Is Atlantic Lithium the best small-cap ASX lithium stock to watch in 2024?

Atlantic Lithium (ASX: A11) shares have shot up by 25% over the past few days to $0.49, as the ASX-LSE dual-listed small-cap explorer welcomes a proposed US$32.9 million investment from the Minerals Income Investment Fund of Ghana.

Critical minerals investors are constantly on the lookout for the next lithium explorer to deliver bonanza returns. But for perspective, A11 shares have fallen sharply since hitting their record high of $0.93 in November 2022.

And even though much of this fall can be attributed to falling lithium prices, it serves as a reminder of the risks of small-cap investing.

Atlantic Lithium: Ewoyaa in brief

Atlantic’s flagship Ewoyaa project boasts a Mineral Resource Estimate of 35.3Mt at 1.25% Li2O based on a substantial 137,153m of drilling, including a 47,000m programme completed in 2022. And its Definitive Feasibility Study (DFS) puts Ewoyaa’s producing capacity as the tenth largest globally, at 365ktpa of production — this is comparable to Mt Holland.

The DFS shows a net present value of US$1.5 billion, with US$6.6 billion life of mine revenues across a 12-year life of mine, and just a 19-month payback period. Further, it boasts an internal rate of return of 105%, with production planned to start in 2025. This is all based on a conservative LOM concentrate price of US$1,587/t.

The company is also considering building a modular DMS plant to generate some revenue even faster. In theory, this would see year one revenue of US$171 million, reducing peak funding requirements and also creating the opportunity to train staff ahead of full operations.

Importantly, only 15 square kilometres of the 560 square kilometre tenure portfolio has been drilled to date — and the project is ideally located adjacent to grid power and roads, surrounded by a skilled local workforce and just 110km from the nearest deep sea port.

Project funding

On 17 August, partner and lithium titan Piedmont Lithium exercised its option to acquire an initial 22.5% interest in Atlantic’s Ghana portfolio, committing to fund the first US$70 million of Ewoyaa’s total development expenditure and 50% of any additional development expenditure required to build the country’s first lithium mine.

This is part of a previously announced staged investment agreement, whereby Piedmont can earn a further 27.5% of the Atlantic’s interest in the Ghana Portfolio, taking its total interest to 50%. Piedmont currently holds 9.29% of the company’s shares and rights to 50% of the offtake for the life of the company’s lithium operations in Ghana.

Chairman Neil Herbert believes ‘that this commitment to the next stage of development reflects Piedmont's strong belief in Ewoyaa, further de-risking the Project and moving us ever closer to first spodumene concentrate production in Ghana.’

Then on 8 September, A11 secured US$32.9 million of investment from the Minerals Income Investment Fund (MIIF) of Ghana. US$27.9 million of this cash is being spent to acquire a 5% interest in the Ghana portfolio, with MIIF also subscribing for 19,245,574 Atlantic Lithium shares for US$0.2598 per share, for a value of US$5m, equating to 3.05% of A11’s issued share capital.

The announcement remains non-binding but could significantly de-risk the project — especially in the wake of a negative report by Blue Orca Capital earlier this year. Herbert noted that the investment ‘represents a huge endorsement of the Company's work to date and its belief in Atlantic Lithium to establish Ghana as a major producer of spodumene concentrate.’

Meanwhile, MIIF CEO Edward Nana Yaw Koranteng enthused that this is ‘indeed a watershed moment as this is our first investment in the lithium space globally. The Ewoyaa project is world class, with huge prospects in the other tenements under Atlantic Lithium.’ MIIF is also being invited to participate in the competitive process for Ewoyaa’s remaining 50% offtake.

High risk, high reward

ASX lithium investors investing in small cap shares boasting extremely promising lithium deposits have been burnt before — whether through the AVZ Minerals debacle, regarding the Manono deposit in DROC that has been ongoing for well over a year, or by the recent Leo Lithium share price drop due to Malian regulatory changes.

But Ghana may well be a more stable jurisdiction — Lands and Natural Resources Minister Samuel Jinapor notes that Atlantic ‘will have a major foothold in Ghana and become the anchor lithium development, which will attract a lot more investment into the lithium industry.’ Arguably, the political support is at least as valuable as the MIIF cash.

Atlantic Lithium shares have received a boost and could prove lucrative in 2024 — but arguably, they remain high risk, high reward.

Past performance is not an indicator of future returns.

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