Elementos Ltd (ASX:ELT, OTC:ELTLF) has had its 'buy' valuation maintained by BW Equities, with the 12-month share price target also remaining at A$1 per share.
The analyst reiterated its valuations following robust results from the company’s optimisation study for the Oropesa Tin Project in Spain.
Elementos’ shares are now trading at A$0.77 with a market cap of approximately A$127.89 million.
The following are excerpts from BW Equities' Report:
Optimisation study highlights: ELT has released the results of an Optimisation Study for Oropesa, which provides an indicative preview of the DFS which is scheduled for completion in the second half of 2022. The study has confirmed a 13-year project producing 3.35ktpa of tin in concentrate at AISC of US$18,607/t. Estimated capex of US$86m has been flagged which includes a 20% contingency. At current tin prices of ~US$42,500 Oropesa provides very attractive economic fundamentals and cash operating margins of >50%.
Significant de-risking catalyst: The release of the study provides a significant uplift in our confidence in the technical and economic parameters of the project. Furthermore, with the Optimisation Study in-hand ELT will now proceed to submit applications for necessary regulatory approvals in coming weeks. We understand the legislated approval timeframe for processing these approvals is 9 months however ELT expects the process to more realistically take approximately 15 months. Management commentary notes that there is a high degree of support from local authorities to progress Oropesa, and the location of the tailings dam and waste dump has been carefully chosen with consideration given to nearby bird and oak tree habitat. While approvals processes are inherently uncertain, we believe ELT management are making sensible decisions to minimise delays in this regard.
Revisions: Given broad cost inflation pressures globally and higher mill throughput rates, the Optimisation Study expects a higher cost profile (capex and opex) compared to the May 2020 Economic Study. We have incorporated the Optimisation Study inputs into our financial model including higher capital and operating costs assumptions. We also increase our tin price assumption to US$32,500 (US$30,000 previous) and assume 2 years of mine-life beyond the study estimates, to attribute some value to potential resource upside we see as likely over time as mine cashflows are reinvested in exploration. The net impact is neutral to our overall valuation of ELT shares.
Valuation & Recommendation: ELT provides investors with exposure to a tin project in a stable geographic region (Spain), with a defined economic assessment that shows very strong fundamentals at current tin prices. Oropesa has modest pre-production capex requirements (estimated at US$86m) for an open-pit mining operation and conventional processing circuit. The shares trade at a significant discount to our $1.00/share (AUD) valuation, set using a tin price of US$32,500/t (spot LME = ~US$42,500/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.