Cobalt / Base Metals: Explorer CLA.asx Speculative Buy Share Price Price Target (12 month) $0.26 Brief Business Description: Hartleys Brief Investment Conclusion Chairman & MD Top Shareholders Gecko Nambia (Pty) Ltd 8.5% Directors and Management 3.2% Company Address Issued Capital - fully diluted Market Cap - fully diluted Cash (31 Mar 2018e) Debt (31 Mar 2018e) EV - current EV - fully diluted EV/Resource t Co A$924/t EV/Reserve t Co - Resources (kt Co) -attr. 119,795 Reserves (kt Co)-attr. - Mike Millikan Resources Analyst Ph: +61 8 9268 2805 E: [email protected]A$130.3m Cobalt and base metal (copper) focused explorer and potential developer. Hartleys has assisted in capital raisings in the past 12 months for Celsius Resources Limited ("Celsius") for w hich it has earned fees. Hartleys has a beneficial interest in 16 million options in Celsius. 598.2m 16 Apr 2018 $0.190 Brendan Borg (Managing Director) Level 3, 216 St Georges Tce Perth WA 6000 Controls 95% of the flag-ship Opuw o Cobalt Project in Namibia. Large maiden resource estimated exceeding all expectations. Cobalt thematic continues to look good, w ith grow ing demand for use in electric vehicles, storage batteries and smartphones. Bill Oliver (Non-Exec Chairman) A$3.0m A$0.0m A$110.7m A$139.5m A$113.7m 733.9m CELSIUS RESOURCES LTD (CLA) Maiden Cobalt Resource Exceeds All Expectations Celsius Resources Ltd (CLA) has delivered an impressive maiden cobalt resource for the 95%-owned Opuwo project in Namibia, significantly exceeding expectations and the Exploration Target for the project. The initial total resource (100% basis) consists of 112.4Mt grading of 0.11% cobalt, 0.41% copper, and 0.43% zinc for some 126,100t of contained cobalt, ~464,280t of contained copper and ~483,750t of contained zinc (at a cut-off grade of 0.06% cobalt). Approximately 64% of the resource is in the Indicated resource category, with fresh sulphide ores comprising over 95% of the overall resource, which bodes well for the proposed processing flowsheet of conventional flotation. Further resource growth is anticipated as the deposit remains open along strike and at depth, with drilling ongoing to increase resource confidence and extend mineralisation nearer to surface. Initial resource provides base for scoping studies due late Q2 The resource has been estimated from 128 drill holes (largely drilled on a 200m x 100m grid) covering ~10km of strike over the mineralised Dolomite Ore Formation (DOF). However, the DOF has been drill-tested over +15km, and mapped/sampled over +30kms, so the resource has substantial upside. The maiden resource significantly exceeds (+174%) the Company’s original Exploration Target tonnage of 33-41Mt, with grade slightly lower than forecast (target of 0.13-0.17% cobalt and 0.45-0.65% copper). However, at a higher cut-off grade of 0.10% cobalt the resource is still an impressive 66.4Mt grading 0.14% cobalt, 0.46% copper and 0.45% zinc. It is likely CLA, will use a head grade of ~0.14% cobalt in the upcoming project scoping studies which is expected to be released in late Q2 CY18. Where the mineralised DOF is located near to surface and outcropping, open pit mining is expected to be selected, but depth of open cut mining will be determined by the cost of waste removal, with high strip ratios envisaged. CLA expects that the deeper parts of the orebody can also be extracted via underground open stoping and due to the dip of the deposit is amenable to vertical crater retreat (VCR) stoping. VCR has the advantages of high production rates and when used in combination with cemented backfill can provide close to 100% orebody extraction. A detailed mining study will be provided in the scoping study. Cobalt remains in short supply and in high demand – 26cps PT Due to the large maiden resource and off the expectation a hefty available mining inventory we have increased our project scale, from 2Mtpa to 3Mtpa. We assume favourable cobalt (~80%) and copper (~85%) recoveries and zinc can also be recovered without being a penalty. Our modelling at this stage does not consider further downstream processing to produce cobalt sulphate products or copper cathodes, which are expected to be value adds. We maintain our Speculative Buy on CLA with our latest price target of 26cps (up from 19cps). Current estimated cash is ~A$3M which provides some exploration funds, but additional funding is required for development studies. CLA provides quality exposure to cobalt (+70% cobalt value), as well as providing other base metal (copper, zinc) upside. Cobalt remains in short supply and in high demand, and we like the thematic for increased demand, as it is one of the key ingredients for use in the cathode combination of popular (and in demand) lithium-ion batteries. Hartleys Limited ABN 33 104 195 057 (AFSL 230052) 141 St Georges Terrace, Perth, Western Australia, 6000 Hartleys does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Further information concerning Hartleys’ regulatory disclosures can be found on Hartleys website www.hartleys.com.au 0.00 0.05 0.10 0.15 0.20 0.25 . 5. 10. 15. 20. 25. 30. 35. 40. 45. 50. Apr-18 Dec-17 Aug-17 May-17 Volume - RHS CLA Shareprice - LHS Sector (S&P/ASX SMALL RESOURCES) - LHS A$ M Celsius Resource Ltd Source: IRESS
COB - Thackaringa*** HAV - Mutooroo N27 - Wollogorang BMT - Lainejaur JRV - Nico Young
CZI - Nebo-Babel PAN - Savannah AML - Walford Creek MTH - Basil IGO - Nova
Bubble Size = Co t
Laterite deposit
Sulphide deposit
Hartleys Limited Celsius Resources Ltd (CLA) 16 April 2018
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PRELIMINARY PRICE TARGET
METHODOLOGY
Our CLA price target is considered highly speculative.
