The political risk in Mali may have scared investors away from investigating the value of Firefinch (FFX ASX). We believe Firefinch’s lithium asset, Goulamina, alongside its operational gold mine, Morila, is significantly undervalued. We view both the gold and the lithium project as de-risked; they are, respectively, operational and fully funded. We believe Firefinch should be trading at between $1.68 bln and $2.28 bln. With the current market cap at $990 mln, the upside is between 70% and 130%.
The catalyst for a reappraisal of the company’s value is when Goulamina is spun out and separately listed as Leo Lithium, very soon. Only Firefinch shareholders, on the day of record, will receive pro-rata entitlement of Leo Lithium shares and an entitlement offer for an additional capital raise for Leo Lithium.
When we compare the Goulamina lithium project to the market value of eight other companies with hard-rock lithium projects, we believe Goulamina is worth at least double what the market currently values it at. When you subtract the value of the Morila gold project (which we value at about $275 mln) from Firefinch’s current market cap of $990, you get just $715 mln for the lithium project. Even at our low-end estimate, Goulamina should be valued at $1.4 bln