I have read several excellent investment pitches on #CEOStockResearchComp, but I notice no one is recommending a lithium junior. In looking at the stock prices in this sector, I understand why!

However, contrarian investing can be quite lucrative if one’s timing is reasonably good. I think the worst is behind us for lithium (“Li”) spot prices in China. High-quality Li names have likely bottomed, at least the ones that are cashed up. I like 8-10 Li juniors, some of whom are advertising clients of Epstein Research.

Today’s pick is not a current or former advertiser, but I do own shares in it. Frontier Lithium (TSX-v: FL) / (OTC: LITOF) has a globally-significant hard rock Li project in Ontario. Unlike the vast majority of juniors in Canada who are pre-PEA, or even per-maiden resource estimate, Frontier’s PAK project has a robust PFS on it.

When it comes to hard rock vs. 1) brine/DLE, 2) conventional brine (w/o DLE), and 3) sedimentary (often clay) – hosted projects – hard rock carries the least technical risk. That means Canada’s hard rock plays, like Frontier, should be quicker to market and easier to fund, with fewer cap-ex blowouts.

Frontier recently announced blockbuster news that the market loved… and then it didn’t. We all know that feeling! Frontier’s share price soared to $1.21, but has since retreated to $0.87. This level (given the blockbuster news), seems absurdly cheap.

On March 4th, management announced that Japanese commodities trading giant Mitsubishi Corp. (US$120B enterprise value) would invest C$25M for a 7.5% stake in the Company. This non-equity dilutive cash injection in an otherwise moribund Li sector is a HUGE win for Frontier. It values the entire company at [$25M / 7.5%] = $333M, well above today's enterprise value of ~$186M.

That project-level interest will grow after Frontier delivers a BFS next year, at which point Mitsubishi will acquire an additional 17.5% to get to 25%. A JV company is being set up in which Mitsubishi will own 25% and have 25% of the off-take rights.

Here’s where things get interesting… How much will Mitsubishi pay for that incremental 17.5%? We don’t know, but the figure will be tied to the NPV in an upcoming BFS. But which BFS? There will be two, one for mining & milling, and one with refining added. Will the reference NPV be pre- or post-tax? Will the discount factor be 5%? 6%? 8%?

Luckily, CEO Trevor Walker gave us a clue in an interview he did at PDAC. He said that the Tranch 2 equity investment (for 17.5% to get to 25%), combined with a debt package spearheaded by Mitsubishi, will cover all development costs for Phase 1 of the PAK project.

In my view, that means the 17.5% tranche 2 investment will be several $100 million. A sell-side analyst thinks it could be $415M, which implies a total project valuation of $2.37B. Even $300M in tranche 2 would equate to a $1.7B valuation. Frontier is essentially stating it won’t need to issue new shares this year or next. 

Please pause to consider this... The tranche 2 investment will likely value the PAK project at $1.7B+ vs. today's $186M valuation. That large of a discount to NPV is typically found in PEA-stage projects without Major strategic investors involved. In stark contrast, Frontier will be post BFS/DFS, with Mitsubishi Corp. as 25% JV partner, still owning a majority 75% Interest of a world-class project in Ontario, Canada.

Even if Frontier falls short on investment capital, management could sell [for example] a 14% interest, and an additional 15% offtake, and maintain 61% control + 60% of the off-take. Whatever the valuation read-through from Tranche 2 is, anyone buying an additional 14% would have to pay the same, or higher price. I imagine Mitsubishi Corp. might be interested in increasing its stake above 25%. 

Importantly, it was announced that Frontier & Mitsubishi will work collaboratively to secure debt financing. That alone is huge. A player like Mitsubishi will have little trouble lining up several $100M. In this corporate presentation, slide #7 shows what CEO Walker referred to in his interview at PDAC.

To be clear, “no new shares” refers to funding Phase 1, the mine portion of the project. Funding for Phase 2, remains open. Yet, if Frontier can produce & sell spodumene concentrate for several years as planned, leading up to the commercial start of a refinery, it could meaningfully self-fund that part of the combined project.

Note: In addition to paying $100s of millions in cash into the new JV, Mitshubishi will also be responsible for 25% of the cap-ex.

This 75%/25% Frontier/Mitsubishi JV is a dream come true for Frontier’s shareholders. Of course, things never go smoothly. If Frontier has to issue shares, it won’t be $100’s of millions worth like most peers face. For argument’s sake, say that the Company issues 72M shares over the next few years, bringing the total share count to 300M.

So, 300M shares outstanding at 12/31/25, with an undrawn debt facility of possibly $400M + cash of $300M [from Mitsubishi for its Tranche 2 investment], a total of $700M to build Phase 1. How much might 300M shares be worth in two years? Assuming Frontier retains 75% of the PAK project + 75% of the offtake rights, it should be worth several dollars per share vs. today's C$0.87.

I don’t know how high the share price could rise, but I think it could be a multiple of the current price. Heck, the stock traded at $3.89/shr. in 2021, long before the PFS and the blockbuster Mitsubishi JV news.

A final thought – for this investment to be a big winner Li prices probably need to rebound to $18k/t (or higher) in the next 1-2 years. I don’t think that’s a major hurdle, but it’s not a sure thing. Some sell-side analysts are forecasting long-term pricing of sub-$18k/t.

Final, final thought – this is junior mining! Although I think Frontier Lithium’s valuation is extremely cheap, it could trade meaningfully lower, before potentially climbing higher. The stock will remain volatile. 

I literally can’t think of a better deal structure or strategic partner for Frontier.  Any Li development company would kill for this opportunity. The JV de-risks the story tremendously. I think with better Li sentiment, institutions will be all over this and there's only one way for them to get positioned -- open market purchases.