Ares Strategic Mining#: Critically Acclaimed
Boxes Ticked for Near Term Production
Ares Strategic Mining (CVE:ARS) is developing the Lost Sheep Mountain fluorspar project, fully permitted, funded and now with a published mine plan we expect the company to be in production before the end of 2021. Upfront capital costs are below US$10m to restart mining and high quality acidspar production at the brownfield plant site. The non-contiguous pipe deposit type makes a compliant resource infeasible, but the Company has identified over 100 fluorspar outcroppings, while drilling confirmed naturally occurring grades of up to 90% CaF2, and conducted geophysics across the area, informing confidence of a minimum mine life of ten years across its 2,100 acres claims package. Historic production records from the area all exhibit some of the world’s naturally highest-grade fluorspar, which required no processing to be utilised by industry, and contained no deleterious minerals.
Fluorspar Has Critical Mineral Status
Fluorspar is used as a precursor to hydrofluoric acid, in the steel and aluminium industries as flux and increasingly in the rapidly growing lithium-ion industry. China became a net importer in 2018 dramatically altering the structure of the 6.5mntpa market with imports to the country rising more than 4x between 2012- 2018. In this increasingly tight market, the US is 100% reliant on imports prompting fluorspar to be included in the country’s Critical Mineral list. With supply chain security now at the top of the national agenda, ARS has already benefitted from fast track permitting and support from government at all levels while tax benefits are expected to enhance already robust economics.
Countdown to Cashflow
Production of 45kt of fluorspar for FY 2022 is expected to commence later this year rising to 135kt by FY 2024. We anticipate low operating costs and EBITDA margins of 55%+ on a price deck of US$458/t for acidspar generating average cashflows over the initial ten years of US$22mpa (C$28m). We expect ARS to be profitable from year one which highlights the rarity of the investment opportunity within the mining industry as a whole. A low capex, high margin, near term producer which has not yet been recognised by the market.
Target Price and Recommendation
Our risked DCF valuation produces an overall value of C$206m implying attractive upside which we expect to be realised as the company delivers on its construction, production and exploration timetable. We initiate coverage with a Buy recommendation and target price of C$2.17/sh implying 294% upside.
Oliver O'Donnell, Head of Research | T: +44 (0)20 3617 5180 | E: oodonnell@vsacapital.com
VSA Capital Limited, New Liverpool House, 15-17 Eldon Street, London EC2M 7LD | www.vsacapital.com
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