Boab Metals Limited [ASX:BML]
Metals & Mining
Boab to become Sorby Hills sole owner
Boab Metals Limited (ASX: BML) has announced that it has executed an option agreement with its JV partner Henan Yuguang to acquire its 25% share in the Sorby Hills Lead-Silver-Zinc Project for A$23m. The purchase amount is to be paid in 3 tranches and the ability to exercise the option is subject to Boab reaching a Final Investment Decision (FID) on the Sorby Hills Project within the next 12 months. Importantly, the option agreement requires no immediate payment to Yuguang and allows for Tranche 1 payment to be met with funds raised at FID. Boab's full ownership of the project, along with the elimination of direct Chinese ownership, is likely to enhance access to Australian government funding sources, such as the Northern Australia Infrastructure Facility (NAIF), for the project's development. This streamlined ownership structure is also expected to ease offtake negotiations and attract potential financing from offtakers.
Positive FEED results have enhanced Sorby Hills’ economics
Over the past year, Boab has successfully optimised its Sorby Hills DFS results while completing Front-End Engineering and design (FEED) for the Process Plant in collaboration with GR Engineering Services (GRES). This has resulted in significant project improvements, including a c. 10% decline in C1 costs while reporting a modest increase in upfront Capex, resulting in considerable improvements in project NPV and IRR profiles.
Lead and silver prices hold strong
Unlike many so-called green metals like lithium, nickel, and rare earth elements (REEs), lead and silver prices have remained resilient despite the broader downturn in commodity prices over the past 18 months. Silver, in particular, is trading at a 10-year high, driven by increased demand for precious metals and growing industrial use, especially in solar panel manufacturing. Meanwhile, we anticipate a further recovery in lead prices in the near term, supported by the recent rise in zinc prices. Given the historical correlation between these two commodities, we expect lead prices to follow suit shortly.
Valuation range of A$0.44–0.49 per share
In our December 2023 coverage of BML (available here), we valued the company at A$0.70 per share in a base-case scenario and A$0.81 per share in a bull-case scenario, using a DCF model primarily based on the Sorby Hills DFS outcomes. We've now updated our model to reflect the results of the completed FEED study and assume 100% ownership of Sorby Hills by Boab. The decline in our revised valuation range is mainly due to higher dilution from BML needing to raise more equity capital as the sole owner of the project and our lower estimate of the share price at which BML is likely to raise that capital, as well as the A$23m cash outflow to Yuguang as part of the option agreement. We have also assumed the production at Sorby Hills to commence a year later in FY27 in our updated model.
Disclaimer: Directors of Shares in Value hold shares in Boab Metals (ASX: BML).