Clean TeQ Holdings Ltd (CLQ) | Company Update Rating: BUY Target...

Clean TeQ Holdings Ltd (CLQ) | Company Update Rating: BUY Target Price 1 : $1.31 Projected Return: 81% 1 12 month target Company Statistics Share Price (AUD$) 0.725 Market Cap (AUD$) 346.2 Enterprise Value (AUD$) 329.4 Issued Shares (mil) 477.5 Options (mil) (unlisted) 37.5 Cash (AUD$) 19.5 Debt (AUD$) 2.7 Earnings Summary FY End (Jun) 2016 2017e 2018e 2019e Revenue ($Am) 1.3 1.2 1.4 1.5 EBITDA ($Am) -5.6 -8.3 -9.6 -9.8 Net Income ($Am) -6.4 -8.8 -15.2 -23.6 EV/EBITDA N/A N/A N/A N/A Share Price (A¢ps) Company Description Clean TeQ Holdings Ltd has recently released the pre-feasibility study of its 100% owned Syerston nickel, cobalt and scandium operation in New South Wales, while also developing its water treatment technology within China. Analyst Brett Cottrell 61 3 9601 4808 [email protected] Cobalt price moves through US$17/lb, CLQ valuation upgrade Investment Opportunity The LME cobalt price has moved through US$17/lb (US$17.12/lb as at 3 rd February 2017), and we have updated our price estimate from US$12/lb to US$17/lb. This results in an increase to our DCF valuation (and consequently our 12 month target price) by 52% to A$1.31. Investment Highlights  The LME Cobalt price has risen by c.70% over the past 12 months to US$17.12/lb as at 3rd February 2017  We belive downside risk to the current cobalt price remains low, hence our decision to lift our cobalt price assumption  There is continued belief that a wave of electrical vehicle demand should increase the need for cobalt  The Syerston orebody is one of the highest grade and largest sources of cobalt outside of the DRC. In addition, Syerston contains a significant amount of nickel and scandium. The cobalt and nickel feasibility study released in October indicates a US$680m CAPEX project delivering 18.7kt contained nickel and 3.2kt contained cobalt per year for an initial 20 year mine life.  Within our model we assume a cobalt price of US$17/lb, a nickel price of US$4.75/lb (plus an additional US$1.00/lb nickel sulphate premium)  We believe that every US$1.00/lb lift in the cobalt price improve CLQ’s EBITDA by c.A$10m during years 3-10 of Syerston’s operations  Key hurdles for the company over the next 12 months include: securing off-take agreements, securing project funding, as well as releasing the project’s DFS in the final quarter of 2017 Investment Recommendation We retain our Buy Rating but have increased our 12 month DCF based price target by 52% to $1.31 due to a higher cobalt price assumption. We expect 60-65% of the company’s revenue will be derived from nickel sulphate sales, while 35-40% will be derived from cobalt sulphate sales (we do not include any scandium revenue within our model). Since our initiation note, the nickel LME price has been relatively flat at c.US$4.75/lb while the cobalt price has lifted more than 50% to trade at c.US$17/lb. In addition, we use a long term A$/US$ currency rate of 0.75 versus current spot rate 0.7664. Our model assumes CLQ successfully commissions its Syerston operation in FY21E, with the ramp-up to steady state production by the end of FY23E. The key risk to our view is funding risk, with the project CAPEX significantly higher than the company’s market capitalisation. If CLQ can secure favourable offtake agreements this will reduce this risk somewhat. Other risks include commissioning/construction risk, CAPEX over-run,