Ann: Ore Sales (Offtake) Agreement entered into, page-10

ElmoreLtd (ASX: ELE) - 1.3x P/FCF. Purchase of Peko project plus surroundingtenements. $25m+ free cash flow per year expected.

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Elmore Ltd (ASX: ELE) Not covered Last Price $0.035 / MCap $32m Purchase of Peko Magnetite, Copper, Cobalt, Gold and Bismuth project plus surrounding tenements. $25m+ free cash flow per year expected to commence this FY. Implies ELE could be trading on a Price/FCF of only 1.3x. We expect $20-25m free cash flow per year at current spot prices, from magnetite tailings only. Further upside expected from copper/cobalt extraction commencement in FY23, plus we expect gold extraction to commence in ~12-18 months. ELE has recently announced that they have executed an agreement to purchase the Peko Magnetite, Copper, Cobalt, Gold and Bismuth project along with all related project Companies and surrounding tenements. Strategically we flag this as a big positive for the company who will now reap the upside from producing and delivering magnetite product, rather than being paid a fee to run the day-to-day operations of the mine. ELE is expected to announce an offtake agreement in the next few days, followed by the first shipment and payment for magnetite product in next 4-8 weeks under the new ownership structure. Further, we expect news flow around the copper/cobalt extraction plant shortly, with gold productions plans to follow. Background Elmore was originally contracted to provide consultancy services to the Peko project owners (ICA), and in 2021 that scope increased to managing the construction of the plant and day-to-day operations of the project. Elmore has since completed the construction and commissioning of the Stage 1 Magnetite Recovery Plant and is now producing magnetite product with regularly deliveries, via train, to the Port of Darwin. Peko consists of 3.75m tonnes of dry-stacked tailings containing gold, copper, cobalt, bismuth and magnetite iron ore, as well as historical underground mines and tenements with further exploration potential. In addition, Peko contains historical underground mines containing unknown quantities of gold, copper, cobalt and other minerals, as well as exploration potential on the surrounding tenements. Highlights ·Tailings of 3.75m tonnes, containing approx. 75% magnetite ·Elmore planning to process ~100 tonne/hour in, 50 tonne/hour out (~1,000 tonnes a day output) – magnetite tailings resource “mine” life to last to 2030 ·Premium product of 65-68% iron – price premium to be charged vs benchmark 62% reference spot price ·Tailings are inherently already semi-crushed – large input cost saving on crushing costs (power), plus no drilling, or blasting costs. ·At current spot prices, we estimate this could result in revenue of A$50 million+ and an annual free cash flow of approximately A$20-25 million from the magnetite tailings production only, which we expect to commence in the current half (H1 FY23), and have a 7-8 year “mine” life. ·Workforce: mostly live in nearby townships, saving on FIFO costs, current workforce is 80% Northern Territory based and 30% Indigenous; ·Transport: already utilising capacity on the Adelaide-Darwin railway, and plans to increase utilisation as production ramps up; ·Capex: no further capex needed to commence production – crushing plant already operational on site; ·Purchase price: $30 million purchase price; uphold the pre-existing royalty agreement with ICA retiring shareholders (20,000 ounces of gold at 900 ounces a quarter or at 25% of production rate); ·Acquisition financing: vendor finance package (12-month term; initial interest of 2.5% pa for 3 months; increases to 17.5% pa for next 3 months; increases to 27.5% pa for final 6 months if not repaid already; Elmore very confident in ability to pay down and refinance the vendor finance facility within 3-6 months; ·Plans to expand into copper (Cu) and cobalt (Co) processing: Elmore estimates that approximately 5,000 tonnes of copper and 1,500 tonnes of cobalt metals can be recovered (Cobalt is currently selling for approximately USD 60,000 per tonne); ·Further upside from gold: recovery from tailings (estimated 138,000oz within the tailings – from historical mineral resource report, we estimate they can recover at least 60%); existing gold mines; exploration potential Upcoming catalysts / milestones ·July: offtake agreement for first magnetite product ·August: copper / cobalt plan – JORC compliant survey, further details and timing of copper/cobalt production ·August / September: first shipment and payment for magnetite product ·H1 CY2023: gold project update ·H1 CY2023: repayment / refinancing of vendor finance package