Boab Metals Limited [ASX:BML]
Metals & Mining
A low-risk high-potential lead-silver play
Boab Metals Limited (ASX: BML) is a Perth-based resources company developing the open-pit mining site of Sorby Hills. Based in the tier-1 mining jurisdiction of Western Australia (WA), the site has one of Australia’s largest undeveloped, near-surface lead- silver deposits. With the results of the Definitive Feasibility Study (DFS) and project flow sheet in place, BML is set to fast-track the mining operations.
DFS suggests project site shaping up economically well
BML has spent 4 years drilling c.300 diamond-cut holes to develop a better understanding of the mine area. Post the completion of the fully-funded DFS study in January 2023, a 12% increase in ore reserves to 15.2 million tonnes (Mt) was published vs. the pre-feasibility study (PFS) report of December 2021. A c.50% jump in the process plant capacity has been highlighted. DFS has demonstrated favourable economics of the project with one of the lowest cash costs. BML is targeting Final Investment Decision (FID) by the end of Q3 2023 and first concentrate production by Q1 2025.
Demand-supply gap for lead and silver to support BML
Technological advancement has supported lead and silver demand as critical materials for industrial applications, i.e. automotive applications, power storage batteries, solar panels etc. However, COVID has forcefully suspended a lot of investment on the supply side, thereby causing a wide demand-supply gap. According to the Silver Institute, the industrial demand for silver is expected to reach a historical high of 550 million ounce (Moz) in 2023. Similarly, global demand for lead is also expected to remain north of supply in foreseeable future. This is expected to provide BML with a substantial market opportunity.
Valuation range of A$0.74–0.84 per share
Using the DCF approach and conservative assumptions on commodity prices, we have valued BML at A$0.74 per share in a base-case scenario and A$0.84 per share in a bull-case scenario. The target price range represents a Price/NAV of 0.24x, which we believe provides enough cushion for potential investors. We expect BML to get re- rated with the announcement of an offtake agreement or a debt funding arrangement prior to the FID and be able to raise equity capital at A$0.35 per share (25% higher than the latest capital raising price of A$0.28 per share in November 2022). Our valuation does not take into account the possible value-unlocking from non-core assets. The key risks include: funding risk, project delays and commodity price risk.