"Axiom, trading 78% below our A$0.050/share valuation, is focusing on fast tracking initial low-capex DSO production at the large scale Isabel Nickel Project."
RCR company update:
Axiom Mining Limited (ASX:AVQ), 23 March 2014
Dear rusty,
Please find a link to the RCR updated research report on Axiom Mining Limited.
Excellent recent drilling results have indicated a strong likelihood of premium grades (>1.5% Ni) at Isabel, which will strongly enhance project economics and support project financing. The current share price is 78% below our base case valuation of A$0.050/share (assuming 2Mtpa initial production), a massive discount amplified by investor concerns over a court appeal by Japanese giant Sumitomo over ownership of Isabel. Based on the September 2014 resounding court judgement in favor of AVQ, we think that the appeal stands little chance of success.
Investment points:
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Isabel is world scale. Previous work (INCO, Kaiser Engineers) at Isabel gave an estimate of mineralisation (non JORC compliant) of 159Mt @1.05% Ni and 0.06% Co (equivalent to 1.6Mt of contained nickel) to a depth of only ~6m.
AVQ's initial drilling has indicated prevalence of higher grade saprolitic ore (>1.5% Ni) below 8m depth. This suggests potential for significantly higher tonnage and better grades than the INCO-Kaiser estimates.
AVQ is aiming for first production in late 4Q15 with ~2Mtpa direct shipping ore (DSO) operation. Discussions with project partners/funders underway.
A 2Mtpa DSO operation would give Axiom a low capex (~US$25-35M) fast track route to production. On our projections the project is robust generating strong cashflow (forecast ~A$50Mpa assuming US$60/t DSO price) and laying the foundations for a larger scale ore upgrading project.
The nickel price (and DSO prices) are forecast to move into an uptrend in 2H15 due to looming supply deficits.
Our base case valuation for AVQ of A$0.050/share is based on risk-discounted scenario of initial DSO production from Isabel at 1.5% Ni. Our medium term target (6 months) is A$0.035/share assuming Sumitomo is unsuccessful in its appeal against the court ruling.
Assuming 1.8%Ni DSO product raises our valuation to A$0.076/share (due to increased DSO product value from US$60/t to US$80/t).
Our valuation is underpinned by benchmarking listed DSO producer: Asia Nickel Corp – US$2.4bn market cap = US$132M per Mtpa DSO production. AVQ is currently capitalised at ~US$31M.
Six month share price catalysts include likely dismissal of SMM appeal against the court ruling and near term cash injection (~A$4.8M) from court costs claim, further high grade Isabel drilling results, anticipated positive milestones in Isabel Project financing/partnering.
Analyst: Dr Tony Parry
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AVQ Price at posting:
1.1¢ Sentiment: Buy Disclosure: Held
