another buy rec with $2 price target

Elemental Minerals: Renaissance Capital places buy and target price three times current value

Monday, September 24, 2012 by Proactive Investors

Elemental Minerals (ASX: ELM, TSX: ELM) has received a buy recommendation from Renaissance Capital - an investment bank focused on Central and Eastern Europe, Africa, Central Asia and other emerging markets.

Renaissance Capital has placed a $2.00 price target on Elemental - more than three times the last traded price of $0.61.

The following is an extract from the report.

Positive Prefeasibility Study (PFS) for a 2.0mn tpa potash project announced.

The results of the Prefeasibility study indicate that the 93%-owned Sintoukola potash deposit is on track to become a significant low cost potash producer. The study established reserves of 152mnt grading 20% K2O, or 32% KCl, sufficient to support the planned 2.0mn tpa potash production over a mine life of 23 years.


PFS presents attractive capex and very low opex.

Capex for the project was estimated at $1.85bn (a capital intensity of $975/tpa), which is very competitive with other greenfield projects. Total cash costs were forecast to be within the lowest quartile of global production, at just $105/t FOB including royalties and export taxes.


DFS planned for 3Q13 and first production in 3Q16.

The DFS is planned to be completed in 3Q13. The programme of work needed ahead of its completion is set to include further exploration and planning work on the recently discovered high-grade Hangingwall Zone, which has a grade around of 35% K2O, some 70% higher than the reserve in the PFS. We expect that this could benefit operating costs and the capex profile over the project’s early years.


Increasing our TP from AUD1.55/share to AUD2.00/share and maintaining our BUY rating.

We have updated our valuation to reflect the PFS parameters. We use a risked sum-of-the-parts calculation to arrive at our TP. We have incorporated a risked real discount rate of 15% and a long-term potash price of $450/t FOB Republic of Congo.


Key catalyst relates to securing strategic partner.

Elemental began discussions with potential strategic partners for the project in June 2012. A number of parties are actively undertaking due diligence on the project and we expect that the results of this process, together with a parallel process to investigate third-party funding of the project’s infrastructure, will be a significant catalyst for the company over the coming year.