NEW INITIATION REPORT – Search Minerals – Critical Rare Earth Elements Exploration Company on a Path to Production to Capture NA Rare Earth Market

eResearch is pleased to publish an Initiation Equity Research Report on Search Minerals Inc. (TSXV:SMY | OTC:SHCMF).

We are Initiating Coverage with a Speculative Buy rating and one-year price target of $0.36.

You can download our 72-page Equity Research Report by clicking on the following link: eR-SearchMinerals-SMY-IR-2022-09-14_FINAL

Company Overview

Search Minerals Inc. is exploring and developing a Rare Earth Elements (REE) project in southeast Labrador and a REE Processing Plant in Newfoundland, Canada. The Company owns two advanced REE resources, Deep Fox and Foxtrot, along with regional prospects, including Fox Meadow, Silver Fox, and the Red Wine District. As it “Sprints to Production”, the Company released an updated Preliminary Economic Assessment (PEA) report for the Deep Fox/Foxtrot project and is now working towards the start of a Feasibility Study (FS) with mining production targeted for C2025. With investor & government support, Search Minerals has the potential for becoming a leading producer in the North American REE industry for Electric Vehicles and other high-tech industries.

The Importance of Rare Earth Elements (REE) 

Rare Earth Elements (REE) are part of what governments, industry, and media are calling critical metals.

Critical metals are fundamental building blocks of many new technologies. Because of this fact, the U.S. Department of Energy (DoE) calls them “technology metals” as they make possible our modern high-technology world.

Critical metals are also so-named because they are irreplaceable in technology applications owing to their unique properties and cannot be substituted with any other element to obtain the required properties.

REE are used in the manufacture of many things we use every day, including cellular phones, electronics, green technologies such as hybrid electric vehicles (HEVs), electric vehicles (EVs) and wind turbines, medical technologies, and telecommunications and defense systems. For example, REE are used in permanent magnets, which are key components in electric motors. These motors are used in EVs, defence systems, robotics, and wind turbines, to name a few.

Why REE are important:

1. REE are known as “technology metals” because of their special properties, which help to improve technologies, and they cannot be substituted with any other element;
2. A smartphone (screen and electronics) contains at least 9 REE;
3. Neodymium (Nd) is the strongest known magnetic substance and Nd magnets are used in applications that require strong, compact permanent magnets, such as cellular phones, electric motors, hard disk drives, televisions, and medical devices (e.g., MRI scanners);
4. REE are used in various car components. For example, REE make cars greener as Cerium (Ce) is used in catalytic converters to reduce pollution from the exhaust gas in Internal Combustion Engine (ICE) vehicles and, as previously mentioned, Nd is used in EV motors.

FIGURE 1: REE Minerals and Applications

Investment Thesis & Upcoming Catalysts:

