Stellar Resources (ASX: SRZ) has received a Speculative Buy recommendation from Taylor Collison. The following is an extract from the report.
KEY POINTS:
Heemskirk resource released in February 2013 (compiled by external consultants) delineated a global resource of 6.28Mt @ 1.14% Sn (71,500t tin). This is a 49% increase in contained tin metal tonnes since the March 2011 resource statement.
The resource model is based on the nearby (within 20km) Renison Bell Tin Mine, which has shown thick, high grade tin intersections at depth. The mineralisation has been associated with a granite contact that is located in the region at a depth of ~1km (as interpreted by the gravity/magnetic survey data).
Diamond drilling (historical and current) has defined mineralisation down to a depth of ~500m at the Severn resource. The updated resource includes approximately 36,000m worth of diamond drilling.
A scoping study completed in mid-2011 highlighted a robust operation at Heemskirk, with a 600ktpa plant. A pre-feasibility study is expected to be completed in June 2013 and valuations should be favourable based on the current bullish tin market.
Tin market conditions continue to improve with major producers such as China imposing export limitations, due to a drop in mine grades and a lack of consistent supply.
The San Rafael Mine (Minsur) in Peru (~34,000tpa) will wind production down over the next few years, opening up a major supply gap. Tin industry analysts believe 70ktpa of new supply will need to be generated to meet world demand from 2017.
A pre-tax NPV of ~$101M can be calculated at the Heemskirk Tin Project, using cost assumptions derived from operating underground mines and the current market price for tin ($23,125/t).
Stellar Resources is one of very few ASX companies that offer a pure exposure to the tin market. Heemskirk is proving to be a significant tin deposit with exploration upside in a proven region. Based on this, we maintain a Speculative Buy recommendation for Stellar Resources.
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