Elementos Ltd (ASX:ELT, OTC:ELTLF) has had its 'buy' rating reiterated by BW Equities following an upgrade in mineral resource categories at the Oropesa Tin Project in Spain.
The company recently increased the resource estimate at Oropesa by 4% to 19.6 million tonnes at a broadly similar grade of 0.39% tin.
Importantly within the various resource categories, ELT achieved a substantial upgrade in confidence, with 95% of the resource now in measured and indicated categories.
The following is an extract from the research update:
Strengthened Geological Foundation: Following an 11-hole in-fill drilling program, ELT has increased the overall Mineral Resource Estimate (MRE) at Oropesa by 4% to 19.6mt at a broadly similar grade of 0.39% Sn. Crucially within the various MRE categories, ELT achieved a substantial upgrade in MRE confidence, with no Inferred material remaining within the US$30k/t pit shell, and 95% now in Measured & Indicated categories. The updated MRE forms the basis for the ongoing DFS, and we expect an Ore Reserve will be defined as part of this process which is scheduled for completion in the next quarter (Q2 CY 2023).
Project Timeline & Key Metrics: Assuming a successful project financing solution is obtained, first production at Oropesa is anticipated in 2025. The company has already engaged London-based debt advisors ahead of finalisation of the Oropesa DFS, to ensure strong alignment between the DFS outcomes and achievable financing solutions. ELT's recent Oropesa Optimisation Study (March 2022) confirmed a 13-year project producing 3.35ktpa of tin in concentrate at an AISC of US$18,607/t. Estimated capex under the Optimisation Study was US$86m including a 20% contingency. Current LME spot prices of >US$27,000/t trade well above the Oropesa AISC cost profile outlined in the recent Optimisation Study. Given recent global cost inflation pressures, containment of capital and operating costs will be a key area of focus in the DFS.
Revisions: We have increased our opex and capex assumptions by 10% to incorporate recently observed cost inflation pressures which are likely to impact Optimisation Study estimates. We also update for the 31-Dec cash balance of A$4.0m. Our revised valuation is 60€/share (80¢ prior).
Valuation & Recommendation: ELT provides investors exposure to a developing tin project in a stable geographic region (Spain), with a defined economic assessment which shows viable fundamentals at current tin prices. Oropesa has modest pre-production capex requirements for an open-pit mining operation and conventional processing circuit. The shares trade at a significant discount to our revised $0.60/share (AUD) valuation, set using a tin price of US$32,500/t (spot LME =>US$27,000/t) and DCF valuation analysis. We reiterate our Buy rating. Key risks include the availability of funding, tin prices, permitting/approvals and operational issues.