Greenland Minerals & Energy Ltd (ASX:GGG) has received a Speculative Buy from Perth-broker RM Capital.
The following is an extract from the report.
Leading REE company Shenghe to invest in GGG...Shenghe balance sheet should resolve funding through to development
Strategic Placement + Development Pathway
- The Company has placed (subject to FIRB approval prior to 30/11/2016) 125 million Shares at 3.7 cents for A$4.6 million to vertically integrated and Shanghai listed REE company Shenghe Resources Holding Ltd (Shenghe). Shenghe has a market capitalisation of approximately A$3.0 billion.
- Shenghe retains anti-dilution rights with respect to future capital raisings with the right to nominate a non-executive director to the GGG board.
- The medium term objective is to jointly develop the project (terms and conditions to be agreed) and integrate Kvanefjeld with Shenghe’s existing downstream processing facilities. The key takeaway in our view is the likely significant CAPEX saving as GGG taps into existing downstream processing infrastructure backed by the Shenghe balance sheet and REE market presence.
Metallurgical Improvements
- Recent technical reviews by Shenghe and GGG have also highlighted the potential to recover further products (e.g. lithium, zirconium) from Kvanefjeld.
Shenghe Resources...a major REE Participant
- Shenghe is based in Chengdu (Sichuan Province) and has significant expertise in mining, beneficiation, metallurgy, separation and downstream processing and marketing. Shenghe also has its own downstream processing facilities (including a recent purchase of a plant in Vietnam) with access to cheap reagents. The development of Kvanefjeld therefore has the potential to further cement its place as a dominant REE player.
- Shenghe controls domestic sources of REE ores and concentrates, has in country rare earth separation capacity, produces high purity rare earth metals and “end use” rare earth products such as polishing powders, catalysts and molecular sieves. In addition, Shenghe has an established international customer base for its products.
Price Catalyst
- Further announcements on technical reviews, project optimisation studies together with progress on permitting at Kvanefjeld are likely to be the short to medium term share price drivers and will provide much needed insight in respect to capital and operating requirements.
Action and Recommendation
- RMR is maintaining its speculative buy on the back of further positive news as GGG moves into the development phase with a realistic pathway to production. Until the arrival of Shenghe, this pathway was not clear. Our upcoming research update (November 2016) will examine a few production/funding scenarios that RMR believes are likely to demonstrate significant GGG share price upside in the short to medium term.
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