The Perth broker has applied a target price of $0.25, three times higher than yesterdays close of $0.084. The following is an extract from the report.
Jumbo graphite development opportunity:
Walkabout Resources Limited (WKT) is an Australian graphite developer in Tanzania.
The Company recently completed a Definitive Feasibility Study (DFS) on the Lindi Jumbo Graphite Project (“Lindi”) (70% owned with an option to acquire 100%).
The DFS estimated production of 40ktpa of graphite in concentrate and was updated in August 2017.
The update includes a new capital estimate (US$30m), updated schedules, metallurgical test work and the potential impact of legislative changes in Tanzania to the Mining Act comprising of a 16% free carried interest by the Government.
WKT has announced that has met with the Tanzanian Government, we see this as a move in the right direction and potential way forward.
The Lindi Project has a JORC Ore Reserve of 5.0Mt at 16.13% total graphitic carbon (TGC, April 2017).
The Company has developed a proprietary processing technique which yields exceptionally high ratios of Large (+180μm), Jumbo (+300μm) and Super Jumbo (+500μm) flakes into concentrate.
WKT has further exploration ground prospective for graphite in Tanzania and, also explores for lithium in Namibia and coal in Botswana.
Importantly, WKT has in principle Chinese part funding and both Chinese and European off-take agreements for Lindi.
We endorse WKT’s business plan as the Company aims to develop the Lindi Project under a conservative approach by engaging the right partners to minimise project risk.
We initiate coverage of WKT with a Speculative Buy recommendation and a price target of $0.25/sh.
Considerable upside for expansion at Lindi:
The exploration ground at Lindi remains open in all directions.
Given the high grade of the project (16.13%).
We would consider a cut-off grade of 7.5% TGC as Resources grade for some other graphite companies.
Tanzanian situation remains risky, however showing signs of improvement:
The announcement by Barrick Gold (ABX-US), could be taken as an inflection point.
Its subsidiary Acacia Mining (ACA-LN), would pay $300m and split the ‘economic benefits’ from operations with Tanzania under a deal proposed to resolve the months-long dispute.
We have valued the Lindi project at $85m under conservative assumptions, we included 50% of our Lindi’s valuation, 12% discount rate to account for country risk and uncertainties and 50/50 debt to equity.
Further upside remains if project equity reaches 100% ($0.37/sh) and a 70/30 debt to equity would increase the valuation to $0.54/sh.
We also have included the potential 16% free carried equity by the Tanzanian Government.