Neometals: broker places buy recommendation and $0.30 price target
Friday, February 19, 2016 by
Proactive Investors 
Mt Marion Construction
Neometals (
ASX:NMT) is the subject of initial research coverage and has received a buy recommendation from Euroz Securities Limited, with a $0.30 per share price target.
Neometals shares last traded at $0.21. The following is an extract from the report:
Emerging Low Risk Lithium Producer with Strategic Leverage Neometals will be a producer of spodumene (lithium oxide mineral) concentrate by mid 2016.
We value
Neometals at $0.30/sh.
NMT has a low risk balance sheet with ~$70m in cash ($0.125/sh), nil debt, and only minor committed future expenditure.
NMT is considering capital management alternatives in the near term.
The Mt Marion mine, WA, is jointly owned by
Neometals (26.9%),
Mineral Resources Ltd (30%) and Jiangxi Ganfeng Lithium Co. Ltd (China, 43.1%).
MIN is funding mine development and has warranted performance.
We are confident that Mt Marion mine production will eventually exceed the current guidance of 200kt of standard product. The guidance is based on MIN’s warranted production and cost estimates. MIN has an excellent operational reputation.
Spodumene concentrate quality, targeted at 6.0% Li2O is good, with no Li2O bearing mica evident in the ore.
Offtake for 100% of product is in place with Ganfeng, 2nd largest Chinese Li processor/consumer, at market related pricing.
An expansion to include 80ktpa of lower grade fines product is conditionally agreed by partners.
Exploration potential is high, and impending mineral resource upgrade may justify production upgrades. Drilling has been ongoing since November 2015.
Neometals is expected to receive a further US$19.7m cash (A$0.05/sh) in sale of a further 13.1% of Mt Marion to MIN in Q4’16, via an option agreement. NMT will retain 13.8% equity in Mt Marion.
Euroz estimate of
Neometals EBITDA from Mt Marion of $17mpa (@ 26.9% equity) or $9mpa (@13.8% equity) depending on option exercise, using our base case assumptions.
NMT & MIN have a right to 51% offtake after Year 3 to feed a proposed LiOH project. Tightness in the Spodumene market makes this a strategic call-option irrespective of the merits of the LiOH project.
The LiOH Project has a high IRR, with only modest investment required to produce quality value-added Li units at the bottom of the cost curve.
An enduser partner will be sought following DFS conclusion mid 2016.
Should MIN exercise the option to acquire more of Mt Marion then clearly NMT’s balance sheet is further enhanced while its leverage to upstream lithium production is reduced. We do expect the option to be exercised, probably in
Dec Q’16.
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