OD6 Metals (ASX:OD6) Managing Director Brett Hazelden believes the rare earths explorer could be on the cusp of a share price re-rating with a busy Q4 2023 ahead, which includes a potential Mineral Resource Estimate (MRE) update.
Speaking to Mining.com.au following the release of a Breakaway Research report last week that valued OD6 at $0.90 – more than 5x its current share price of $0.165 – Hazelden is optimistic there are triggers ahead for that valuation chasm to close.
“The market has seen a flood of juniors jump into the rare earth market in the hope of getting a positive announcement out. But the reality is that most of the results for these other companies have been low grades of 800ppm or less, which we believe is just not economic.
There has also been a raft of people doing poor metallurgical testing using techniques that would never be viable in a production scenario. So unfortunately, this has seen a number of investors being burnt, and in turn this has driven the sentiment of the sector in the wrong direction.
This combined with the small cap mining sector being pushed lower in general along with rare earth prices decreasing from $100/kg of NdPr down to a low of $65/kg a few months ago has further dented sentiment. That said the NdPr is heading back up again, and the forecast demand is still set to increase driving forecast pricing up too. No doubt the share market is also set to increase in the near future too.
So, there are a number of key items keeping our share price undervalued but with a few key announcements plus a return to positive market sentiment we can see the basis for a much higher price.”
The company’s wholly owned Splinter Rock project is located in the Esperance-Goldfields region of Western Australia.
With 344 million tonnes grading at 1,308ppm TREO from 5% for the 250km-square of clay basin interpreted from geophysical survey at Splinter Rock, Breakaway Research says OD6 could see the resource increase ‘dramatically’.
Breakaway says this means OD6 will have a larger resource than most or all of its peers and provides scale and the potential opportunity to focus on parts of the resource with the best metallurgy.
When asked who OD6 considers to be a direct peer in terms of being a similar size and scale, Hazelden notes the company is often compared to Australian Rare Earths (ASX:AR3), Ionic Rare Earths (ASX:IXR), and Meteoric Resources (ASX:MEI) “as more advanced projects all of which people are expecting to treat around 5Mtpa of ore over 20 plus years“.
“In comparison to a number of peers we have actually fared better than most…”
“The reality is you need 100s of millions of tonnes in a MRE to be of a viable scale. Then grade and recovery will then drive revenue and in turn profitability. The privately held Serra Verde is the direct comparison outside of China. These exclude the hard rock contenders which will have significantly higher capital cost requirements.
In comparison to a number of peers we have actually fared better than most, with investors always having the ability to sell their shares as they need, but we believe there are numerous announcements that will continue to reinforce why we are Australia’s leading clay hosted rare earth play.”
The MD says between now and the start of 2024 the market has a lot to look forward to with OD6 to release metallurgical results on screening, leaching, and acid consumptions, as well as a potential MRE update.
“Ongoing good results in conjunction with good metallurgical outcomes plus an upgrade to the MRE should all be triggers for a (share price) re-rating. Then if rare earth prices return to forecast levels and the share market sentiment improves, then we potentially have the ability to head towards the price target that the researchers believe is achievable.”
Phase three aircore drilling recently completed at Splinter Rock was designed to test the localised consistency of clay type, thickness and grades at the Centre and Prop prospect areas. A total of 145 holes for 7,435m were drilled at an approximate average depth of 51m and maximum depth of 104m at a 400m spacing interval.
Assay results covering all 78 holes at the Prop prospect have now been received. Importantly, 96% of holes encountered clays with rare earth concentrations >300ppm TREO, with 61% of holes intercepting rare earth concentrations >1,000ppm TREO. Grades of up to 4,159 ppm TREO were returned, with extensive clay thickness of up to 56m with consistency of grade throughout.
Phase three drilling confirmed clays across a 11km length at Prop with widths between 4km to 5km (refer Figure 2). High value MREO represent an average of ~21% of TREO grade.
The current Splinter Rock maiden inferred MRE stands at 344Mt @ 1,308ppm TREO at 1,000ppm cut-off grade @ 22.8% MREO.
The Prop Prospect represents 33Mt @ 1,180ppm TREO at 1,000ppm cut-off grade @ 20.7%
MREO of the Splinter Rock MRE.
Write to Adam Orlando at Mining.com.au
Images: OD6 Metals