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Salt Lake Potash retains speculative buy recommendation from Taylor Collison

Recent SOP resource upgrade reinforces the company’s current review process to consider a larger scale scenario at Lake Way.
buy or sell
Revised price target of $1.21 per share

Salt Lake Potash Ltd (ASX:SO4) (LON:SO4) recently revealed a significant extension to the SOP (sulphate of potash) resource at Lake Way in Western Australia.

The new resource will enable the company to finalise technical studies for a larger production scenario with an anticipated release date towards the end of Q2 2019.

Taylor Collison has maintained its coverage on Salt Lake Potash with a speculative buy recommendation and a revised NPV (net present value) based price target of $1.21 per share.

Following is an extract from Taylor Collison’s research report:

Investment Highlights

• Salt Lake Potash (SO4) enjoys a capex advantage through its ability to use unlined evaporation ponds and the infrastructure available in the Goldfields region. The location of the Goldfields Salt Lakes Project (GSLP) also suggests an opex advantage over competitors with more remote projects.

• SO4 has a (relatively) new MD and has strengthened its development team with three senior appointments – all ex-FMG, as is the MD.

• Despite the July 2018 release of the Scoping Study into a Demonstration Plant at Lake Way, we can’t make the economics work at that scale and we assume a production level of 200ktpa as per the Lake Wells Stage 1 Scoping Study. SO4 has confirmed it is “reviewing a larger scale scenario”, with technical results expected in the current half. SO4 is currently constructing the initial ponds at Lake Way.

• We note the MD’s performance rights are all based around 200ktpa levels – something the 50ktpa Demonstration Plant does not envisage. The recent appointment of executives from FMG means SO4 now has in-house experience of “continuous” development. We would be very surprised if the executives had been appointed to oversee a Demonstration scale development.

• SO4 has now demonstrated it can produce salts from both Lake Wells and Lake Way, and has demonstrated SOP production from Lake Wells salts, with Lake Way SOP production pending.

• SO4 now has MOUs in place with Mitsubishi Corporation (Mitsubishi, April 2018) and Sinofert Holdings Limited (Sinofert, October 2018). In both cases the MOU agreements include the provision of strategic advice on marketing - key, in our view.

• We maintain coverage on Salt Lake Potash (SO4) with a Speculative Buy recommendation and a revised NPV based Price Target of $1.21/share, subject to review as the development pathway is clarified.

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Salt Lake Potash Ltd Timeline

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