Lotus Resources Ltd (ASX:LOT) has been upgraded to a ‘Buy’ with a target price of 21 cents by stockbroker BW Equities following a busy June quarter, which saw numerous advancements of its Kayelekera Uranium Project.
The broker flagged the company’s completion of the multiple technical studies, which it sees as a “critical catalyst” as work is progressed and a clear vision for the operational parameters are established.
The recent completion of preliminary ore sorting test-work and the announcement of better-than-expected results, as well as the grade uplifts of “as much as 100%” relative to the mined grade, represent a substantial possible point of optimisation to the study relative to historical operational performance.
Further ore sorting test work is scheduled to take place this month, with the results anticipated to be released in the September quarter.
Exposure to known uranium asset
BW Equities revised its rating as Lotus Resources shares are trading at a reasonable discount to its revised valuation.
Its senior analyst Daniel Seeney said: “LOT provides investors exposure to a known uranium asset with a significant operating track record, short lead time and modest capex to restart of US$53 million.”
The broker is assuming that to obtain adequate funding to restart production, uranium prices have to rise to around US$60/lb, which has been incorporated in its estimates.
Further, following the recent ore storing test-work and management’s target of a 3mlbs project, which have implications for both unit costs and the likelihood of the project getting back into production, it has unwound its risk discount on the project from 50% to 15%.
Well capitalised
LOT ended the June quarter with $28.3 million in cash, including US$10 million of restricted cash representing the cash-backed environmental performance bond held with the Malawian government in relation to the Kayelekera Uranium Project.
Excluding the performance bond, the company had $15 million in cash, which “provides a solid funding platform” to support the defined development objectives for the next 12-24 months.
Cash expenditure was down substantially from the previous June quarter, reflecting the company’s streamlined holding strategy.