Elementos Ltd (ASX:ELT, OTC:ELTLF) has maintained its buy rating from BW Equities after the company indicated that the Oropesa DFS is on track for delivery in Q1 CY23 and first production is anticipated in 2025.
The company appointed Wave Europe BV as the owner’s engineer to oversee, integrate and author the DFS report for the Oropesa Tin Project in Spain.
BW Equities believes Elementos provides investors with exposure to a tin project in a stable geographic region with a defined economic assessment that shows strong fundamentals at current tin prices.
The following is an extract from BW Equities’ research update:
DFS Advances Towards Delivery in Q1 CY23: ELT has announced that a number of key contracts forming part of the Oropesa DFS have been agreed. These include appointments to important areas of responsibility for the DFS including the Owner’s Engineer (whose role is to oversee and author the DFS), design of the tailings dam & waste dump, as well as development of grid power connection engineering. The counterparties appointed appear to have strong alignment with ELT’s corporate footprint and objectives, and significant experience in European based project development. We note that ELT’s MD was recently on-site at Oropesa with senior members of the DFS engineering counterparties, which we regard as critical in the capable management of Oropesa’s advancement through to completion of the DFS.
Looking Ahead: ELT has indicated that the Oropesa DFS is on track for delivery in Q1 CY23 and first production is anticipated in 2025. As a reminder ELT’s recent Optimisation Study for Oropesa, which provides an indicative preview of the DFS, confirmed a 13-year project producing 3.35ktpa of tin in concentrate at AISC of US$18,607/t. Estimated capex under the Optimisation Study was US$86m which includes a 20% contingency. While tin prices have softened over the first half of 2022, current spot prices of ~US$31,000/t continue to trade at healthy cash margins above the AISC cost profile outlined for Oropesa in the recent Optimisation Study.
Confidence in Regulatory Approvals: Navigating the Spanish regulatory approvals process is a critical component of ensuring the project remains on track with the current development schedule, and the company has flagged in recent presentations that the process is targeted for completion in mid CY23. Management have consciously focused on strong engagement on the ground in Spain with local stakeholders and authorities, and we are increasingly confident that potential delay risks relating to the regulatory/permitting timeline are being capably managed. We note that regional elections took place in the past week in Andalusia where the incumbent Andalusian President Juan Moreno of the conservative People’s Party (PP) was re-elected with an absolute majority. The PP has been supportive of the Oropesa project, and we believe that this political backdrop is very positive in paving the way for a continued smooth permitting process.
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 (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$31,000/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.