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Kimberley Rare Earths: BGF Equities places SPECULATIVE BUY with A$0.60 price target

Friday, August 05, 2011

Kimberley Rare Earths: BGF Equities places SPECULATIVE BUY with A$0.60 price target

BGF Equities Research has written a report on Kimberley Rare Earths (ASX: KRE) as it prepares  to commence an extensive exploration program at its Cummins Range  Joint Venture Project.

BGF has recommended Kimberley Rare Earths as a SPECULATIVE BUY and placed a price target of A$0.60 per share.

Company data

Price: $0.165
Market capitalisation: $22m
Cash $17.4m (post-IPO May 2011)


We expect an increase of the mineralization outline with stepping out drilling targeting extension of the known high-grade zone, as well as an increase in the confidence of the existing REO resource.

Furthermore, KRE is using all possible exploration tools to define additional drill targets.

KRE offers exceptionally good value given that it is selling at cash backing with almost no premium for a JORC compliant rare earth deposit.

We see the KRE shares performing strongly on the basis of superior fundamentals and positive exploration results confirming the quality of the Cummins Range project.

Key Points

1. The 5,700m RC drilling programme is scheduled to:

a. convert part of the inferred REO resource into higher confidence categories;
b. test the extension of the high grade zones to the north west, where grades up to 28% REO have been recorded; and
c. test geophysical anomalies to the east.

2. The Cummins Range project is going to be examined with an extensive range of exploration methods. Geophysical and geochemical methods include:

a. Close-spaced, low altitude, high-resolution aeromagnetic/radiometric survey.Data has been collected, is currently processed and results are expected in the next two weeks. The idea is to try to find additional carbonatite bodies;
b. Close-spaced ground gravimetric survey to commence end of July to define areas of deepest weathering coincident with the highest grade REO mineralization;
c. High-resolution satellite imagery to provide baseline references; and
d. Auger drilling to collect samples over the entire tenement, starting today to define additional drill targets.

3. KRE is well cashed up with $17.4 million following the IPO. KRE has actually the highest cash balance among the rare earths juniors, warranting the earning of 55% of Cummins Range project and providing funding to potential acquisitions.

4. With an enterprise value (EV) of only $4.5m, KRE is undervalued against its peers, despite a substantial REO resource already delineated. This historical resource defined is a starting point and should grow substantially on the back of the drilling program.

5. KRE has attracted two professionals of quality with:

a. Tim Dobson, CEO metallurgist with 23 years of experience, focused on the management and technical challenges of operating complex processing facilities such as the ones from Boddington, Porgera, and Cawse; and
b. Geoff Collis, GM – Exploration, 26 years of experience as an exploration geologist, with a number of discoveries. He was Exploration Manager of Avoca Resources from pre-IPO to the merger resulting in the creation of Alacer Gold (ASX: AQG).

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