$3.98 target

)		MCAPA$97m			$0.44/share				Date: 4 February 2020
RECOMMENDATION –SPECULATIVE BUY. PRICE TARGET $1.06/SH
INITIATION OF COVERAGE
KEY POINTS
·ABR owns the world’s largest known borate occurrence not owned by either of the two dominate borate producers.55% of the worlds borate production is sourced from the Turkish state-owned Eti Maden while Rio Tinto’s Californian Borate mine produces 25% of the world’s supply and is widely thought to be nearing completion. A geopolitical supply risk may be emerging for this important commodity used in construction, agriculture and importantly as a key ingredient in defence applications. ABR’s production is expected to supply 2-6% of the global boric acid market. ·A simple mining process.Mining is proposed to be an in-situ leaching process using a number of production wells reducing any need for overburden mining. The inclusion of a Manheim process on site will allow ABR to self-produce enough Hydrochloric acid (used in the leaching process and one of the largest material costs) as well as produce a sulphate of potash (SOP) product to sell into the large Californian agricultural market is the key driver in the projects economics. ·Funding available.A non-binding term sheet has been signed with Amvest Capital Mining Opportunities to fully debt fund the capex for Phase 1A reducing the risk of equity dilution in the short term. ·Exceptional project economics.The Fort Cady project located in California is expected to produce 408,233tpa of boric acid and 108,862tpa of SOP in full production. This production level leads to an annual EBITA of US$345.4m (EBITDA margin of 66%) underlying a project NPV10 (post tax) of US$1,083m and an IRR of 40.5%. Total Capex is guided at US$526m. ·A number of milestones expected in 2020.We believe news flow regarding permitting approvals, updated DFS outcomes, offtake agreements and final investment decision will be viewed positively by the market during the first half of 2020 as the Fort Cady project enters into construction phase.
LINK TO RESEARCH NOTE:ABR INITIATION REPORT 200204(22page report)
INVESTMENT VIEW – SPECULATIVE BUY. PRICE TARGET $1.06/SH
We view ABR as a compelling investment opportunity in a market we believe will benefit from an additional stable supply source with a lower geopolitical risk. We value ABR at a NAV of $370m and $1.06/sh fully risked and diluted. Our valuation risk rates the project by 50% and uses a conservative boric acid price of US$750/t (ABR DCF US$800/t), WACC of 12% and a 90/10 debt equity. On an unrisked basis we believe a valuation of >$3.50/sh could be justified representing significant upside to the current share price.We Initiate with a Speculative Buy recommendation, a price target of $1.06/sh and an unrisked valuation of $3.98/sh
NEAR TERM CATALYTS
·Permitting and Approvals– The final operational permit is pending Government approval. Decision expected to be made early CY20. ·DFS– Updated DFS expected early CY20 with a view of increasing SOP production due to favourable SOP demand in California. ·Offtake Contracts– Negotiations continue with customers with a view of signing binding offtake agreements during 2020. ·FID and Construction– Nonbinding financing term sheet has been signed pending favourable offtake agreements. Construction could commence mid-late CY20
RISKS
·Access to Capital: ABR require capital to fund the initial development of the project. Additional funds will be required to reach full production and the cashflow from initial operations will not be sufficient to meet future capex requirements. ·Commodity Prices: The commodities ABR produce are opaque in nature with no readily available pricing benchmark. Pricing relies on individual offtake agreements. ·Permitting Risk: With the project not fully permitted there remains a risk the approvals may not be forthcoming. ·ABR is subject to normal emerging resource company risks of Regulatory & Permitting, Commodity Pricing/FX rate and Environmental/Occupational Health and Safety
Should you have any queries, please do not hesitate to contact me on 0400 252 465
PHIL CARTER Consultant Analyst Mobile: +61 400 252 465 [email protected] Level 10, 330 Collins St

)MCAP A$97m$0.44/shareDate: 4 February 2020RECOMMENDATION – SPECULATIVE BUY. PRICE TARGET $1.06/SHINITIATION OF COVERAGEKEY POINTS· ABR owns the world’s largest known borate occurrence not owned by either of the two dominate borate producers.55% of the worlds borate production is sourced from the Turkish state-owned Eti Maden while Rio Tinto’s Californian Borate mine produces 25% of the world’s supply and is widely thought to be nearing completion. A geopolitical supply risk may be emerging for this important commodity used in construction, agriculture and importantly as a key ingredient in defence applications. ABR’s production is expected to supply 2-6% of the global boric acid market. · A simple mining process. Mining is proposed to be an in-situ leaching process using a number of production wells reducing any need for overburden mining. The inclusion of a Manheim process on site will allow ABR to self-produce enough Hydrochloric acid (used in the leaching process and one of the largest material costs) as well as produce a sulphate of potash (SOP) product to sell into the large Californian agricultural market is the key driver in the projects economics.· Funding available. A non-binding term sheet has been signed with Amvest Capital Mining Opportunities to fully debt fund the capex for Phase 1A reducing the risk of equity dilution in the short term.· Exceptional project economics. The Fort Cady project located in California is expected to produce 408,233tpa of boric acid and 108,862tpa of SOP in full production. This production level leads to an annual EBITA of US$345.4m (EBITDA margin of 66%) underlying a project NPV10 (post tax) of US$1,083m and an IRR of 40.5%. Total Capex is guided at US$526m.· A number of milestones expected in 2020. We believe news flow regarding permitting approvals, updated DFS outcomes, offtake agreements and final investment decision will be viewed positively by the market during the first half of 2020 as the Fort Cady project enters into construction phase.LINK TO RESEARCH NOTE: ABR INITIATION REPORT 200204 (22 page report)INVESTMENT VIEW – SPECULATIVE BUY. PRICE TARGET $1.06/SHWe view ABR as a compelling investment opportunity in a market we believe will benefit from an additional stable supply source with a lower geopolitical risk. We value ABR at a NAV of $370m and $1.06/sh fully risked and diluted. Our valuation risk rates the project by 50% and uses a conservative boric acid price of US$750/t (ABR DCF US$800/t), WACC of 12% and a 90/10 debt equity. On an unrisked basis we believe a valuation of >$3.50/sh could be justified representing significant upside to the current share price. We Initiate with a Speculative Buy recommendation, a price target of $1.06/sh and an unrisked valuation of $3.98/sh NEAR TERM CATALYTS· Permitting and Approvals – The final operational permit is pending Government approval. Decision expected to be made early CY20.· DFS – Updated DFS expected early CY20 with a view of increasing SOP production due to favourable SOP demand in California.· Offtake Contracts – Negotiations continue with customers with a view of signing binding offtake agreements during 2020.· FID and Construction – Nonbinding financing term sheet has been signed pending favourable offtake agreements. Construction could commence mid-late CY20 RISKS· Access to Capital: ABR require capital to fund the initial development of the project. Additional funds will be required to reach full production and the cashflow from initial operations will not be sufficient to meet future capex requirements.· Commodity Prices: The commodities ABR produce are opaque in nature with no readily available pricing benchmark. Pricing relies on individual offtake agreements.· Permitting Risk: With the project not fully permitted there remains a risk the approvals may not be forthcoming.· ABR is subject to normal emerging resource company risks of Regulatory & Permitting, Commodity Pricing/FX rate and Environmental/Occupational Health and Safety Should you have any queries, please do not hesitate to contact me on 0400 252 465 PHIL CARTERConsultant Analyst Mobile: +61 400 252 [email protected] 10, 330 Collins St VERY INTERESTING