REE miner VHM inks binding offtake deal; MST sees 3x share price upside

  • VHM Limited (ASX:VHM) has inked a binding offtake deal to supply Shenghe Resources
  • Offtake material will be mined at VHM’s Goschen rare earths and mineral sands project in North West VIC
  • VHM recently saw MST Access update its covering of the stock with a A$1.67/sh valuation
  • The company is eyeing 2025 production; shares last traded at 61 cents

ASX-listed rare earth element (REE) and mineral sands mine developer VHM Limited (ASX:VHM) has inked its first binding offtake agreement for critical minerals from its Victorian Goschen project, to be supplied to Singapore’s Shenghe Resources.

It’s worth noting this deal is binding in the legal sense, reflecting a high degree of conviction from VHM’s Board.

Roughly 60 per cent of production tipped for 2025 is to go to Shenghe with the remaining materials to be sold on spot markets “and other commercial arrangements”.

Management have previously called the company’s rare earth inventories, concentrated in the North West of Victoria, one of the world’s largest deposits.

Offtake beneficiary Shenghe Resources – headquartered in the island nation of Singapore– owns a number of REE-processing subsidiaries across Southeast Asia, as well as other entities.

Demand only growing

Now, the company is looking to Australian shores as global demand for rare earths and other critical minerals under the mineral sands category picks up.

Under the deal, VHM will supply rare earth mineral concentrate and a zircon-titania heavy mineral concentrate to Shenghe for a three-year term.

VHM anticipates production to begin at Phase One of its Goschen project in 2025.

Under the deal, the rare earth concentrate will contain more than 58 per cent total rare earth oxide. A zircon-titania concentrate, which is extracted from the mineral sands component of Goschen, will also be supplied.

All materials planned from Goschen are ultimately clustered under the heading of ‘critical minerals,’ and are notably identified on both the Australian and United States Governments’ Critical Minerals lists as crucial elements required in the manufacturing of modern technologies in the automotive, renewable energy and defence industries.

“Shenghe is a globally recognised rare earths and mineral sands processor,” VHM CEO Ron Douglas said, adding “this agreement is a strong endorsement of the world-class rare earths … Goschen project.”

“A binding offtake arrangement for first production provides a favourable influence on the bankability for the project.”

Action-packed 2024 likely

The deal comes at an already busy time for the company, which has seen financial services provider MST Access update its market research coverage on the stock, after news of the binding offtake broke.

While the company has not awarded a price target to VHM – and so investors should, as ever, be reminded to do their own research and consider all risks – MST sees VHM’s fair price “valuation” at A$1.67/sh.

At market close on Thursday, shares were at 61 cents. Clearly, MST sees room to run.

Analysts for that firm like the project’s 836 million tonnes of mineral resource; and remain bullish on the energy transition thematic.

The analyst team at MST also state they believe the current commodities downturn is the result of a market-wide failure to consider looming material shortages.

All put together, MST Access research sees a chance of a threefold value upside for VHM investors.

At around the same time, MST initiated coverage in November, the company also kicked off its VIC environmental approvals process.

For proof of life, look at Q2 FY24

VHM kicks off its busy year ahead with a solid quarter of development activities fresh under its belt.

VHM had $14 million in cash at the end of December and kicked off its mandatory state government compliance exercises.

As part of the Victorian environmental approvals framework, the company must participate in a public hearing in March.

Market interest is palpable.

With offtake now secured, revenue is, on paper, certain – and shareholders love certainty.

VHM shares last traded at 61 cents.

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