FYI | Jan 15 2020
Pitt Street Research sees a Promising Outlook For Prospect Resources, driven by better DFS and funding deal
By Pitt Street Research
Prospect Resources Ltd ((PSC)) is a Perth-based miner that is currently focused on the Arcadia lithium project. PSC own an 87% stake in the project, located on the outskirts of Harare, Zimbabwe.
With Afreximbank mandated to arrange US$143m debt facility for project financing, the mine is on track for commissioning in 2022. The reserve upgrade and the favourable project economics as per the latest definitive feasibility study (DFS) bode well for PSC’s outlook.
Investment case – Arcadia is de-risking rapidly
The Arcadia project has considerable advantages as a lithium source, most notably its favourable mineralogy and support from the Zimbabwean government. The demand for lithium is expected to be robust driven by the battery industry as well as applications in the glass and ceramics industry.
PSC has a competitive advantage in producing ultra-low-iron lithium concentrates that meet the glass and ceramics industry specifications, thus, enabling it to command premium prices in this space. The improved project dynamics (2019 DFS) and latest funding arrangements, including, potentially, with Uranium One has further de-risked the project and can drive favourable sentiment and re-rate the stock into our valuation range.
Valuation range of $0.80–1.31 per share
We value PSC at $0.80 per share base case and $1.31 per share optimistic case using a DCF approach with assumptions on spodumene and petalite prices from the DFS.
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