Fosters 30c target bit upside

Canyon Resources Ltd (CAY, $0.086, mkt cap $60M).
Focus on BFS and Mining Convention.
SPECULATIVE BUY. PT $0.30

• We expect BFS in 3QCY21 and Mining Permit in 4QCY21. We expect CAY to agree to a Mining Convention with the Cameroon Government in the 4QCY21, which should lead to the Mining Permit soon after. We believe finalising most, if not all, of the rail agreement is critical in securing the Mining Convention and Mining Permit. Offtake and or funding agreements may also be concluded in the 2HCY21. An ESIA for Minim Martap has already been submitted.
  
• Project highlights reminder. Minim Martap PFS revealed 20-year LOM at 4.9Mtpa of DSO bauxite, with post-tax NPV10 real of US$291M and pre-production capex US$119M. IRR is 37% and NPV/capex ratio of 2.4x. C1 cash costs are $35.2/t, with high transport cost (800km rail to port) offset by no beneficiation required and low mine strip of 0.4x. CAY estimates the project to sit in the middle of landed quality adjusted Wood Mackenzie cost curve.
  
• Tier 1 asset comparable to Cape York and Guinea bauxites in quality and size. Minim Martap is a gibbsite low-temperature bauxite, possessing one of the highest Available Alumina and lowest Reactive Silica of global bauxite projects and mines. Both are key parameters for low cost production of alumina.
  
• A low cost and green bauxite for refiners. Minim Martap’s high Available Alumina and low Reactive Silica means greater alumina recovery, lower caustic soda consumption, less red mud waste, and lower energy consumption for alumina refiners. Other pluses are long life and alternative to Guinea supply.

Valuation and Earnings

• No changes to earnings.
  
• Our CAY share valuation (0.5x NPV10) reduces to $0.30 (), based on the placement being more dilutive than we had forecast. Our unrisked 1.0x NPV10 of CAY is $0.60/share

Recommendation

• We maintain our Speculative Buy Recommendation and lower our 12-month share PT to $0.30, based on risked valuation of 0.5x NPV10.
  
• Catalysts for the share price include: 1) DFS; 2) Mining Convention 3) Finalisation of rail and port access agreements; 4) Binding offtake; 5) Mining permit; 6) Financing; and 7) FID.