Shares in Cradle, which is proposing a 2 million tonne per annum operation, last traded at $0.19.
The following is an extract from the report.
Niobium pre-producer in Tanzania, Niobec comparisons
Cradle Resources is an ASX-listed junior that acquired the Panda Hill project in Tanzania in 2Q13, with resource and scoping study in 4Q13 and 1Q14.
The 1Q15 PFS shows a 30-year open pit generating EBITDA of US$103m pa, with an NPV10% of US$470m and IRR of 56% at US$44/kg.
Capex of US$158m for a 2Mtpa operation is already low, but we expect this to fall to ~US$120m in the DFS for a 1Mtpa initial start-up.
The proposed 2Mtpa / 6,800tpa FeNb operation is similar to the Niobec mine, a 2.4Mtpa operation producing ~7,200tpa FeNb that was sold for US$530m in 2014.
Pyrochlore hosts the Niobium, and is recovered from host carbonatite rocks via flotation.
Subsequent "converting" to FeNb is done in what is effectively a small smelter. Critical to success is recovery, concentrate grade and FeNb specification.
With 165 open-cycle and 17 lock-cycle tests, Cradle has some of the most comprehensive test work in the sector.
Specifically, 62% recovery is ahead of peers, and concentrate grades are high enough to allow converting to premium penalty-free FeNb.
A key advantage is stripping rather than treating weathered material, lowering metallurgical risk.
Niche commodity, but with liquid market with 10% CAGR
Unlike other niche commodities, benchmark specification niobium is sold into a liquid market which has seen ~10% CAGR over the last decade.
With ~87% of the market controlled by a single Brazilian operation, prices are stable, and Cradle's ~5% shouldn't be disruptive in the well-controlled demand price-inelastic market.
Initiate with BUY rating and A$0.40/sh target
We replicate the PFS unit costs, but model a four-year 1Mtpa mine at 15% higher opex than PFS early-years, lifting to 2Mtpa in year five at PFS opex, lowering initial capex from US$158m to US$120m, and lifting total capex to US$210m.
Dropping the FeNb price from US$44/kg in the PFS to US$40/kg gives a US$296m NPV10%, with 28% IRR (US$422m at US$44/kg discounted to build start).
We initiate with a 0.35xNAV, appropriate for PFS ahead of JV consolidation, which equates to A$0.40/sh on a 50% project ownership basis.
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