MarketOpen Radar: WA1 (ASX:WA1) add 9067% to market value on niobium
November 11, 2023The potential for the Luni discovery at WA1 Resources’ (ASDX:WA1) flagship West Arunta project in Western Australia near the Northern Territory border to be the world’s first new niobium mine in 50 years has seen their share price go from 12 cents to $11 in 15months.
How have WA1 and West Arunta blipped the radar?
Imagine if we had a crystal ball two years ago when exploration company WA1 Resources and Euroz Hartleys rattled the tin for the company’s IPO. We would have snapped up its new shares at 20 cents a pop in December 2021!
The Western Australian company is now worth about $506 million, but back then, it was only valued at around $4.5 million as they sought out another $4.5 to 6 million. It wanted to use the extra cash to explore its flagship West Arunta project, primarily for gold, copper and nickel. Investors were keen and signed up, allowing the company to debut their shares at 24c each on February 11, 2022.
While their share price slid down over the following nine months to an all-time closing low of 12c on August 11, 2022, WA1 broke out of the doldrums in epic proportions.
On October 26, 2022, they entered a new era by revealing they had found thick high-grade niobium with niobium pentoxide gradings of 0.31-1.22% at the P2 target at the project’s Pachpadra prospect. The grades put WA1 West Arunta Nb2O5 in the ballpark of two of the world’s three producing niobium mines. Things went bananas, with the even more impressive Luni discovery unveiled on November 16, 2022, featuring 28m at 0.9% Nb2O5 from 28m. The P2 carbonatite had 54 metres at 0.6% Nb2O5 from 162m.
The Tier 1 hunters have added a monster 4288% to their market value in their 21-month history on the ASX. But when you look at their 12c low, the super-gainers have added an impressive 9067% to their value in an even shorter 15 months.
What does WA1 do?
WA1 Resources are world-class greenfield explorers on the hunt for a Tier 1 deposit in WA’s mining frontier provinces.
While they have three projects, their efforts in the West Arunta region are where they’re expected to produce a sizeable deposit when they produce the first mineral resource estimate for their West Arunta project in the June half of 2024.
The WA company’s flagship West Arunta project is about 500 kilometres east of Kalgoorlie-Boulder and some 700km west-northwest of Alice Springs in the Northern Territory.
What is niobium?
Niobium (Nb) is a strategic, critical mineral used to strengthen steel and make it lighter. It can potentially be used in the batteries that power electric vehicles and the renewable energy sector. Niobium became a commercial mining market in the 1970s and is available from only three suppliers worldwide, two in Brazil and one in Canada. The three producing mines are run by CBMM (Companhia Brasileira de Metalurgia e Mineração) and CMOC Group(SSE:603993, SEHK:3993) – previously China Molybdenum Company – and Magris Performance Materials(MPM).
The niobium-producing trio have 1,208.4 million tonnes in deposits at their mines at grades of 0.4-2.5% niobium pentoxide. CBMM in Brazil supplies more than 80% of the world’s market, fellow Brazil-based producers CMOC supply about 10%, and MPM in Canada about 8%. CBMM’s grading from Araxa producing mine is the highest, at 2.48% Nb2O5, while CMOC’s Catalao II is 1.01% Nb2O5 and Niobec’s is 0.41% Nb2O5.
Niobium has enjoyed stable pricing for the past 15 years. Asian Metal put the three-monthly average price for ferro-niobium with a 50% Nb minimum in a 50kg drum out of China ranged at between 255,000 and 260,000 Chinese yuan ($55,171-55,138 or $US54,079-56,253) a metric tonne on November 2, 2022. Using this average price, the trio’s 14,831 kilotonnes (14,831,000 tonnes) of contained Nb2O5 at their producing mines is valued between $1.2 trillion and $1.3 trillion ($US786-816 billion).
Why have WA1 and Luni-West Arunta catapulted lately?
In the past few weeks, big gainers WA1 have added up to 95% to their share price on unveiling extremely high grades at Luni Prospect on the first anniversary of their first super-duper announcement.
On October 26, 2023, the company reported monster high grades from drilling, including a 31-metre intersection grading 4.6% niobium pentoxide. This standout grade at the discovery exceeds the average grade at the world’s biggest producing and highest quality mine, CBMM’s Araxa mine.
WA1 then chased their results up with an even better grading in 30m at 4.7% Nb2O5 until the end of the hole on November 8, 2023, which saw their price close at a record new $11 ceiling that day.
What is the potential of the Luni-West Arunta project?
Investors have caught on to West Arunta and Luni’s potential big time in the past fortnight after analyst Timothy Hoff and associate analyst Michael D’Adamo at equities researchers Canaccord Genuity’s cg Capital Markets set a forward-looking share price target for WA1 on October 27, 2023.
Their price target of $11.50 stargazes to 2027 and has a 50% risk built in. Their de-risked price target is $21. The target is based on a forward-looking project valuation of $1,319 million in 2027 for what they call the Luni project. This target is based on a $50 million capital raising in 2024 to support drilling efforts, metallurgical test work and studies to prepare Luni for a yet-unfunded four-year engineering and construction period.
cg’s model has suggested Luni could contain 153Mt at 1.15% Nb2O5 and a high-grade resource within that of 32Mt at 2.25% Nb2O5.
Their base case is for a 25-year Luni operation producing about 21 kilotonnes a year of ferroniobium with EBITDA margins of about 55% – putting annual EBITDA in the vicinity of $637 million, using Asian Metal’s three-month average on November 2, 2022.
As an operating mine, CG expects Luni could be worth between $2.8 billion and $5 billion.
What are Luni-West Arunta’s complications?
While prospective, West Arunta is a greenfield frontier and the niobium it contains is not an established mineral frequently brought into a producing mine. No one has brought a new mine into production in 50 years. And no Australian company has ever brought a niobium project through to first production.
New national and international supply chains would be needed to make Luni or any source of West Aruntan niobium a success.
The standard risks associated with mining and exploration projects apply to West Arunta and WA1. So do more specific ones for niobium, such as the limited experience explorers and developers have in taking niobium to the finishing line. The potential transportation costs to get niobium or high-grade niobium products from regional locations to other parts of Australia or beyond are a factor.
What are Luni-West Arunta’s advantages?
Luni could be a significant mine, producing substantial revenues for a world market growing by 1.3-5% a year, according to CG. Organic growth and add-on demand from battery manufacturers could spell opportunity for WA1 and see global demand going from 79kt in 2021 to a modelled 100-181ktpa by 2040. If demand for niobium continues to grow as expected, there’s undoubtedly room for WA1 to add its Luni niobium to the mix.
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