• Search Minerals Value Should Improve and De-Risk as it “Sprints to Production”
  • Search Minerals’ business plan is to supply a rare earth oxide (REO) mixed rare earth carbonate concentrate and/or a pure mixed REO concentrate to third-party REE separation facilities and refiners, and not to end-users.
  • Over the next year, Search Minerals is expected to complete some key developments as it continues its “Sprint to Production” with construction planned to start in C2024 and mining aimed for C2025. The Updated PEA on the Deep Fox/Foxtrot project was released in June 2022 and the Company has already started to plan work on a Definitive Feasibility Study (DFS).
• District-scale Project with Exploration Potential in an Emerging REE Region in Canada
  • Search Minerals controls two deposits (Foxtrot and Deep Fox), two drill-ready prospects (Fox Meadow and Silver Fox), and numerous other REE prospects, including Fox Valley, Foxy Lady, and Awesome Fox, along a 64 km long belt forming a REE District in Labrador.
  • Exploration upside at the other key prospects in the area could add additional revenue streams as the extraction plant is easily scalable.
• Appears Inexpensive Using Various Valuation Metrics
  • The one-year blended Price Target of $0.36 is based on 50% of the Relative Valuation ($0.28) and 50% of the Project NAV_10% ($0.44).
  • Currently trading at a discount to PEA peer companies, it also trades at an EV of only $36.0M or just 4% of our estimated After-Tax NPV.
  • Based on our EBITDA estimate of $325M in C2026 and EV/EBITDA multiple of 10.0x, it could be valued at $1.71 per share at that time.
• Location – Mining-friendly Jurisdiction
  • With current investor & government support, Search Minerals has the potential for becoming a leading producer in the burgeoning North American REE industry. Support from all levels of government, including exploration support from the province of Newfoundland and Labrador. Search Minerals’ optimized patented Direct Extraction Process technology received support from the Government of Newfoundland and Labrador and the Atlantic Canada Opportunity Agency.
  • Search Minerals has amicable relationships with the local indigenous organization (NCC) and the nearby coastal communities
• Location – Solid Infrastructure
  • The Critical Rare Earth Element (CREE) District in south-east Labrador has a solid infrastructure and the projects and prospects are accessible by road.
  • The coastal community of St. Lewis has accommodations, a power plant, and an airport. It also has a deep-water port that is open year-round for shipping materials in and out of the project.
• Strong Management Team:
  • Management has extensive experience, geological knowledge of the region, and are experts in REE processing.
• Downstream Expertise with USA Rare Earth MOU
  • Search Minerals signed a non-binding Memorandum of Understanding (MOU) with USA Rare Earth for an offtake of 500 tonnes per year of Nd and Pr from future production at the Deep Fox or Foxtrot deposits. In addition, the two companies announced that they will work on many initiatives under the Technical Collaboration Framework Agreement.
  • This development is positive for Search Minerals as USA Rare Earth is a REE refiner and brings practical downstream expertise. In the future, the companies could sign binding and long-term offtake agreements for Search Minerals’ concentrate and provide it with steady cash flow.
• Strong Demand – The REE Market Continues to Grow
  • Fast-growing technology industries, including EV production and clean-tech solutions, are increasing their demand for REE. Various reports estimate that the REE sector is expected to at least double in size over the 5-7 years.
  • In April 2022, Adamas Intelligence forecasted that the value of global REO magnet consumption will triple from US$15.1 billion in 2022 to US$46.2 billion by 2035.
• Key Projects Funded for C2022:
  • It is funded for Deep Fox exploration, preparation of 70t bulk sample, and working towards the start of a FS.
• Catalysts: Recently Updated PEA & Launch of Study
  • PEA: Project NPV_8% of $2.23 billion (pre-tax) with 26-year mine life.
  • Increased resource doubles production to 2,000 tonnes-per-day (tpd) from 1,000 tpd and process improvements raises the recovery rate to 78.4% with multiple factors improving the economics.
  • As it works towards the launch of the FS, the Company shifts into the “Pre-production Sweet Spot”.

Financial Analysis & Valuation:

• We are Initiating Coverage on Search Minerals with a one-year blended Price Target of $0.36 and a Speculative Buy Rating.
• The one-year blended Price Target of $0.36 is based on 50% of the Relative Valuation ($0.28) and 50% of the Project NAV_10% ($0.44).

We are Initiating Coverage with a Speculative Buy rating and one-year price target of $0.36.

You can download our 72-page Equity Research Report by clicking on the following link: eR-SearchMinerals-SMY-IR-2022-09-14_FINAL

FIGURE 2: Port Hope Simpson (Deep Fox & Foxtrot) Critical Rare Earth Location Map

FIGURE 3: One-Year Stock Chart

Notes: All numbers in CAD unless otherwise stated. The author of this report, and employees, consultants, and family of eResearch may own stock positions in companies mentioned in this article and may have been paid by a company mentioned in the article or research report. eResearch offers no representations or warranties that any of the information contained in this article is accurate or complete. Articles on eresearch.com are provided for general informational purposes only and do not constitute financial, investment, tax, legal, or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this information should consult with a financial advisor. The article may contain “forward-looking statements” within the meaning of applicable securities legislation. Forward-looking statements are based on the opinions and assumptions of the Company’s management as of the date made. They are inherently susceptible to uncertainty and other factors that could cause actual events/results to differ materially from these forward-looking statements. Additional risks and uncertainties, including those that the Company does not know about now or that it currently deems immaterial, may also adversely affect the Company’s business or any investment therein. Any projections given are principally intended for use as objectives and are not intended, and should not be taken, as assurances that the projected results will be obtained by the Company. The assumptions used may not prove to be accurate and a potential decline in the Company’s financial condition or results of operations may negatively impact the value of its securities. Please read eResearch’s full disclaimer.