viewAmerican Rare Earths Ltd

Broken Hill Prospecting is undervalued despite exposure to cobalt, heavy mineral sands and base metals

The market hasn’t fully appreciated the company’s strong market connection with JV partner Cobalt Blue Holdings Ltd.

Photo of blue mineralisation at Thackaringa
Mineralisation at the Thackaringa project southwest of Broken Hill

Broken Hill Prospecting Ltd (ASX:BPL) remains undervalued despite strong recent news flow from its flagship cobalt joint venture near Broken Hill and its position as the largest mineral sands tenement holder in the prolific Murray Basin.

Add to this a number of copper/base metals prospects around the established far west New South Wales mining stronghold of Broken Hill and it is not difficult to see that the company’s trading level of around 14 cents represents value.

Strong news flow to continue

Recent news from the Thackaringa Cobalt Project of joint venture partner Cobalt Blue Holdings Ltd (ASX:COB) has seen share prices increase appreciably from around 3 cents in early October 2017.

However, considering that COB is trading at around $1.40 a little over 12 months since it was spun out of BPL, it can be ascertained that the market hasn’t fully appreciated the value connection.

READ: Broken Hill Prospecting readies aggressive growth and value-adding strategy in 2018

Managing director Trangie Johnston said: “We have 49% of the project at the moment and COB has 51%.

“We also have a 2% NSR on all future cobalt production and there are a number of key cash payments due to us in coming years that will really put a floor under this company and leverage us to the next stage.

“I have been in this industry for some time and have seen multiple cycles, and where we are positioned now, I think we are going to see a very exciting future for the company,” he said.

READ: Broken Hill Prospecting shares run higher on Thackaringa cobalt resource upgrade, up 39%

The joint venture partners recently announced a resource upgrade at the cobalt project, which now has 72 million tonnes at 852 parts per million cobalt, 9.3% sulphur and 10% iron for 61,000 tonnes of contained cobalt.

Importantly, 72% of this is in the indicated category.

Johnston said: “This upgrade comes at a time when cobalt prices have been experiencing large gains on world markets, recently hitting $US88,000 per tonne.

“Both the increase in cobalt resource size at Thackaringa and the cobalt price combine to make this a valuable and strategic development of global magnitude.

“It adds significantly to BPL’s assets both in terms of our ongoing participation in the JV and the increased potential for future royalty steams.”

READ: Broken Hill Prospecting and Cobalt Blue form cobalt alliance with LG International, shares jump 30%

The partners subsequently entered an international strategic partnership with LG International, the resources investment arm of LG Corp (KRX:003550), which Johnston said was a major win for the project.

LGI will provide capital and technical assistance for the JV to make a high-purity battery-grade cobalt sulphate.

To achieve this, LGI will cooperate with LG Chem, the world’s fourth-largest electric vehicle (EV) battery maker which has strong technical leadership in development of next-generation batteries, in particular for fixed storage and EVs.

Pre-feasibility study next catalyst

The next major catalyst for the JV will be the release of a pre-feasibility study (PFS), which is due for completion during the current quarter.

Base metals prospects outside the cobalt deposits at Thackaringa.

“It will be the first time the marketplace can see the economics of the project,” Johnston said, “and work done to date is indicating that the market will be surprised and impressed.”

The managing director, who was promoted to the role in January 2018 after serving as chief executive, said the spin-off of Cobalt Blue in February 2017 had been a major success.

“To unlock the value of the Thackaringa Cobalt Project has been a big goal of ours over the last few years.

“We could see the way the market was heading and the spin-out and IPO of COB has been highly successful.

“BPL shareholders have done extremely well out of that corporate restructure and we are very pleased to see how COB has driven the asset to its current position and it’s only going to get better.”

After completing the resource upgrade, COB has submitted a draft geological report to BPL, serving notice that COB believes it has fulfilled its stage I JV requirements.

Completion of the PFS forms part of stage II milestones which will increase COB’s beneficial interest to 70%.

Largest Murray Basin tenement portfolio

Aside from the cobalt project, BPL has the largest tenement portfolio in the world-class Murray Basin, focusing on high-grade, low-tonnage, shallow heavy mineral sand (HMS) deposits.

BPL’s extensive HMS tenement portfolio in the Murray Basin.

After a large basin-wide prospectivity analysis, the company has picked up new ground, which is going through applications at the moment.

Maiden resource estimates for the Jaws and Gilligan deposit were completed last year and the company now has more than 100 million tonnes of heavy mineral (HM) sands resource.

The Jaws inferred resource estimate is 63 million tonnes at 1.9% HM and 5% clay, containing 1.2 million tonnes of HM with an assemblage of 10% zircon, 29% rutile and 10% total ilmenite.

The Gilligans inferred resource is 50 million tonnes at 1.6% HM and 2% clay for 800,000 tonnes of HM with an assemblage of 9% zircon, 23% rutile and 8% total ilmenite.

“BPL is very much focused on a unique proprietary knowledge,” Johnston said.

“We have developed a new business model based on low capex, low opex operations focused on the shallow, high-grade resources that the big players such as Iluka Resources Limited (ASX:ILU) and Cristal Mining have left behind.

“The company is coming in with a new set of eyes and a new business model that is much more flexible with a lower entry cost to get moving into production.

Modular mobile technology advancements

“Mineral sands has typically been a majors game but there have been some recent developments in technology to extract the sands.

“Modular technology is a lot more mobile which means you do not have to look at the fixed plant, big capital investments that the majors have had to go through.

“What was once deemed uneconomic by the majors is now very much on the radar for us,” he said.

Expanding base metals footprint

BPL is also expanding its base metals footprint in the Broken Hill region outside the base metals rights it owns at the Thackaringa project and is awaiting applications for three exploration licences.

Tenements under application are prospective for base and precious metals.

Johnston said: “Our expanded footprint in the Broken Hill region has picked up some interesting copper plays along the Line of Lode strike from Broken Hill itself.

“We are very keen to follow these up in the near-term as well as continuing our own work at Thackaringa.”

The Broken Hill NW and Main Line licences are viewed as prospective for base metals, with the latter having been explored for copper in the past.

The Triple Chance licence application region is 25 kilometres from Broken Hill, and should the licence be granted, the company will be targeting base and precious metals.

Johnston’s challenge at the helm is to optimise the company’s performance and keep adding value.

“Late last year the board and I formulated a blueprint for the growth of the company through 2018.

“I’m looking forward to delivering against that strategy and positioning BPL, over time, to become a mid-tier, multi-commodity, multi-project miner.”

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Market: ASX
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