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.
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.
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