Broken Hill Prospecting Ltd (ASX:BPL) remains under the radar following the spin-out of Cobalt Blue Ltd (ASX:COB) just over a year ago.
The spin-off delivered $8.1 million to Broken Hill shareholders via an in specie distribution, which is now valued at circa $25 - $30 million for those who retained Cobalt Blue equity.
Since listing, Cobalt Blue shares have rallied 240% to last trade at $0.67, and recently hit an all-time-high of $0.89.
The share price of Cobalt Blue has been driven by the company advancing technical studies at the world class Thackaringa Cobalt Project in New South Wales, and the surging cobalt price.
The LME cobalt price is over US$80,000 a tonne currently, or about 150% higher than just one year ago.
Broken Hill and Cobalt Blue joint venture
The joint venture structure currently has Broken Hill holding 100% legal interest and 49% beneficial interest in Thackaringa, with Cobalt Blue holding the remaining 51% beneficial interest.
Subject to earn in milestones, Cobalt Blue can maintain its current beneficial holding and increase that holding, and ultimately earn the legal title to the project.
The joint venture provides major upside exposure for Broken Hill, as detailed:
- The $10.9 million earn-in is underway by Cobalt Blue;
- Broken Hill will receive $7.5 million cash on development of the project;
- Broken Hill also to receive a 2% net smelter return royalty; and
- Broken Hill retains base and precious metals rights at Thackaringa.
Benefits for Thackaringa include first class infrastructure in place, a pro-mining local community and supportive government.
The next key news flow from the project by Cobalt Blue will include an increase in the confidence of the resource to the Indicated category, and a Pre-Feasibility Study (PFS), both expected in the first half of 2018.
The PFS has the potential to introduce Thackaringa as a world class asset, and a Bankable Feasibility Study is expected to follow a year later.
Cobalt Blue is the only primary cobalt play listed on the ASX, with the company's goal to become a top five global cobalt supplier producing 20,000 tonnes per annum of cobalt sulphate with a greater than 20 year mine life.
Broken Hill’s exposure to success at Thackaringa includes the 2% net smelter return royalty on cobalt production; this royalty has the potential to be a major earner for the company over many years and it is anticipated that a line of sight to the dollar value of that royalty and it’s NPV will be developed in coming months.
Broken Hill's enterprise value
Broken Hill has a proven history of monetising assets, such as the Cobalt Blue example, and the recent divestment of non-core mineral sands assets for a $3.1 million cash injection.
The company last traded at $0.062, for a market capitalisation of around $9 million.
With cash of $2.9 million at the end of December 2017, and no debt, this positions the company to focus on value-added initiatives without an equity raising.
These metrics alone provide an enterprise value in the $6 million range, which is considered by the company to significantly undervalue its projects.
Apart from the Thackaringa project exposure, Broken Hill also holds:
- The largest tenement portfolio in the world class Murray Basin, focussing on high-grade, low-tonnage, shallow heavy mineral sand (HMS) deposits with high value mineral assemblages. New tenement applications are nearing approval and an extensive exploration program for all tenements to commence during the March 2018 quarter.
- A number of new base, precious and industrial mineral tenement applications in the Broken Hill area, which are nearing approval. The company has utilised it’s on ground experience in the Broken Hill area to identify and secure these new projects and an extensive exploration program is to commence during the March 2018 quarter.
Broken Hill has a tight register, with board and management holding over a third of the 147 million shares on issue.
Adding interest, the company is also evaluating acquisition opportunities.
Broken Hill’s chief executive and managing director, Trangie Johnston, will drive the company’s aggressive growth and value-adding strategy in 2018.