Canaccord Genuity's initiation report on Tawana Resources values the Bald Hill Project -- 50%-owned by Alliance Mineral Assets (AMA) -- at A$577 million. That implies a value of A$288 million for AMA's stake. Thus, the potential upside is about 70% for AMA from its recent stock price of 32 SG cents (market value: S$170 million).


Excerpts from Canaccord's report on Tawana.

Analysts: Reg Spencer & Larry Hill 

Joining the lithium producer ranks in 1H18
We view TAW, through its 50% interest in the Bald Hill JV (with SGX-listed Alliance Mineral Assets "AMAL" [40F-SGX | Not rated]), as primed to join the ranks of global lithium producers with production from the Bald Hill project scheduled for 1H18.

infra11.17Infrastructure rapidly being constructed at Bald Hill project.
Photo: Company
In our view, 
TAW's imminent transition to producer status, clean balance sheet (minimal debt) and cash flow/earnings potential is yet to be factored into the share price.

With our NAV-based 
target price of A$0.60 implying a potential return of 54%, we initiate coverage with a SPECULATIVE BUY rating.


Bald Hill - first production 1H18: The Bald Hill lithium/tantalum project is located ~50km SE of Kambalda, WA, and 340km by road north of the Port of Esperance. The project is fully funded, with construction of a spodumene recovery circuit and upgrading of the existing tantalum plant expected to result in initial concentrate production of ~155ktpa (+ tantalum credits).

The project benefits from established 
plant, infrastructure and permitting (significantly shortening lead time and reducing capital costs), while favourable mineralogy should see the production of a high quality concentrate with low impurities.

Significant upside opportunities - increased production and longer mine life: Through treating fines material (stockpiled during first 12 months) via a low capex fines DMS circuit, we estimate production will increase by ~25% to 200ktpa in early 2019, resulting in LOM cash costs of A$325/t (net of credits).

Rates highly on several metrics versus the peer group:

Reg SpencerTAW screens very well against 
its more fancied peers, with significantly lower capital intensity, and lower 2019e EV/Production and P/NAV multiples. In our view, the market is yet to factor in TAW earnings/cash flow potential, with a 2019e EV/EBITDA of only 2.2x, versus its ASX-listed peers at 
5-13x.

-- Reg Spencer (photo) and Larry Hill, 
Analysts, Canaccord Genuity

Current Reserves support an initial mine life of ~4 years, but based on a recent Resource upgrade, we anticipate that a Reserves update in early 2018 could see the mine life increased to ~7 years. Based on an Exploration Target of 30-50Mt, we see the potential for a mine life of 10-16 years.

Longer-term upside could also come through further, low capex capacity expansions should any subsequent Resource/Reserve increases support it.

Strong margins locked in via binding offtake + Strategic investment from electric motor/EV maker: The Bald Hill JV partners have a binding offtake agreement with Hong Kong-listed Burwill Holdings, with pricing confirmed at US$880/t FOB for 6% Li2O
concentrate over Years 1 and 2 of the 5-year arrangement.

Both JV partners are fully 
funded through to production, with TAW recently completing a A$25m financing with Weire Energie, a German subsidiary of Chinese electric motor/EV maker Jiangxi Special Electric Motor Co. Burwill and Jiangxi have entered into a JV to construct 15ktpa of converter capacity in China which is planned to be fed by Bald Hill concentrates.


Valuation
Works1Our project model is based on a 12-year, ~200ktpa spodumene concentrate operation (29ktpa LCE), with average LOM cash costs of A$325/t and establishment capex of A$44m, from which we derive a project NPV10% of A$577m. 

Our fully diluted NAV/target 
price of A$0.60 comprises TAW's attributable 50% of our project NPV, a nominal amount ascribed to exploration assets, net of corporate and other adjustments.

 
Canaccord's full report here.


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