Excerpts from Canaccord Genuity's report

Analysts: Reg Spencer & Larry Hill

Merger for Bald Hill partners, but Reserve update 
presents as key catalyst

Bald Hill JV partners announce merger: TAW and Alliance Mineral Assets (40F:SGX | Not rated) plan to merge via a Scheme of Arrangement whereby Alliance will acquire TAW for 1.1 Alliance shares for every TAW share held, subject to all necessary approvals.

Tawana Resources

Share price: 
41 c

Target: 
58 c

Post completion, TAW shareholders will own 49% of the merged Group (spin out of non-core assets previously announced), which will retain listings on both the ASX and SGX.

Assuming all approvals are received, the transaction is expected to close in Q3'18. 

In our view, the merger would allow for a simplified ownership structure of the Bald Hill project, streamline operational management, and deliver increased scale and liquidity (estimated pro-forma market cap of ~A$490m). As such, we view this news as a positive.


plant AR Numerous potential share price catalysts (reserve update, first sales, potential resource expansion) for Tawana and Alliance Mineral Assets. Photo: Company

Balance sheet boost: In addition to the Merger, both TAW and Alliance have announced separate capital raisings, which we estimate would see MergeCo with a pro-forma cash balance of ~A$72m.

The significantly strengthened balance sheet should provide ample 
funding flexibility during commissioning/ramp up at Bald Hill, and fund an accelerated resource growth program and studies into a potential Phase 3 production expansion.

Bald Hill commissioning exceeding expectations: First concentrate production was achieved in Mar'18, with the first 24hr performance test of the plant delivering strong results. The DMS circuit achieved nameplate throughput rates during the test with other key data points including concentrate grades of +7% Li2O (despite the low grade ore feed), and low impurities.

Resource growth could justify expanded production rate: TAW has flagged that it expects to release updated Reserves in the coming weeks which we estimate could see mine life doubled to ~8 years. We continue to see further resource upside at Bald Hill, and in our view this is reflected in TAW's plans to assess a second DMS circuit.

We 
estimate that this could see concentrate production increase by ~90% to 380ktpa. To maintain an 8-year Reserve life at the expanded rate, Indicated resources would need to increase to ~20Mt, which we don't believe is a low probability outcome given current Ind/Inf Resources of 19Mt, and the under-explored nature of the Bald Hill project area.

Valuation & Recommendation
regspencerReg Spencer, analyst, Canaccord GenuityOur target price (NPV10%, risked expansion) moves to $0.58 (un-risked expansion $0.67), with revisions to our model including revised spodumene pricing forecasts (see Lithium | 2018 recharge 16 Apr'18), the inclusion of Phase 3 expansion option value, and the impact of the recent capital raising.

On a pro-forma MergeCo basis, we estimate an 
indicative NAV/share for Alliance of A$0.51 (un-risked NPV10% $0.60), representing an implied 38% return from the current Alliance share price).

With numerous potential share price catalysts (Reserve update, first sales, potential expansion) and the move to producer status, we expect TAW to re-rate over 2018.

The 
shares continue to screen well against its immediate peers (FY19e EV/EBITDA of ~2x, P/NAV of 0.7x), and we accordingly maintain our SPEC BUY recommendation.


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