Element 25 Ltd (ASX:E25) is expected to improve mine output at its Butcherbird Manganese Project in WA and hit nameplate during the September quarter of 2023, according to Petra Capital.
Petra also expects more offtake agreements to be announced this quarter for E25's proposed battery manganese plant in the USA, where final investment decision is targeted by June 2023.
Given funding is likely to be included in offtake announcements, Petra sees the stock re-rating as the mining performance improves and plant FID nears.
The following is an extract from the research update:
E25 released a weaker than expected Dec Q report, with production 20% below our forecast. The presence of clay in the comminution circuit continues to restrict throughput. Given the cost structure is relatively fixed, this has a material impact on cashflow. Importantly the geology and mining is operating as expected and there are conventional solutions to the plant performance, with a plant re-design update expected imminently. We forecast the mine to improve in the coming months and hit nameplate during Sept.Q'23. This quarter we expect more binding offtake to be announced for E25's battery manganese plant in the USA, where FID is targeted by June-23. Given funding is likely to be included in offtake announcements, we see the stock re-rating as the mining performance improves and plant FID nears. We lower our price target to A$3.61/sh (A$3.64/sh) and maintain our BUY recommendation.
Quarterly highlights
- Clay continues to be a constraint on throughput at the plant, particularly at the front-end comminution circuit
- An update is expected shortly on engineering to redesign the flowsheet and improve operational efficiency
- Sales of 28kt were below production and no cash was received during the quarter as payment terms slipped into January. As a result, cashflow was minus A$11.7m
- March Q Sales should exceed production (78kt vs. 59kt)
- Operating costs of A$201/t improved by 2.4% QoQ
- The mine continues to underperform our expectations and we delay the ramp-up to nameplate production by one to Sept.Q’23
Production of 51kt was up 3% QoQ but below our 63kt
New directors to assist with operational delivery
- E25 has not hit nameplate production at Butcherbird - a key catalyst for the stock to trade closer to its NPV
- Mr Fanie van Jaarsveld has experience as Managing Director of the Bootu Creek manganese mine, which recently ceased mining in the Northern Territory
- In addition to recent labour hires on site, we believe this experience will be invaluable to improve performance
- Mr Sam Lancuba is a chemical engineer with experience in processing, project development and execution and will assist with the US HPMSM plant
Key Dates Ahead
- Mar.Q'23-Battery manganese FS, offtake expected
- Sept.Q’23-Butcherbird to hit nameplate production
- Sept.Q'25-First production of battery grade Mn