Celsius moved to 95% project interest in September 2017, and controls over 100km
of the highly prospective cobalt-copper horizon within the project area (~1,470km2).
Opuwo is being advanced, with a scoping development study expected to be released
in late Q2 CY18. CLA has confirmed mineralisation over a +15km zone, with strong
potential for adjacent and parallel systems. The Company has now calculated a large
maiden resource which consists of 112.4Mt grading 0.11% Co, 0.41% Cu and 0.43%
Zn over a 10km zone. Mineralisation remains open.
Work completed by CLA indicates that the mineralisation is sulphide-related (with
cobalt present as linnaeite, copper present as chalcopyrite and zinc present as
sphalerite) and considered amenable to simple, conventional flotation techniques. The
sulphides are largely disseminated and vein-hosted but coarser semi-massive
sulphides have been intersected.
Early metallurgical test-work by CLA has returned flotation recoveries of up to ~88%
on the cobalt and ~87% on the copper from a rougher concentrate. A concentrate
grade of 1.5% Co was achieved with recoveries of ~80% indicated. Metallurgical test-
work is ongoing, aimed at improving the grade of the concentrate while maintain high
recoveries and cleaning the concentrate to reduce mass and increase grades. The
Company has an internal target of recoveries in excess ~80% Co and cobalt
concentrate grade of +1.5% Co. The concentrate is low in deleterious elements such
as arsenic (As), cadmium (Cd) and uranium (U) and as such could attract good
payable terms.
Our preliminary valuation is now largely derived from a 3Mtpa (up from 2Mtpa)
sulphide plant generating a desirable bulk concentrates. We assume favourable cobalt
recoveries and now use ~80% (up from 75%) and copper recoveries ~85%
(unchanged), and assume grades at the higher cut-off grade (ie 0.10% Co). The
release of the Scoping Study will update our preliminary estimates. Our modelling at
this stage does not consider potential value add opportunities such as further
downstream processing to produce cobalt sulphate products or copper cathodes.
Our preliminary price target of 26cps (up from 19cps) is derived from both a discounted
cashflow analysis of a scaleable cobalt operation at Opuwo and perception of
exploration value in the search of more mineralisation.
Fig. 11: Hartleys CLA Price Target
Source: Hartleys Research
Price Target Methodology Weighting Spot 12 mth out
55% $0.19 $0.21
35% $0.36 $0.39
5% $0.09 $0.12
Cash Backing 5% $0.01 $0.01
Risk weighted composite $0.24
12 Months Price Target $0.26
Shareprice - Last $0.190
12 mth total return (% to 12mth target ) 36%
95% Opuw o (NPV 14%) Base + Exploration value
95% Opuw o (NPV 14%) Spot + Exploration value
Exploration value - no development
Our CLA valuation and
price target is
considered highly
speculative
Preliminary price
target of 26cps
Current estimated
cash of ~A$3M
provides some funding
towards ongoing
explorat ion
Our base valuat ion
uses Consensus
pric ing for cobalt and
copper, which are
considered
conservative
At current spot
commodity pr ices the
project has signif icant
value
Hartleys Limited Celsius Resources Ltd (CLA) 16 April 2018
Page 10 of 11
RISKS Key risks for CLA include making an economic discovery at the Opuwo project and
obtaining funding for ongoing exploration. Weather, land access, drill rig availability,
retaining key people are all risks.
Fig. 12: Key Risks
Assumption Risk of not realising
assumption
Downside risk to share price if assumption is
incorrect Comment
Funding for ongoing exploration
Med
Med-High
We estimate CLA has a current cash position of ~A$3M. The Company has a number of options to raise additional funds for future exploration, including new equity issuances. The Company operates under a lean corporate structure (low cost base). The Company is funded for some
planned exploration drilling in 2018.
Discovery Success
Med-High
Med
The Company has confirmed extensive mineralisation within the project area, and has
strong potential for additional mineralised zones. A large exploration target has been reported which is in the process of being updated by latest drilling. The maiden resource is large (exceeds expectations) but considered to be
interim, as the full strike and depth potential of the system is yet to be defined.
Viable resource progresses through development studies
Med-High
High
We assume a viable mining inventory (reserve) can be released for the project. On the current
timing a Scoping Study is planned to be released in Q2 CY18, which will incorporate the maiden resource, processing flowsheet, and indicative costs (both capex and opex). Preliminary met-testwork has been favourable but needs to be
refined.
Commodity Prices Med
Med-High
The projects remain highly sensitive to commodity price movements and sentiment.
Current exploration focus is cobalt and copper.
Conclusion At this stage we consider the assumptions have a medium to high risk of not being achieved. At this stage we have only a preliminary speculative valuation for CLA. The Company’s extensive project portfolio
with high prospectivity and low current market cap, implies the Company is undervalued.
Source: Hartleys Research
Page 11 of 11
HARTLEYS CORPORATE DIRECTORY Research Trent Barnett Head of Research +61 8 9268 3052
Mike Millikan Resources Analyst +61 8 9268 2805
John Macdonald Resources Analyst +61 8 9268 3020
Paul Howard Resources Analyst +61 8 9268 3045
Aiden Bradley Research Analyst +61 8 9268 2876
Oliver Stevens Research Analyst +61 8 9268 2879
Michael Scantlebury Junior Analyst +61 8 9268 2837
