eResearch | In this short video, Chris Thompson of eResearch talks about Initiating Coverage on Search Minerals (TSXV: SMY | OTC: SHCMF).
You can download our 72-page Equity Research Report that covers an in-depth analysis of the company and a detailed overview of its exploration projects in Labrador and proposed processing facility in Newfoundland, Canada: eR-SearchMinerals-SMY-IR-2022-09-14_FINAL
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.
Investment Thesis & Upcoming Catalysts:
- 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 NAV10% ($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.
- 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.
- 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 NPV8% 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 NAV10% ($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
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