What the Analysts Say

WHAT THE ANALYSTS SAY: Interesting news and views from across the Resource Analyst universe.

Website: www.beerandco.com.au

Company: PLD Corporation (ASX: PLD)

PLD has signed an agreement to acquire the Admiral Bay zinc deposit.

Upon successful completion of due diligence, PLD will pay $0.5 million in cash, issue a $0.5 million convertible note, grant a 1.5 per cent NSR and pay $2.5 million in cash/shares in the third year of production.

Admiral Bay has a resource of 72 million tonnes grading 6 per cent zinc and lead and 18 grams per tonne silver.

This is calculated from a 2.1 kilometre zone of an 18 kilometre mineralised corridor.

PLD has acquired a world class zinc deposit in the world class mining jurisdiction of Western Australia at a time when zinc is about to go into a significant shortage.

PLD is now focussed on extracting the strategic value from 100 per cent ownership of a world class deposit with a resource upgrade, development of an Exploration Target, metallurgical test work review and partner discussions.

Admiral Bay has significant strategic value

The zinc market is in deficit as exchange stocks have fallen by 387,000 tonnes, or 33 per cent, since the start of 2014, partly due to the closure of 320,000 tonnes of annual capacity at New Brunswick and Perseverance mines in Canada.

Major mine closures of a further 850,000 tonnes of annual capacity are expected by the end of 2016, plus up to 650,000 tonnes more in various small mines.

Admiral Bay has 2.2 million tonnes of contained zinc in Resources which makes it one of the largest available resources globally.

The Resource relates to only a 2.1km section of 18km of mineralised corridor, so there is significant further potential.

PLD is cheap on a peer comparison

Beer & Co calculate that PLD’s current Enterprise Value is equivalent to $1.3 per tonne of zinc or $0.6 per tonne of contained zinc equivalent.

This is less than half of the next cheapest zinc exposure listed on the ASX, and only 10 per cent of direct peers, though these projects are more advanced.

Admiral Bay is in WA, which has a much lower sovereign risk than many of its peers.

Website: www.argonaut.com

Company:  Kibaran Resources (ASX: KNL)

Kibaran Resources (ASX: KNL) is developing the Epanko graphite project in southern Tanzania.

In a sector that is racing to develop new projects amidst a relatively small market, Epanko is differentiated from its development peers by ultra-high quality, large flake size and off-take agreements in place.

Positive scoping study
KNL published a positive Scoping Study in August 2014 highlighting the potential for a low capital, low opex, high margin operation, whereby 420,000 tonnes throughput at 9.6 per cent will produce 40,000 tonnes per annum graphite.

The project benefits from low strip ratios (1.3:1 for the first five years), high grade, high recoveries and a high value, large flake product. The study defined a 27 year mine life at stated production levels.

Size matters
Where most commodities are measured primarily by grade, graphite deposits are additionally evaluated on graphite purity and flake size, with large flakes (+180μm) commanding premium prices.

Epanko’s scoping study has demonstrated its ability to produce ultra-high purity with 99.9 per cent graphite (applying final stage acid wash) via one-step purification comprising 29 per cent >180μm flakes.

However, the focus at this stage is to produce 94 to 97 per cent carbon concentrate through simple flotation.

Test work has showed no relationship between flake size and quality and also confirmed very high melting point (1,305°C), both favourable properties for product application and diversity.

Scaled to meet the market
The graphite market is relatively small (1.2 million tonnes in 2013) and the growth potential is very much hedged on the development of battery technology with demand forecast between 1.5 to 2.5 million tonnes per annum.

KNL planned production of 40,000 tonnes per annum is aimed at being non-disruptive to the market.

We envisage that both the Resource and plant design are amenable to expansion, subject to demand.

Off-take in place
Unlike many of its ASX-listed peers, KNL has signed two off-take agreements and is the first to do so with a non-Chinese party.

The second agreement with German trader ThyssenKrupp Group is for 20,000 tonnes per annum (split 50/50 Epanko and Merelani), which in addition to the first contract for 10,000 tonnes to an undisclosed party, accounts for 50 per cent of Epanko forecast production.

Disclaimer: The above is intended as a guide only. The Roadhouse accepts no responsibility for investments made from this advice, successful or otherwise.

The views, opinions or recommendations of this article do not in any way reflect the views, opinions, recommendations, of The Resources Roadhouse.

The Roadhouse makes no representation or warranty with respect to the accuracy, completeness or currency of the content. The content is for educational purposes only and does not constitute financial advice. Independent advice should be obtained from an Australian financial services licensee before making investment decisions.