Andromeda Metals Limited [ASX:ADN]
Metals & Mining
Tier 1 Kaolin asset in South Australia - Clear pathway for profitability and operational excellence
We initiate coverage on Andromeda Metals (ASX: ADN) with a 12-month target price of A$0.054, representing a 348% upside from the current share price of A$0.012. Andromeda is focused on the development of the Great White Project (GWP) in South Australia’s Eyre Peninsula which is a construction-ready world-class kaolin asset supported by a 15.1 million tonne Ore Reserve. The project is significantly derisked with funding backed by the recent credit-approval of a debt facility of A$75 million from Merricks Capital. A successful completion of financing for the first of the GWP’s 3 stages, Stage 1A+, is the near-term re-rating catalyst.
Construction-ready Tier 1 asset with strong project economics
Established Ore Reserves of 15.1Mt supporting long-term production across three development stages potentially reaching 330k wet metric tonnes (wmt) p.a. capacity. The Great White Project is significantly derisked with the staged development minimizing the risk for all stakeholders. We think the most critical stage for Andromeda is Stage 1A+ (production up to 100k wmt p.a.) wherein the capex is front loaded (A$ 101 Mn including sustaining capital), and this is significantly derisked from the financial standpoint. This is on the back of the credit approved debt facility of A$ 75 Mn from Merricks Capital. The project economics are poised to improve as it ramps up the production in Stage 1B and Stage 2 wherein the capex requirements are lower than Stage 1 and the operational efficiencies materialise from higher volumes. This implies very strong project economics as Andromeda progress through future stages. Additionally, project economics are supported by low-cost, conventional open-pit mining operations, as well as the premium pricing achieved under binding offtake agreements in the high-value markets targeted by Andromeda. Importantly, Andromeda has already procured the long lead items required for initial production and has significantly derisked the GWP through staged development plan as it minimizes the execution and capital risk.
Premium market positioning to drive long-term value in the growing market
GWP produces high purity kaolin targeting high-value ceramics market segments where only a few global kaolin sources qualify for use in premium applications. This sees the project's high-quality halloysite-kaolin blend able to command premium pricing in the high-end market segments targeted by Andromeda. Premium segment demand growth and ongoing constraints from high-quality kaolin supply sources, due to historical mine depletions, Ukraine supply disruptions, and Chinese domestic shortfalls, create a favourable pricing environment.
Valuation Range of A$0.045–A$0.062 per Share
Using an NPV methodology, we estimate ADN’s intrinsic value to be A$0.045 per share in a base case scenario and A$0.062 per share in a bull case. Our mid-point target price of A$0.054 highlights the significant upside potential, driven by the company’s high-quality deposit, scalable operations and the premium end-markets. We also see further upside potential from the high-purity alumina (HPA) opportunity and other projects which are not incorporated in our projections.