Elementos Ltd (ASX:ELT, OTC:ELTLF) has had its buy recommendation reiterated by BW Equities as it continues to intersect new zones of near-surface tin mineralisation from diamond drilling at its flagship Oropesa Tin Project in Spain.
The company provides investors with exposure to a tin project in a stable geographic region, with a defined economic assessment which shows very strong fundamentals at current tin prices, according to BW Equities.
The following is an extract from the research update:
Assay Results: ELT has recently reported a number of lab assay results from the 44-diamond drill hole program which have shown numerous intersections which have generally been recorded at very shallow depths of <100m. The company stated that the results confirm a "new and significant zone of shallow mineralisation". With the drill program now completed and only one assay outstanding, the Mineral Resource update scheduled for release next month (October 2021) is therefore likely to report an increase in tonnes as well as confidence level in the overall resource (i.e. upgrading the 3.2mt Inferred component of the existing 12.5mt resource).
Resource Update to Feed Into DFS: The resource update will form the basis for framing up the DFS work, and with the potential addition of a new shallow zone as well as a sterilisation hole confirming the location of a planned external waste stockpile (contained within the 2020 Updated Economic Study), EIT consider the program has been an overall success in delivering the core program goals.
Project Timeline: Completion of the DFS is scheduled for "the second half of 2022". We believe an 18-24-month timeline to construct the project will follow putting the asset on track to achieve first production in 2025. This is in line with our existing financial modelling estimates.
Continued Tin Price Strength: LME tin prices have continued moving higher and LME official tin prices are over US$37,000/t (cash) and US$36,000/t (3-month). The current market is a far cry from prices of ~US$21,000 at the commencement of calendar year 2021, representing an increase of >70% so far this year (and remain at record highs). The May 2020 Economic Assessment completed for the Oropesa project was based on a tin price of US$19,750/t, and the current base- case tin price assumption adopted in our financial modelling is US$25,000/t. As such with the spot tin price trading substantially in excess of these assumptions, Oropesa's project economics look compelling against the present market backdrop. Assuming spot tin prices (US$36,000/t) in our DCF analysis for ELT shares implies a valuation of ~6.7C/share.
Revisions: We have incorporated updated capital structure information post the release of recent options on issue and options exercise information, which drove modest additional equity dilution. Our target price has been revised as a result to AUD 3.0C/share (AUD 3.2C/share prior)
Valuation & Recommendation: ELT provides investors with exposure to a tin project in a stable geographic region (Spain), with a defined economic assessment which shows very strong fundamentals at current tin prices. Oropesa has modest pre-production capex requirements of US$52m for an open-pit mining operation and conventional processing circuit expected to produce ~2.5ktpa of payable metal at AISC of US$11,790/t over a 14 year mine-life. The shares trade at a significant discount to our 3.0C/share (AUD) valuation, set using a tin price of US$25,000/t and DCF valuation analysis. As such we reiterate our Buy rating. Key risks include the availability of funding, tin prices and operational issues.