South Harz Potash Ltd (ASX:SHP) shares are currently trading at 0.26x NAV, with an implied return of 3.78x to the current share price, according to a research update by Cenkos Securities (AIM:CNKS).
Cenkos’ sum-of-the-parts valuation gives South Harz a fair value of about A$0.28 per fully diluted share, based on modelling at US$300 per tonne muriate of potash (MOP) price and a 0.25x NPV multiple to account for the current stage of development.
The broker sees significant potential for value accretion as South Harz meets development milestones at the Ohmgebirge Potash Project in Germany.
Following is an extract from Cenkos’ quarterly research update:
Quarterly Update
South Harz Potash is expected to start drilling its first of two planned confirmation holes at Ohmgebirge in Q4/CY21. The Company has submitted supplementary detailed information to regional mining authorities to support the final step in the permitting process.
As a result of the delays experienced in procuring landowner and tenant approved drill sites and the competition for drill rig availability, South Harz Potash now expects drilling of the second confirmatory twin hole in Q1/CY22. The two confirmatory drill results will enable South Harz Potash to deliver a revised Ohmgebirge Mineral Resource Estimate, with the aim of upgrading Inferred resources to the Indicated category and so completion of the scoping study is now also expected in Q1/CY22.
- South Harz Potash has JORC Resources of over 5.3 billion tonnes @ 10.8% K2O. Ohmgebirge has an Inferred Resource of 325Mt grading 13.1% K2O containing 261Mt of high-grade sylvinite (Hartsalz) grading 14.0 % K2O.
- South Harz Potash projects expect to have low capital and operating costs due to the strategic location which provides access to low-cost transport links, strong infrastructure and significant potash expertise locally. South Harz Potash projects are not purely MOP and have the potential to produce multiple products (including MOP, SOP, Kieserite and NaCl). Western Europe remains a significant net importer and South Harz Potash is well positioned to market potash competitively with shorter logistics and no EU tariff.
- Funds in treasury at 30 June 2021 of cA$8.3m. These funds will be spent on the resource drilling and the Ohmgebirge scoping study. We expect that given the delays in the planning and permitting process South Harz Potash may need further funding to complete the full programme and beyond the release of the updated scoping study in 2022.
- We maintain our base-case NPV10 for the three main assets of US$1.3bn. Our sum-of-the-parts valuation gives a fair value of cA$0.28/FD share, based on modelling at US$300/t MOP) and a 0.25x NPV multiple to account for the current stage of development. This implies that South Harz Potash is trading at 0.26x NAV, with an implied return of 3.78x to the current share price. We see significant potential for value accretion as the Company meets development milestones.