Good lithium and minerals sands potential has prompted broker Finncap to stick a punchy valuation on the value of assets held by AIM-listed junior Savannah Resources (LON:SAV).
The broker estimates the shares are worth 11p on a risked basis or more than double the current share price.
Most of that is attributed to Mutumba minerals sands joint venture with Rio Tinto in Mozambique, but finncap add that this may quickly be superseded by the recently acquired lithium assets in Portugal.
At Mutamba, Savannah is the project manager and is currently earning-in a 51% interest.
The broker adds it is unusual for Rio Tinto to enter into a joint venture with a much smaller company, something it sees as a strong endorsement of Savannah and its management.
A scoping study has already been completed that envisaged a 30 year operation based on a resource of 451 mln tonnes at 6% total heavy minerals, with average annual production of 456,000 tonnes of ilmenite and 118,000 tonnes of non-magnetic concentrate.
Revenues over the life of mine are estimated at US$4.23bn, based on an improved ilmenite price of US$204 per tonne, or US$3.5bn base case, based on an ilmenite price of US$185 per tonne.
A Pre-Feasibility Study (PFS) is next with completion due around the end of 2017 to be followed by a full Definitive Feasibility Study (DFS), which will take around a year to complete and in cluded detail on the preferred development option.
Lithium a growing part of the mix
Finncap has just visited the lithium exploration and development project in northern Portugal and was impressed by the large amount of work already done on the project by the previous owner.
As such, and permit permitting, the first mining area at Mina do Barroso could be in construction and development before the end of 2018.
The large scale of the mineralisation in the area is apparent – it would appear to have the potential to be a substantial producer of lithium concentrates.
The outlook for lithium is particularly buoyant – it is rapidly making the transition from an obscure metal used in a few specialised applications to one that is used in many areas of society.
“ In particular, demand is expected to increase massively over the next decade as it is used in the batteries of electric and hybrid electric vehicles. This is expected to drive demand for lithium from the present 37,000 tonnes per year to more than 400,000 tonnes per year by 2025.”
Additional optionality for the company is given by the copper project in Oman. This is an advanced project which can quickly be brought to account, once the necessary permits for development have been obtained and the remaining development studies have been concluded, said the broker.
A resource of 1.7 Mt grading 2.2% copper has been defined, within an exploration target of between 10.7 Mt grading 1.4% copper and 29.25 Mt grading 2.4% copper.
Metallurgical studies have determined that the ore can be treated to produce a concentrate of 22-27% Cu at 90% recovery with additional gold and silver credits through standard milling and sulphide flotation.
Lithium potential under-appreciated
Finncap said it used a combination of a risk-adjusted cashflows and market-related valuations to set an initial target price of 11p.
“This is some 114% above the present price of the stock, which suggests that the market is still assigning a considerable risk discount to the assets. In particular, it appears to not fully appreciate the potential value of the recently acquired lithium assets in Portugal.“
At 5.16p currently, Savannah is worth £27mln.