Ord Minnett Research has initiated coverage on Cassini with a speculative buy recommendation and a 30 cents per share target price.
Following is an extract from Ord Minnett’s report:
We initiate research coverage on CZI with a Speculative Buy rec and A$0.30/sh target price. We’ve taken a closer look at the recent Pre Feasibility study result for the West Musgrave nickel/copper project (30% JV with OZL) and now expect this to be OZL’s next development. We conservatively value CZI at A$137m which offers a compelling risk reward compared to their A$34m Enterprise Value.
PFS Cracks the Musgrave code
Recent PFS result for the 30% JV with OZL appears to have cracked the economic and technical case for unlocking the West Musgrave province. We believe the update should give investors cause to rethink their assumptions around the project as it now boasts:
1) Significantly derisked (metallurgy, power, logistics).
2) Increased scale with a 26 year mine life (vs 8 previously).
3) Improved economics with 1st quartile cash costs (AISC ~US$2/lb Ni in con), 20% IRR, NPV of A$800m, producing 22ktpa of Nickel and 28ktpa of Copper annually.
Plenty of upside & Optionality
- Optimise High Grade: the implied mine plan does not appear to utilise the initial ~30mt of high grade ~0.65% Ni/Cu ore. We believe this factor could be holding back the lustre 6 year payback (aside from the $1bn capex) to 2-4 years (+NPV)
- Ni Concentrate Payabilties: OZL’s 71% assumptions appear conservative in light of its high product quality and what peers get. Every +1% adds 2.5¢ to our valuation. Further, PGM/Co credits look underwhelming at 0-12.5%) and could cut costs by a further 11% if brought in line with peers (IGO Co 32%)
- In our view CZI will require OZL to secure debt funding at the project level to fund their $300m capital contribution.
Initiate with Spec Buy Rec and 30¢ target
- We initiate coverage on CZI with a Speculative Buy Recommendation and 30¢ target price which is based on a sum of the parts DCF (8.6% WACC). Long-term nickel price of US$7.5/lb, US$3.0/lb copper and 0.70 AUD.
- We conservatively value the project via assuming a slower project ramp up (1st prod 2025), higher capex contingency (20%) and higher unit costs (11%).
- At Dec y/e, CZI had cash of $7.7m, $7.3m debt (OZL loan repayable ~2028). OZL assumes sole funding for the WMP until FID in ~4Q21.
- Key risks and catalysts ahead include OZL FS approval and finalising a debt funding package (due in the coming months) and development risk.