Multiple Upside Events to come in 2018?
We initiate detailed coverage of Savannah Resources with a BUY recommendation, a valuation and a share price target of 9.5p/share.
A significant uplift beyond this could occur at their 75% owned Mina do Barroso hard rock lithium project in Portugal, which we currently value at £30m. With a valid Mining Lease, further evaluation news flow could lead to a development decision by the end of the year, with first production in 2019.
A compliant Pre-Feasibility Study is underway at its to be 51% owned Mutamba Heavy Mineral Sands project in Mozambique. Development timing is dependent on their partner Rio Tinto (RIO), but the outlook for the product looks good, with strong demand and improving prices. We value Mutamba at a conservative £25m, but the eventual potential could be significantly higher than this.
Elsewhere, Savannah is poised to receive a Mining Licence for their small, but high-grade Block 4 and 5 copper projects in Oman. In spite of recent permitting progress we only currently value these potential mines at £5m, because the outlined resource so far is relatively low and the delays have been frustrating. Nevertheless, the ultimate potential could be a lot higher than this, particularly as the company has strong Omani backing.
The cornerstone Omani shareholder appears to view Savannah as a vehicle to develop its interests in mining outside, as well as inside the country, something that bodes well for further financing, as the company’s various projects come to fruition.
If viewed solely as a lithium play, Savannah stacks up well against its UK listed lithium competitors; both Bacanora Minerals (BCN) and European Metals Holdings (EMH) will have to raise a lot of capital for their projects; whereas Kodal Minerals (KOD) is earlier stage and suffers from locational issues in Mali; Cadence Minerals (KDNC) is more of an investment company, with little on the ground management of its portfolio of stakes in lithium and rare earth projects worldwide. Premier African Minerals (PREM) offers almost pure Zimbabwe exposure and while its Zulu Lithium
project is exciting, the company does have to brush off the difficulties it has had with its RHA tungsten project.