Elementos Ltd (ASX:ELT, OTC:ELTLF) has maintained its buy rating from BW Equity, updating its 12-month share price target to $1 per share.
The analyst has reiterated its buy rating for the company following booming tin prices, stable geography, and robust margin profile at Oropesa.
Elementos is currently trading on the ASX at $0.50 per share with a market cap of $81.47 million.
The following are excerpts from BW Equity’s research report:
Tin prices are booming: The London Metal Exchange tin price has continued to strengthen and has achieved fresh record highs of more than US$44,000/t (cash) (~US$20/lb) over recent days. Media reports suggest that industrial metals are generally suffering supply constraints and that continued demand strength from the electronics sector has been notably strong and supportive of underlying tin demand.
The case for tin: Tin’s end use is predominantly accounted for by solders, a metal alloy which is melted to fuse metal components for electronic circuit board connections. As such tin is a beneficiary of many global trends including consumer electronics, structural changes in energy generation, as well as electric vehicles. Industry experts currently forecast continued steady demand growth and new supply to largely only replace the retirement of existing tin production capacity. Accelerated change in energy infrastructure driven by the push towards solar- and wind-based generation, as well as electric vehicle demand, has been identified as a potential major driver of a fundamental step-change in demand which could lead to significant deficits in market balance and potential for sustained higher prices over the medium-term.
Robust margin profile at Oropesa: 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$30,000/t. With the spot tin price trading substantially in excess of these assumptions, Oropesa’s operating margin profile and project economics look compelling against the present market backdrop. Assuming spot tin prices (US$44,000/t) are received over the project life in our DCF analysis, we can assume a valuation of ~$2.10/share for ELT shares.
DFS timeline and updated estimates: Completion of the DFS for Oropesa 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. We have updated our estimates for the 1:25 share consolidation and amended our project equity raise assumption to US$50m at A$0.75/share. Our updated valuation for ELT shares is A$1.00/share.
Valuation and 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 (we assume US$75 million for an expanded 1mtpa process plant) for an open-pit mining operation and conventional processing circuit. The shares trade at a significant discount to our A$1.00/share valuation, set using a tin price of US$30,000/t (spot LME = ~US$44,000/t) and DCF valuation analysis. As such we reiterate our Buy rating. Key risks include the availability of funding, tin prices, permitting/approvals and operational issues.