RE: Shares of 202228 Dec 2021 20:48
DSO nickel supply to China is envisaged
Currently, the nickel price continues to fly high at US$19,750 a tonne which is good news as the company now has two impressive nickel cobalt projects in Papua New Guinea – Mambare and Wo Wo Gap. Mambare is actually being positioned to become a Direct Shipping Ore (DSO) nickel supplier to China.
Recent GPR work at Mambare was designed to determine the location for the DSO operation for the Mining Lease. This development is likely to require US$25 – 30 million of capex and at that stage, Corcel would either be looking to bring in larger players for a JV or consider a complete disposal. Currently, the company owns 41% of the project, but given a perceived inability of its partner BMA to fund the asset through to production, it would seem logical that the entire asset is vended into Corcel to allow for meaningful development. Chinese investor Sinom has been happy to accept Corcel’s paper, as demonstrated by the 2020 debt deal, and has now emerged as a highly supportive 12% plus shareholder. In our view, such backing speaks volumes for being a potential source of both offtake agreements and future funding.
Going forward, a good case could probably be made for Wo Wo Gap being worth roughly the same as Mambare, so if not the full £40 million valuation Mambare had in 2011-12, then at least some reasonable discount to that. With nickel prices strong and Chinese producers looking to have diverse sources of ore (outside Philippines and Indonesia), Corcel looks mighty well-placed moving ahead.
Plans at Wo Wo Gap are likely to involve updating the JORC to 2012 standard, then progressing towards a mining lease with all the hard lessons that the team has learnt from Mambare taken into account. It is now on the cards that the Mining Lease at Mambare could be awarded in the coming months allowing a DSO operation, funded by a JV partner. Together with Wo Wo Gap, this could nicely set the scene for some real valuation creation and M&A action.
By any yardstick, Corcel is highly undervalued in our view. We initiated coverage on the company in July 2021 with a Conviction Buy stance when the shares were trading at 1.625p and have since upped our target price a touch to 20.03p. At the current price of 1.20p, our recommendation is unchanged with an eye watering disconnect between the stock price and underlying value in our opinion.
http://www.alignresearch.co.uk/align-research/align-research-top-10-conviction-calls-for-2022/
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