Neometals Ltd (ASX:NMT) has received a Buy recommendation and $0.59/sh price target from Euroz.
Shares in the company last traded at $0.37. The following is an extract from the report.
Exploration Update & Dividend
Investment case
Neometals affirms its focus on shareholder returns, declaring another $0.02/sh dividend, unfranked.
Mt Marion will be shipping Li product in October, enabling NMT to pay future dividends. The spectacular exploration success at Mt Marion implies a sizeable mineral resource upgrade is pending.
We believe partner, MinRes (ASX:MIN), will operate the mine at (or possibly above) capacity, supplying 50ktpa LCE or 30% to the global Li market.
Ultimately the Mt Marion orebody has yet greater capacity to produce and this will probably be exploited in 2017.
The Mt Marion partners will secure a very large market share ahead of competing Li development companies.
Neometals has a solid balance sheet, dividend track record, impending cashflow and only small capital expenditure planned.
Capital growth will come via its LiOH project and associated offtake rights to Mt Marion product.
NMT is not without strategic/corporate appeal.
Key points
Dividend
Neometals has declared a $0.02/sh unfranked dividend, payable to holders 17 August 2016.
This brings the total paid in 2016 to $0.04/sh.
NMT’s cash balance will decline by $11m, to $63m. NMT carries NIL debt. We estimate NMT will earn $17m pa (EBITDA) from its stake in Mt Marion (NMT 13.8%, MIN 43.1%, Ganfeng 43.1%).
We expect NMT will be able to sustain dividends at a rate of $0.02/sh pa once Mt Marion is operational.
Exploration Update
Mt Marion Phase 2 RC Drilling is complete with an additional 147 holes for 21,179m drilled in approximately 3 months.
A significant resource upgrade is undoubtedly pending, probably during September. Existing mineral resources estimate is 60.5mt grading 1.36% Li2O JORC Ind&Inf).
Spectacular results are reported from Area 2 West. Multiple intersections of 100m to 300m thickness, average grades 10-20% higher than the existing resource, and with excellent continuity have been reported.
Deep core drilling is ongoing. The pod is thought to be a “feeder” structure and
is open at depth to the north.
We estimate this pod contains an addition 15mt to 20mt grading 1.5% Li2O.
Positive results have also been reported from drilling on the other deposits: Areas 1, 2, 4, & 6.
We would not be surprised to see the overall Mt Marion mineral resource estimate be upgraded to ~90mt grading 1.4%-1.5% Li2O.
Construction of the Mt Marion process plant is nearing completion, with 1st shipment due in October 2016. We expect Mt Marion to be full ramped-up by March 2016, producing 400ktpa concentrate, or 50kt LCE, representing 30% of the current global Li market.
Mt Marion is designed to process 2.3mtpa of ore. There is scope to increase the mining rate further should market demand call for it, based on our estimate of future mineral resource upgrades.
An increase in processing capacity may yet be contemplated, once the current plant capacity is actually proven.
A mining/process rate of say 4.5mtpa would equate to a 20yr resource life and production output of 800ktpa concentrate (=100ktpa LCE).
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