OD6 Metals Ltd (ASX:OD6) has secured a buy recommendation from Breakaway Research on the back of its maiden resource of 344 million tonnes at 1,308ppm TREO at a 1,000ppm cut-off grade for its Splinter Rock Rare Earth Project in Western Australia.
The project is emerging as one of the largest and highest-grade clay-hosted rare earth resources in Australia and has helped OD6 Metals get a price target of A$0.90/share from Breakaway (current price: A$0.17/share).
With the resource delineated from only 5% of the 250 square kilometres of clay basin interpreted from geophysical survey at Splinter Rock, Breakaway believes OD6 could see the resource increase dramatically, which means it will have a larger resource than most or all its peers and provides scale and the potential opportunity to focus on parts of the resource with the best metallurgy.
The following is an extract from the research update:
- OD6 Metals is one of a number of Australian companies exploring for clay hosted rare earths deposits in the Ravensthorpe region of Western Australia.
- With 344Mt grading at 1,308ppm TREO from 5% of the 250km2 of clay basin interpreted from geophysical survey at Splinter Rock, OD6 could see the Resource increase dramatically, which means the OD6 will have a larger Resource than most or all its peers and provides scale and the potential opportunity to focus on parts of the resource with the best metallurgy.
- Scale matters for this category of low grade rare earth project. At 5mtpa, the OD6 Resource grade of 1,308ppm TREO and recovery of 60%, a project would produce 3,900tpa rare earth oxide equivalent. Ionic Rare Earths’ (IXR) Makutu project feasibility study is based on 5mtpa producing 1300tpa rare earth oxide.
- Clay can host rare earths in several forms, and each form has very different extractive metallurgical performance which is discussed in some detail in this report. Having a large Resource will allow OD6 to chase the best metallurgy rather than being forced to chase tonnage. Metallurgy appears to vary from drill hole to drill hole and within a drill hole from horizon to horizon, potentially providing the option to select preferred zones.
- The rare earths that are used to make high intensity permanent magnets are Neodymium, Praseodymium, Dysprosium and Terbium and are vital in the manufacture of components of the low carbon economy including wind turbines and electric vehicles. Supply has to double in the next decade.
- Drivers of share price appreciation are expected to be:
- Exploration drilling reports expanding area of Resource due shortly
- Metallurgical reports adding clarity to process route Q4 2023.
- Infill drilling for Indicated Resource early 2024.
- Increasing market understanding of clay hosted rare earths and increasing confidence that projects will prove to be viable.
Peer comparison with other rare earths juniors suggest that OD6 should be priced at between A$0.82/sh and A$0.94/sh, and our price target of A$0.90/sh is a blend of this range. At A$0.90/sh, OD6 would have a market capitalization of A$92M, which is larger than any Australian peer in the clay rare earth sector apart from the South American located Meteoric Resources (A$445M) and reflects its larger and higher grade Resource. Peer company Ionic Rare Earths (IXR) which owns 60% of the Makutu project has a market capitalization of A$111M with a contained TREO resource of 342kt TREO at 640ppm TREO grade (OD6 450kt TREO at 1308ppm) and has published a feasibility study. While OD6 has yet to do the work, it has the building blocks to make a superior project.
Hence, Breakaway Research has a BUY recommendation on OD6 Metals with a price target of A$0.90/share.