SVS Securities has reiterated a ‘speculative buy’ rating on the pozzolan-perlite developer Sunrise Resources PLC (LON:SRES) with a target price of 0.41p, although the broker thinks this could rise sharply as permitting and other risk factors reduce going forward.
In a note to clients, analysts at SVS said they think Sunrise offers “a clearly defined strategy focused on generating near-term cash flow together with value-enhancing minerals discoveries.”
They noted that Sunrise Resources is targeting first production from its lead CS Pozzolan-Perlite Project in Nevada before the end of this calendar year.
The analysts said, assuming a low capex start-up option following successful commercial trials, mine permitting looks on track for completion during the third quarter of 2019.
They added that the green credentials of natural pozzolan makes it the obvious alternative for an industry facing an increasingly urgent need to close the fly ash supply-gap created by the mass closure of US coal-fired power stations.
The early signing of two offtake MOUs with local Perlite processing companies also highlights the demand for this favoured growing medium, the analysts said.
“Given that the pozzolan asset is free-digging with minimal requirement for crushing, the low opex CS Project has potential to earn premium margins compared to its peers as output is ramped-up,” they added.
Low-cost production to commence in 2020
On this basis, the SVS analysts project the group commencing low-cost production early in 2020, leading to commercial deliveries in the second quarter with sufficient momentum to generate a modest positive cash flow by period end.
They said: “Having factored in the need for significant new expenditure in facilitation of these goals, a risk. adj. DCF for the CS Project suggests 193% upside to existing levels (based on a 70% discount factor) despite prudently awarding a zero valuation to Sunrise’s remaining legacy assets.”
The analysts concluded: “Although such industrial minerals presently enjoy a strong US macro backdrop, Sunrise must nevertheless be considered speculative given continuing risks that include timing, costing, customer buy-in, prospective funding and permit finalisation, all of which remain key considerations.”
The SVS analysts noted that a recent cash call by Sunrise Resources provided additional working capital, with £350,000 raised, before expenses, through a placing of 292mln new ordinary shares at a price of 0.12p. The shares currently trade at 0.14p.
They pointed out that Sunrise Resources’ full-year results to end-September 2018 highlighted operational progress, with initial permit applications having been submitted with mine/business/permitting plans completed by management.
However, they noted that additional funding is likely to be required during full-year 2018/19, to progress mine development to first production, with low-capex start-up options now being evaluated.