An upside case analysis of Element 25's Butcher Bird Project by a Sydney based fund manager shows some big price targets.
D.Y.O.R
He has a current valuation of just under $7 per share.
With an upside valuation of $16 per share.
There is a supporting spreadsheet with figures that I will post after the TH is lifted.
Diggers & Dealers starts Monday morning and I predict that by the time it finishes, E25 will be the talk of the town.
The report: E25 is run by a very frugal and energetic Justin Brown (around 40 years old). He reminds me very strongly of the manner in which Richard Goyder has run Chalice Gold, as he is excellent at preserving share price value by asset trading until he has found a great project. Well, its taken him 10 years to do it but even before he proved up his project, the E25 share price was at 20 cents, demonstrating that even through 10 years of lean times he had not diluted the original IPO investors who originally came in at 20 cents, which is an extraordinary achievement, very similar to Chalice Gold.
E25’s asset is the Butcherbird Manganese project in WA. The advent of ore sorting technology has dramatically changed the economics of a number of lower grade projects globally. E25 uses two separate ore sorting machines (A$900k each) to beneficiate 11% Mn to 33% Mn.
Manganese is used to strengthen steel and the manganese content of Chinese steel has steadily increased as the central government has mandated better quality steel in construction. Mn is sourced from South Africa and China for steelmakers in China, Korea, Japan etc. Steelmakers are attempting to diversify supply away from South Africa, and Butcherbird offers an excellent Tier One jurisdiction.
E25 released a PFS for Butcherbird on 19 May 2020, which more than doubled the share price from 20 cents to above 40 cents, in a time of cyclically lower Mn prices. Currently E25 is trading at 55 cents for a market cap of A$65 million, including $12.5 million of cash and liquid ASX investments.
Capex is a maximum of A$14.5 million as this is a simple quarrying operation with trucks heading to Port Hedland in just 6 movements per day.
Opex is at the 30thpercentile on the cost curve and this is likely to decrease with optimisation and blending of recently discovered 39% Mn ore (does not require beneficiation)
E25 has an MOU for offtake with ASX listed OM Holdings, a profitable Singapore metals miner, smelter operator and trader capped at $251 million and operating a Mn mine in Australia which is nearing depletion. During 2017 and 2018, OMH was capped at up to $1.25 billion, when Mn prices were nearly double today’s spot price, showing how leveraged OM is to the Mn price
Euroz raised $3.5 million for E25 at 40 cents per share in early July 2020 and the SPP raised an equivalent amount. It is conceivable that E25 will carry out another small raise, but it is more likely that offtaker finance will bridge the small gap between capex and current cash and liquids.
Because of the extraordinary simplicity of this project, first production is scheduled for March 2021. Substantial upside lies in:
The almost immediate ability to triple production in 2021 through free cashflow
A newly discovered high grade zone which, if large enough, will obviate the need for beneficiation for some years and significantly reduce AISC per tonne;
A lift in recoveries; and, of course:
A resumption of a robust Mn price.
At current spot Mn, I have calculated an after tax NPV of just under $7 per share, assuming production triples in 2021 and no increases in grade or recovery and assuming a USD:AUD of 75 cents. If Mn trades up by 50%, NPV per share escalates to $16 per share. The very high market cap of OM Holdings in 2017 and 2018 demonstrates how leveraged to the Mn price returns may be. Mn prices are currently strengthening with increasing demand for steel in China, as evidenced by strong iron ore prices.
E25 Price at posting:
85.0¢ Sentiment: Buy Disclosure: Held
(20min delay)