|Canaccord Genuity's initiation report on Tawana Resources values the Bald Hill Project -- 50%-owned by Alliance Mineral Assets (AMA) -- at A$577 million. That implies a value of A$288 million for AMA's stake. Thus, the potential upside is about 70% for AMA from its recent stock price of 32 SG cents (market value: S$170 million).|
Excerpts from Canaccord's report on Tawana.
Analysts: Reg Spencer & Larry Hill
|Joining the lithium producer ranks in 1H18
We view TAW, through its 50% interest in the Bald Hill JV (with SGX-listed Alliance Mineral Assets "AMAL" [40F-SGX | Not rated]), as primed to join the ranks of global lithium producers with production from the Bald Hill project scheduled for 1H18.
In our view, TAW's imminent transition to producer status, clean balance sheet (minimal debt) and cash flow/earnings potential is yet to be factored into the share price.
With our NAV-based target price of A$0.60 implying a potential return of 54%, we initiate coverage with a SPECULATIVE BUY rating.
Bald Hill - first production 1H18: The Bald Hill lithium/tantalum project is located ~50km SE of Kambalda, WA, and 340km by road north of the Port of Esperance. The project is fully funded, with construction of a spodumene recovery circuit and upgrading of the existing tantalum plant expected to result in initial concentrate production of ~155ktpa (+ tantalum credits).
The project benefits from established plant, infrastructure and permitting (significantly shortening lead time and reducing capital costs), while favourable mineralogy should see the production of a high quality concentrate with low impurities.
Significant upside opportunities - increased production and longer mine life: Through treating fines material (stockpiled during first 12 months) via a low capex fines DMS circuit, we estimate production will increase by ~25% to 200ktpa in early 2019, resulting in LOM cash costs of A$325/t (net of credits).
|Rates highly on several metrics versus the peer group:
TAW screens very well against its more fancied peers, with significantly lower capital intensity, and lower 2019e EV/Production and P/NAV multiples. In our view, the market is yet to factor in TAW earnings/cash flow potential, with a 2019e EV/EBITDA of only 2.2x, versus its ASX-listed peers at 5-13x.
-- Reg Spencer (photo) and Larry Hill,
Analysts, Canaccord Genuity
Current Reserves support an initial mine life of ~4 years, but based on a recent Resource upgrade, we anticipate that a Reserves update in early 2018 could see the mine life increased to ~7 years. Based on an Exploration Target of 30-50Mt, we see the potential for a mine life of 10-16 years.
Longer-term upside could also come through further, low capex capacity expansions should any subsequent Resource/Reserve increases support it.
Strong margins locked in via binding offtake + Strategic investment from electric motor/EV maker: The Bald Hill JV partners have a binding offtake agreement with Hong Kong-listed Burwill Holdings, with pricing confirmed at US$880/t FOB for 6% Li2O
concentrate over Years 1 and 2 of the 5-year arrangement.
Both JV partners are fully funded through to production, with TAW recently completing a A$25m financing with Weire Energie, a German subsidiary of Chinese electric motor/EV maker Jiangxi Special Electric Motor Co. Burwill and Jiangxi have entered into a JV to construct 15ktpa of converter capacity in China which is planned to be fed by Bald Hill concentrates.
Our project model is based on a 12-year, ~200ktpa spodumene concentrate operation (29ktpa LCE), with average LOM cash costs of A$325/t and establishment capex of A$44m, from which we derive a project NPV10% of A$577m.
Our fully diluted NAV/target price of A$0.60 comprises TAW's attributable 50% of our project NPV, a nominal amount ascribed to exploration assets, net of corporate and other adjustments.
Canaccord's full report here.