Ann: Successful production of Lanthanum Oxide , page-6

"Our analysis indicates a likely valuation in the range A$0.60 to A$1.00/share
"

http://www.rcresearch.com.au/
Resource Capital Research (RCR)
Summary:



ARU's Nolans Rare Earths Project has taken another significant step towards commercialisation with the recent conversion of resources to reserves underpinning a minimum 22 year project life.




With a solid cash position the company is now pushing ahead with the Feasibility Study and advancing discussions with potential project partners.



The recent IER indicated a preferred value of A$0.32/share.





Our analysis indicates a likely valuation in the range A$0.60 to A$1.00/share if ARU brings in a project partner along with a debt finance component (50%) to reduce its equity raising requirement to manageable proportions.




Investment points:




• The Nolans Rare Earths project is underpinned by a world-class rare earth element (REE) deposit at Nolans Bore, with total resources of 47mt and first production possible in early 2017.





• The recent conversion of resources to reserves (24mt = 22 year mine life) underpins the A$3.2bn project independent valuation and project financeability, and is a major step in commercialisation of the project.





• Very few of the other rare earths hopefuls globally have been able to demonstrate such a high degree of resource confidence.





• Project Data: Grade 2.8% REO, Capital cost A$1.9bn, production of 20ktpa rare earth oxides (REO), plus phosphate, uranium, gypsum. Robust project economics. Extensive testwork has confirmed REO separation technology for all five intended products, subject to final scale-up validation in on-going Feasibility Study.





• Project Review (Aug '12) indicates excellent financial returns: Revenue: A$1.1bnpa, EBITDA A$698mpa, Opex ~A$20/kg versus US$60/kg (real) REO pricing assumed.





• Short term funding issues resolved with 4Q12 A$32.5m cash injection providing project development funding to progress the Feasibility Study in CY13 and possibly to a project partnering and financing agreement in 2H13.





• Three major multinational companies from China (ECE), Germany (ThyssenKrupp) and Korea have positioned themselves as potential development partners, and there are likely to be others (discussions underway) – this is the key to unlocking project finance.
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Our analysis shows that further strategic partnerships and probable project equity reduction will be the key to building ARU shareholder value.
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With the reserves statement ticking an important box for project viability, the medium term upside for shareholders now hinges on the outcome of current discussions with potential project partners. Our share price target of A$0.28/share in the next six months will most likely be surpassed with any positive announcement on partnering.




Analyst: Tony Parry