Investment View Octa Phillip expects that SRZ will announce a revised resource estimate in April or May 2013, at about the same grade, but at least 10Mt, which could support a higher mine throughput.
Our base case valuation of 34c/share assumes 10Mt is processed at 600kt/yr. The valuation is highly leveraged to the tin price which we assume is $25,000/t. The major risk to our valuation is our estimate of the value of the stake in the project sold to an off-take partner and project investor, but our conclusions are robust to our estimate
Valuation of SRZ
SRZ currently has a market capitalisation of about $19m. Octa Phillip expects that the development of the Heemskirk project will be financed by a combination of • An equity partner who will invest in the project in return for off-take _ ITRI points out the mined tin supply will struggle to be maintained; on our reckoning mine supply is likely to be at today’s level or lower when the San Rafeal mine closes in 2017, _ Given the projected tightness in supply, Octa Philip expects that the Heemskirk production will be eagerly sought by customers seeking off-take; • Project financing should be able to be secured for about 60% of the project cost; and • SRZ is expected to make one small equity raising to complete the studies required to be able to complete the investment needed.
SRZ is able to achieve good value as it currently still owns 100% of its project.
Figure 9 shows that Octa Phillip’s base case valuation is 37.5¢/share; after significant risk weighting to reflect the degree of uncertainty in our valuation, which will be reduced over time as SRZ progresses the required studies. Successful delivery (ie. un-risked) increases our valuation from 34c to 51c/share.
Not even a link on the fact sheet to the research note!
While the marketing is not as bad as it used to be the company is still pretty poor in that area. They should be hammering home the 34c to 51c figures.
SRZ Price at posting:
6.2¢ Sentiment: LT Buy Disclosure: Not Held
