Greenland Minerals and Energy (ASX:GGG) has defined one of the world’s largest undeveloped JORC resources of rare earth elements and uranium near the southern tip of Greenland. Feasibility studies demonstrate the potential to establish a long-life, cost-competitive supply of critical rare earth products and uranium. The initial development strategy is entering the permitting phase.
Greenland Minerals and Energy (ASX: GGG) has received a Buy recommendation from RM Research, with a medium term target of A$1.80 to A$6.36 being applied.
Focusing on the lowest end of the target range (A$1.80), this is close to being four times higher than the last traded price of A$0.46.
The following is an extract from the report.
RM Research has estimated the GGG value per share in two different timeframes:
1. Short-term estimate based on expectations in the next 6-18 months;
2. Mid-term estimate based on significant developments over the next 1-3 years.
In the short term, RM Research can see valuations in the range of A$300-A$700 million, with a mid-point of ~A$500 million or approximately A$0.90/Share (assuming 550 million Shares on issue following a A$60 million equity raise at 45 cents to settle Westrip).
In the mid-term, assuming GGG can leverage better value for its REE resource and move into the “developer” benchmark level, RM Research envisages valuations in the range of A$1.0 billion-A$3.5 billion although to achieve this, shareholders are likely to experience some dilution as the project is progressively financed.
Nevertheless, RM Research can still see share price levels around the A$1.80-A$6.36 range in the medium term.
At what risk is this mid-long term valuation? On a purely economic analysis basis (ignoring social issues and intangibles such as Greenland political developments), we can project a range of prospective NPV10 outcomes by flexing for capital costs and REO/uranium pricing in the mid-term.
A number of key milestones have been met or are imminent this year including a significantly expanded resource based on drilling at Zone 2 (recently completed) and Zone 3 (imminent), the completion of Pre-Feasibility (“PFS”), environmental (“EIS”) and social impact assessment (“SIA”) studies in late CY 2012 and a Definitive Study in early
CY 2013, Greenland Minerals and Energy appears to be finally building some momentum.
The Company also expects to lodge an exploitation license application for Kvanefjeld in the near term.
The critical issues appearing to fall GGG’s way include:
- Important technical breakthroughs are being made on the metallurgy and an optimised process flow sheet is imminent;
- The JORC resource has been increased to a level (512Mlb U3O8, 9.22mt REE), giving further support to a world class deposit capable of producing uranium and rare earth elements (“REE’s”) for many decades to come;
- The two principal products from Kvanefjeld, uranium and REE, have market structures undergoing significant change with most analysts forecasting buoyant pricing over the next several years;
- GGG is moving to 100% ownership of the Kvanefjeld Project in the process bringing the legal dispute with Westrip/Rimbal to an end, clearing the way for a strategic investor to step in and help finance the project;
- The Greenland government appears to be warming to the idea of uranium mining, certainly as a by-product of REE mining and it is expected that an exploitation license will be issued in the near term.
The ability of GGG to secure the exploitation license will hinge on the quality of the EIS and SIA reports and their relevant conclusions.
With a contained metal content of over 9mt TREO and 500mlb U3O8 (defined over 2 deposits totalling 860mt) the project is no longer a question of size – the resource will sustain many decades of mining - but rather the focus now shifts to how to economically extract the REE and uranium.
The DFS, based on a finalised process flow sheet and tested in a pilot plant in 2H 2012, is likely to put technical and project execution questions to rest.
With moderated capital costs, improving markets in uranium and REE’s, the timing appears to be right for GGG.
The technical studies and pre-development activity undertaken by GGG during 2012 will be critical in determining the future of their flagship project and potentially set the timeline to development.
With some key milestones out of the way and critical penultimate ones due for completion in the next 12 months, RM Research believes it is now time for investors to get set in this exciting company.
Our short term price target is A$0.90 with a medium term target of A$1.80 to A$6.36 as the project moves closer to the development phase and more emphasis is placed on cash flow based methods of valuation.
RM Research believes the exploration target could be in the range of 2-10bt at similar grades which may approach, over time, the giant Olympic Dam Deposit of BHP Billiton Limited (ASX: BHP) of 8.3bt Measured, Inferred and Indicated Resources @ 0.88% Cu, 0.31g/t Au and 280ppm U3O8.
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