Greenland Minerals and Energy Ltd (ASX:GGG) is expected to start production by around 2021 at its Kvanefjeld Rare Earths Project in Greenland, according to Pitt Street Research.
Pitt Street has valued Greenland Minerals at 18 cents per share (base case) and 43 cents per share (optimistic case) using a DCF (discounted cash flow) approach with conservative assumptions on rare earths.
Following is an extract from an update to Pitt Street’s September 2018 initiation report on Greenland Minerals:
The Kvanefjeld project, which we believe can potentially start production in 2021, is valuable in part because of its favourable metallurgy and wide spread of critical rare earths.
A steady increase in rare earth and uranium prices, further progress on the Kvanefjeld flowsheet, and completion of permitting in Greenland can help drive favourable sentiment and re-rate the stock into our valuation range.
Continuous improvement at Kvanefjeld
Over the last 11 years, Kvanefjeld has emerged as one of the largest undeveloped rare earth oxide resources in the world, with a current JORC 2012 resource of 1.01 billion tonnes grading 1.1% REO.
The project also has substantial uranium (593 million pounds) and zinc resources.
A key step forward, from late 2016, has been the involvement of a major Chinese rare earths company called Shenghe Resources, which now owns 11% of Greenland Minerals.
We look for a feasibility study in the coming months
The company expects to work on a feasibility update once the flowsheet has been optimised.
We believe that this can happen in 2019 and that this update will feature another lowering of estimated capital and operating costs at Kvanefjeld.
After the feasibility study update, Greenland Minerals and its collaborators will move to a bankable feasibility study.
We envisage a start-up of production at Kvanefjeld around 2021.
If Greenland Minerals is so good, why is it currently capitalised at only A$80m?
We think that the main reason for the apparent undervaluation of Greenland Minerals in recent years is concerns that environmental and related permitting issues have some years to progress.
Significant progress has evidently been made on this front through 2018, with updated impact assessments completed by highly reputed specialist consultants and returned to the regulators.
Updates on the permitting status would be anticipated for early 2019 and will be an important guide and potential catalyst.
Shenghe has driven further value increases since late 2016
We noted in our September 20, 2018, initiation report on Greenland Minerals that Shenghe’s Chinese collaborators, IMUMR and BTMR, have done a lot of work on both the concentrator and the refinery of the project.
This has resulted in some major steps forward in the last twelve months.
The late 2018 and early 2019 announcements bode well for the current year
It seems that every time Greenland Minerals looks at Kvanefjeld, it is able to cut costs somewhere.
We think that this success can continue into 2019, given the commitment of Greenland Minerals and Shenghe to source other collaboration partners to work on processing infrastructure, capital works, and construction.
There is also the potential for such collaborators to ease the Kvanefjeld funding process, through committing their own balance sheets to the project as part of obtaining the work they are bidding for.