Most of the on-market buying has been centred around Executive Chairman Neil Herbert and Finance Director Amanda Harsas who together have invested over $3m into Atlantic via on-market purchases and option conversions.
Neil has made two transactions:
Neil has made two transactions:
- 20 March 2023: +1,883,177 shares for $932,540
- 8 August 2023: +290,000 shares for $93,273
Meanwhile, Amanda has made four transactions:
- 20 March 2023: +571,500 shares for $277,028
- 21 March 2023: +766,629 shares for $373,588
- 6 April 2023: +2,500,000 shares for $1,395,000 via options conversion
- 9 August 2023: +200,000 shares for $67,724
The company's Executive Director Len Kolff also invested an additional $11,401. Together, this totals $3,155,044 in just under 6 months. This is no ordinary quantum of on-market support by directors and well above their employment wage at the company. This likely shows that they are very high conviction in the business strategy and execution potential. Additional benefits of this includes:
- Additional share price support from director buying
- Indictor that management thinks Atlantic's shares are undervalued at these prices
No doubt, Atlantic Lithium is a fantastic example of this Threat.
About director on-market buying
My concluding thoughts
Atlantic is an interesting case here. It definitely appears to have a well rounded management team that keeps hitting their goals in a timely manner, puts their own cash where their mouth is and is wise with shareholder capital. This is great to see as it should give shareholders confidence that they will execute on their Ewoyaa lithium project strategy and achieve capital growth.
Yet the entrance of the short seller report questions a few elements that the company needs to prove is false and rebuild any shareholder confidence that may have been lost. This is not a big deal anyhow as short sellers profit from falling share prices so are not entirely unbiased with their publications.
Nevertheless, we see Atlantic Lithium as a rare Triple Threat.
Atlantic is an interesting case here. It definitely appears to have a well rounded management team that keeps hitting their goals in a timely manner, puts their own cash where their mouth is and is wise with shareholder capital. This is great to see as it should give shareholders confidence that they will execute on their Ewoyaa lithium project strategy and achieve capital growth.
Yet the entrance of the short seller report questions a few elements that the company needs to prove is false and rebuild any shareholder confidence that may have been lost. This is not a big deal anyhow as short sellers profit from falling share prices so are not entirely unbiased with their publications.
Nevertheless, we see Atlantic Lithium as a rare Triple Threat.
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