West Cobar Metals Limited [ASX: WC1]
Metals & Mining
A grossly undervalued Rare Earths & Battery Metals play
West Cobar Metals Limited (ASX: WC1) is an Australia-based resources company primarily engaged in exploring for critical minerals. Its flagship, clay-hosted Salazar Rare Earth Elements (REE) Project, is located in the Tier-1 mining jurisdiction of Western Australia with proximity to essential infrastructure. Given the increasing demand for REE due to the growth in various sectors such as defence, aerospace, electronic vehicles and medical device applications, the company is well-positioned to capitalise on this expanding market. With the promising metallurgical test work results, the company is swiftly advancing towards the development of its flagship Salazar Rare Earths Project.
Salazar REE Project offers a strong foundation of resources
Since acquiring the Salazar REE project in late 2022, WC1 has undertaken essential exploration activities in the prospective region, resulting in an expansion of the resource size and an improved understanding of the deposit's geotechnical and metallurgical characteristics. The initial drilling program, comprising 283 holes, revealed a nearly 4x increase over the previously Inferred Resource tonnage, featuring consistently high REE grades. The total resources now stand at 190 million tonnes (Mt) with a concentration of 1,172 parts per million (ppm) Total Rare Earth Oxide (TREO) at a 600ppm cut-off, representing a notably high-grade deposit.
Co-mineral resources add value to the project’s economics
Newmont deposit in WC1's Salazar Project is a rich repository, hosting Titanium Dioxide and High Purity Alumina mineral resources alongside reported REE. The presence of 29Mt of 5.0% Titanium Dioxide (TiO2) and 4Mt of 29.6% Aluminium Oxide (Al2O3) resources, with potential for high-grade HPA feedstock, present an opportunity to bolster the project's economic outlook. The co-mineral resources, coupled with the REE total resources of 83Mt at the Newmont deposit, enriched in dysprosium and terbium, offer significant upside potential. Moreover, the presence of high-grade zones abundant in scarcely available Scandium and Gallium further augments the deposit's value.
Valuation range of A$0.36–0.41 per share
We value WC1 at A$0.36 per share in a base-case scenario and A$0.41 per share in a bull-case scenario using an asset-based comparable valuation methodology, representing a Price/NAV of 0.14x. Our calculation considers full share dilution, including the company’s recently closed private placement and share purchase program. Our target price range underscores the substantial inherent value of the Salazar deposits. In addition, as WC1 monetises its other strategic assets, additional value can be unlocked long term. Notable risks to our investment thesis include commodity price fluctuations, funding challenges and potential project delays.