Metallurgy could move the dial (extract from research...

Metallurgy could move the dial (extract from research 18/7/24)

WC8 has released results from its maiden metallurgical testwork programme at Tabba Tabba. Initial results are encouraging vs. our 70% recovery assumption on a 5.5% concentrate.

We make no changes to our numbers and retain our Overweight Rating and $0.80 Price Target.

Met test work could move the dialMetallurgical testwork published this week highlighted a whole of ore flotation route could deliver recoveries of 79-84% when producing a 5.5% concentrate. We model 70% recoveries over the life of mine (producing a 5.5% con.) - lifting our assumption 80% would drive a ~60% uplift to our Phase 1 NPV from $0.60 to $0.97.

While lab results have historically not been great predictors of achieved recoveries in lithium, such high initial recoveries across a broad range of feedstock grades are encouraging. We would note:• Tabba Tabba is large and tabular, meaning risk of host rock dilution is low.

A key issue affecting flotation recovery across the sector has been iron contamination and this seems unlikely to be an issue.• Recoveries are not particularly sensitive to grind size, with similar results achieved at 212 microns and 150 microns. This could result in higher throughput for given kit size and/or lower capex/opex.• Recoveries seem highly sensitive to increasing collector dosage, with recoveries lifted as high as 84.7% with additional reagent.Investment caseWC8 shares have fallen 65% from its March-24 peak and now trades at less than half our modelled Phase 1 NPV, applying a $1,500/t spodumene concentrate price.

Given Tabba Tabba will likely emerge as the largest independent greenfield lithium asset in Australia, and possibly one of only 6 with a Resource base >100Mt, we think this discount looks extreme.The critical factors determining WC8’s value in the next 12-18 months will bethe size/grade of its maiden Resource followed by further details around the timing and scale of its proposed initial development. We model a project with 70Mt of Reserves at 1.1% Li2O, supporting a 3Mtpa throughput operation. With metallurgical recoveries of 70%, this translates to annual production of ~410ktpa of 5.5% spodumene concentrate, commencing in H2 CY28.Valuation unchanged, PT $0.80The market is grappling with its view on long-run lithium prices which has seen WC8’s share price fall from a premium, to a >50% discount to our base case NPV.

Our long-run price of US$1,500/t is based on a 15% IRR on a theoretical 1.0% orebody in WA and we believe this incentive price modelling for long-run lithium pricing is still valid.Our valuation of WC8 reflects a 30% premium to our NPV to account for a possible Phase 2 development given the potential scale at Tabba Tabba, as well as other upside risks including ealry high grades or improved recoveries.