Acquisition: on 1st August 2022, LIN announced the acquisition of 100% of the shares in Rift Valley Resource Developments Ltd, the owner of the Kangankunde Project, for a total purchase price of US$30 million. US$10m has now been paid and US$20m is payable in two equal tranches (August 2023 and August 2026 or start of commercial production). Lindian currently holds 33% of the Rift Valley shares with 33% and 34% of the shares to be transferred in line with the payments of the remaining two tranches. Lindian has also the option to make the payments sooner to accelerate the acquisition to 100% interest.
Globally Significant Deposit: The Kangankunde Rare Earths Project is a globally significant rare earth resource in potential for size, grade and quality and is close to logistical infrastructure.
Maiden Mineral Resource: awaiting the mineral resource estimate expected in this June quarter, we estimated a “back of the envelope” range estimate from 90 million tonnes at 2.7% TREO for 2.4 million tonnes REO contained to 250 million tonnes at 2.0% TREO for 5.5 million tonnes REO contained. Using a mid-point in that range, Kangankunde already stands as one of the largest rare earths deposit in the world. Metallurgy: Results of preliminary metallurgical testwork demonstrate that water-only, low-cost gravity and magnetic beneficiation techniques are suitable for Kangankunde’s mineralisation. A baseline result of ~70% recovery has been achieved to date. Development Strategy: at this time and considering the project location, LIN aims to produce a concentrate bearing 60% REO for export.
Capital Expenditure: based on the beneficiation techniques and an initial throughput of 350,000 tonnes per annum (tpa), we estimated an initial capital expenditure of US$30m (Stage1). The size of the deposit warrants two treatment plant expansion to 1.5 million tpa in 2028 (Stage 2 +US$150m capex) and expanding to 3.0 million tpa in 2031 (Stage 3 +US$100m capex).
Funding: the recent $9 million placement completed in March 2023 at $0.26, being a ~10.5% premium to the preceding last closing price has been well received by the market with share price currently trading at 46% above the placement price. Lindian is well capitalised to complete its Phase 2 drilling program, fund project development engineering works for the Stage 1 concentrate plant at Kangankunde and to continue to pursue opportunities to commercialise the Guinea bauxite assets. With regards to capital development, we assumed a A$20m prepayment (short-term debt) from off- takers to complement the finding of the initial capex. Stage 2 could be funded by a mix of debt (A$30m) and equity (A$50m). Stage 3 is self-funded through the cash flow generated by the project.
Kangankunde Project Valuation: using various REO concentrate prices.
News flow: the key catalysts in the short and medium terms are the releases of the maiden mineral resource for Kangankunde, further drilling results and development studies indicating the economics of the project. Some news with regards to discussion with off-takers and financiers can be expected too, considering the quality of the REO concentrate with leading to project development pathways and funding, which will significantly de-risk the project and improve LIN’s value further.
REO Market Outlook: the demand for rare earths remains strong, particularly for NdPr product. Nevertheless, in February 2023, production quotas in China increased 19% for 1H 2023 in comparison to 1H 2022, which has led to a temporary oversupply of rare earth products as demand has remained subdued in the Chinese domestic market. This has affected NdPr, Dy and Tb prices.
LIN valuation: our sum of the parts valuation considers 60% (or 40% risk discount) of the Kangankunde Project NPV estimated using a REO concentrate price of US$8,000/t v. MP Materials (NYSE: MP) December quarter 2022 sale price of US$8,515/t to derive a valuation of A$756 million of $0.73 per share. Once in production with Stage 1 and with the same REO price assumption, LIN market value should increase further towards its NPV estimated at around $1.2 billion or $0.98 per share.
