The target provides for potential strong upside due to being three times above the last traded price.
The following is an extract from the report "Technical review commences...minor metals demand improves."
Shenghe placement, board appointments
Following the placement of A$4.6 million (late 2016), Shenghe Resources Holding Ltd now holds 12.5% of GGG and Ms Wenting Chen has been appointed as a non-executive director.
Ms Chen has degrees in law, economics and business and has considerable international experience covering mining, banking and financial markets.
Technical review in full swing
Further to our early report (29/11/17) Shenghe and the Company are now working on a technical review involving the optimisation of concentrate grade and recovery through their relationship with state owned rare earth specialists Multipurpose Utilisation of Mineral Resources (“IMUMR”).
In addition, the technical committee will examine potential flow-sheet improvements through the refinery. The review will also investigate the recovery of additional products (e.g. lithium, zirconium) from Kvanefjeld.
The technical review will be conducted in parallel with the mining license application and should lead to significant CAPEX+/-OPEX savings and improved project economics.
Kvanefjeld a platform for Shenghe’s vertically integrated rare earth expansion
Shenghe (market capitalisation A$3.0 billion) is based in Chengdu (Sichuan Province, China) and has expertise in mining, beneficiation, metallurgy, separation and downstream processing and marketing.
Shenghe has its own downstream processing facilities (including a plant in Vietnam) with access to cheap reagents.
Shenghe established Sheng Kang Ning Mining Investment in 2013 as their rare earth and precious metal investment vehicle and Shenghe Resources (Singapore) Pte Ltd as their trading arm in 2015.
RMR consider this is a clear sign of Shenghe’s desire to use Kvanefjeld as a platform to expand their rare earth business interests.
A draft Environmental Impact Assessment (EIA) was submitted (late 2015) and is currently being updated following comments by the Greenland Government.
The Social Impact Assessment (SIA) is also due to be submitted with over 90% of comments/suggestions having been addressed.
The Public Consultation Phase will followed acceptance of the EIA and SIA.
Highly experienced consulting firm Shared Resources (ASX Announcement 20/4/2017) has also been appointed to assist with the SIA and EIA.
Results of the technical review together with progress on permitting at Kvanefjeld are near term drivers.
We note the recent Chinese policies relating to tighter controls over rare earth production, processing and supply and “strategic” recognition of rare earths which are likely to put further upside pressure on REE prices with Nd, Pr, Tb, LA and Ce already up 10-15% since January 2017.
Action and Recommendation
RMR is maintaining its speculative buy on the back of our risked mid case NAV of A$0.29 based on conservative CHREO and U prices and assuming a 40% free carried interest.