MST Access says Andromeda is set to bite into greater value with its advanced Great White kaolin project
MST Access has valued Andromeda Metals at 13c due to its advanced, development-ready Great White kaolin project.
MST Access values Andromeda Metals at 13c on the potential of its Great White kaolin project
Advanced project is development ready, has exceptional mineral characteristics and low-risk mining and processing
Next major catalyst is securing funding for the project
Special Report: MST Access has stuck a valuation of 13c on Andromeda Metals – well above its current share price of 1.1c – thanks to the overlooked potential of its Great White kaolin project in South Australia.
The broker research firm described the project as being a development-ready, world-class kaolin deposit with exceptional mineral characteristics and low-risk mining and processing that has been overlooked by those outside the industry.
Great White currently has a high-quality ore reserve of 15.1Mt, enough to support a 28-year mine life under a bankable feasibility study Andromeda Metals (ASX:ADN) released in 2023.
Estimated project CAPEX for a three-stage development capable of supplying up to 330,000 wet metric tonnes of product per annum was pinned at $194m.
On the basis of that report, returns will be robust with NPV and IRR estimated at $763m and 43% respectively.
The company recently raised $5m through a share placement priced at 1.3c per share to fund early works at Great White and a high purity alumina (HPA) scoping study after lab-scale tests proved that kaolin from the project can be used to produce a 4N (99.99% purity) HPA product that can be used in lithium-ion batteries as a battery separator, as well as the production of synthetic sapphire glass and LEDs.
The results are considered a breakthrough result give they actually achieved 99.9985% purity, so close to a 5N HPA product (99.999% purity), which the company believes it can achieve through further optimising its process.
Andromeda’s process is also the first time that 4N HPA has successfully been made directly from a kaolin, rather than by using higher-priced intermediate feedstocks such as aluminium metal or its precursor, SGA (Smelter Grade Alumina).
It is also in exclusive negotiations with Merricks Capital for a debt facility of up to A$75m, which will take the company to within spitting distance of the $90m it needs for the initial Stage 1A+ development.
Investment thesis
MST notes that ADN already has binding offtake agreements, a de-risked and construction-ready kaolin project, all key permits, an experienced team and a clear execution plan.
This leaves securing funding as the main near-term catalyst for a further material share price re-rating.
It adds that while Great White has been overlooked by the broader market, its potential is clearly recognised by the global kaolin industry.
As such, a merger or acquisition could be a potential catalyst as larger companies might seek quality Australian-based industrial minerals.
Once funding is secured, the company will have a fairly straightforward path to value creation. Once construction begins, Andromeda is expected to sign additional offtake agreements for project expansion, commence production, and subsequently ramp up to its full capacity of 330,000 wet metric tonnes per annum.
MST adds that while ADN has pursued the highest-value end-markets for its kaolin, the recent HPA advancements provide another potential but longer-term leg for the company amidst rapid growth in demand for quality critical minerals.
This has significant potential as most HPA is currently produced by synthesising aluminium alkoxide from high-cost aluminium metal.
ADN's novel flowsheet uses established lower cost metallurgical unit operations to refine the aluminium oxide from kaolin and does not require hydrochloric acid.
Nor does it require re-leaching using acid at high temperatures and under high pressure, reducing cost and environmental impact.
This leads to ADN believing its novel HPA process is more cost and carbon effective than other reported processes.
Valuation summary
MST says it has developed three valuation scenarios, all of which do not include the emerging HPA opportunity.
In the base case, it values the company at 13c and assumes it will need to raise $75m in debt finance and $20m in equity at 1.2c to fund Stages 1A+, 1B and 2.
This is considered to be un-risked due to the advanced stage of the project the level of binding offtake agreements already in place.
The research firm also presented an alternate scenario where only Stage 1A+ proceeds and none of the later expansions go ahead.
This “bare-bones” scenario values the company at 5c per share, though this is still considerably higher than its current share price.
Its final scenario assumes a strategic investor taking a 20% interest in the project rather than ADN raising a third of the project finance through an equity raise.
Under this assumption, there is A$75m raised in debt and A$41m from the strategic sale of the project. This allows the funding to cover working capital requirements as well.
This scenario values the company at 14c due to avoiding the need to raise equity from shareholders.
This article was developed in collaboration with Andromeda Metals, a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.
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