Materials

Element 25 could move significantly higher: Trading Central

Mon 24 Jan 22, 1:43pm (AEST)
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Key Points

  • E25 down 6.6% in early morning trade
  • E25 strongly leveraged to the emerging EV market
  • Scoping study assumes new project will be built in an industrial park in SE Asia

In light of current uncertainty over whether the share market will drop another shoe later this week - in response to the heavy fallout on global markets - it’s understandable why investors' might not be piling on in stocks that at face value might appear be trading at mouthwatering entry points.

However, hardy souls may wish to note Trading Central’s bullish signal on Element 25 (ASX: E25), which is down 6.6% in early morning trade, through no fault of its own.

According to the principles of technical analysis, the small-cap manganese producer’s share price may rise from a (previous) close of $1.47 to the range of $1.92 - $2.02 in the next 10 days.

Butcherbird

Last year the company experienced a major knock back to its ramp up plans at its low capital cost, early cashflow stage 1 operation, exporting manganese concentrate from its Butcherbird Manganese Project in WA.

Since last year's repair halt, the company has gone on to hit daily production records and this has coincided with both strong manganese prices and positive market fundamentals.

Scoping study

Last week the company added to this good news momentum by announcing that a scoping study - into the construction and operation of High Purity Manganese Sulphate Monohydrate plant - has returned a robust set of financial metrics over a 20-year project life.

While the market initially responded favourably to the scoping study, the share price has since bounced down amid a wave of negative sentiment engulfing the broader market.

Highlights of the study included:

  • The Study returned robust Net Present Value (NPV) with a healthy base case Internal Rate of Return (IRR).

  • The Study used a life of project average High Purity Manganese Sulphate (HPMSM) price of $2,600 per tonne FOB and Fertiliser Grade Manganese Sulphate (FGMSM) price of $1,200 per tonne FOB.

  • The Study investigates three stages of development modelled on a southeast Asian site.

  • The second and third stages are scheduled for construction after completion of the previous stage.

Leverage to emerging EV industry

Underpinning the company’s progress report last week, Element 25 noted that the company was strongly leveraged to the emerging electric vehicle (EV) industry.

The study assumes that the project will be built in an industrial park located in SE Asia, leveraging local low-cost of power and local supply of process reagents.

While a final site has not been yet determined, this will be further considered in the feasibility study (FS) which is earmarked for completion in the second half of calendar 2022.

Finance and development

Element 25 advised investors that its current funding together with forecast revenues from Butcherbird operations were sufficient to progress the HPMSM project to a definitive feasibility study stage.

Management also noted the need for a modest start-up capital cost of approximately $200m, employing a proprietary leaching and sulphate purification solution developed in-house.

Subject to the outcomes of the studies, the company said it would look to finance and develop the project as soon as possible.

Consensus does not cover this stock.

Based on Morningstar’s fair value of $3.62 the stock looks undervalued. Note this was last updated mid-July 2021.

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E25 share market performance over three months versus the Materials Index.

 

Written By

Mark Story

Editor

Mark is an investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics and a diploma in journalism. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content. Email Mark at [email protected].

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