EMN highly positive analysis re DFS

Very positive analysis of this sleeper stock, courtesy of NI.

Our European battery metals Investment Euro Manganese (ASX:EMN)released its long awaited Definitive Feasibility Study (DFS) last week, giving us an in-depth look at the metrics behind EMN’s high purity manganese project in the Czech Republic.

To give you a sense of the scale of the project - its after-tax Net Present Value (NPV) sits at US$1.34B ($1.92B) - more than 16 times EMN’s current market cap (~$118M).

NPV is used to analyse the profitability of a future project - a measure of what today’s capital could bring in terms of future capital.

We first Invested in EMN in 2020 after our success in European based battery metals with Vulcan Energy Resources.

While Vulcan delivered many milestones during 2020 and 2021, leading to a sustained material share price re-rate, EMN was slow to deliver material progress during the strong market.

EMN’s progress over the last 2 years has been a stop-start affair, with a lack of consistent newsflow, difficulties with Demonstration Plant procurement and a change of leadership all playing a role.

EMN’s financial metrics are now out in the market AND their new CEO is 8 months into the role.

This should help the company pick up the pace in the coming months, which is great timing with positive sentiment now seeping back into the market.

We’ve seen the positive effect having a DFS or PFS can have on a share price before.

When ur best performing European battery metals Investment Vulcan Energy Resources released its PFS, the share price closed at $6.44 leaving it with a market cap of ~$514M.

Vulcan’s PFS outlined a €2.25B post-tax NPV ($3.29B) and the company’s post tax NPV was roughly six times larger than its market cap on the day.

And we remember well what happened in the wake of those PFS numbers coming out - a procession of offtake deals, a $200M placement and a share price run that took Vulcan shares to an all time high of $16.65.

Will some version of these events play out with EMN? Time will tell. With EMN’s DFS, things are a bit different - the market has taken a savage beating over the last six months and high purity manganese doesn’t have quite the same investment profile as the now glamorous lithium.

And yet, there’s a case to be made for EMN approaching an important inflection point.

After appointing new President and CEO Matthew James in December 2021, we’re now starting to get a good sense for what James is bringing to the position.

We have already seen the pace of progress increase after just a few months.

Our view is that James has a deep understanding of what it takes to bring a resource into production. As EVP of Strategy and Corporate Communications, James helped Australia’s leading rare earth company secure project financing (Lynas Corp, capped at ~$8B).

We’re hoping James can apply the same financing nous from his role at Lynas, this time with EMN - and so far we have been impressed.

The delivery of the DFS is a major part of EMN’s bid to secure financing for its high purity manganese project in the Czech Republic - where EMN will convert an old tailings deposit into new battery metals for the European EV industry.

As such, EMN is not a mining company. It is best understood as a recycling + processing company.

And this makes sense, manganese is a plentiful metal usually used in making steel, but in order to be used in EV batteries it has to be processed to a high purity and this is where the future supply bottleneck exists.

In today’s note, we’ll take a closer look at EMN’s DFS, the products the company will sell, the manganese market and what EMN needs to do to bring the project into reality, including risks.

Here are our six key takeaways following the EMN DFS release:

1. Strong numbers (big NPV relative to market cap and higher capex offset by good payback period)
2. Excellent ESG credentials backed by recent life cycle assessment (LCA)
3. Strong numbers + ESG credentials should make EMN’s project attractive to BOTH project financiers AND offtakers
4. EMN likely has a healthy chunk of cash on hand (~$35.8M at 31 March, March quarter’s cash burn was ~$3.6M, 30 June quarterly imminent)
5. That cash gives EMN the breathing room it needs to build competitive tension around offtake and project financing
6. Europe NEEDS this project more than ever - high purity manganese is essential to the continent’s EV push

On that final point, we’re of the view Europe will need high purity manganese if it is to build out its EV manufacturing capacity.

EMN is ideally situated within EU borders (Czech Republic) and after the recently released life cycle assessment, has the ESG credentials that offtakers need in their supply chain.

Very positive analysis of what has been a slow stock so far.