Image Resources: Take note, here is an emerging mineral sands producer!

Stephen Bartrop - Breakaway Research - 22-Oct-2017

Key Points

  • Image Resources has completed a positive feasibility study on its Boonanarring/Atlas mineral sands project north of Perth, WA. The location is close to infrastructure and the extensive detail in the study leaves minimal risk in terms of the Company not meeting its production and financial targets.
  • First production is as early as March 2018 with key parameters including:
    • Zircon dominated revenue base
    • Low capex at A$56.7m (including sustaining capex)
    • Heavy Mineral Concentrate (HMC) production at 220,000tpa
    • 100% offtake agreement for all HMC products
    • Conventional dry mining operation using mining contractors
  • Breakaway Research financial modeling indicates that the project generates healthy returns and strong cash flows which flow through to the Company’s financial forecasts and value. These include:
    • Forecast NPAT $15m - $25m pa o Forecast cash flows $15 - $25m pa
    • Future P/E falling to less than 5 times in two years
    • Future P/CF falling to 3.4 times in one year o NPV per share is 13.8 cents per share using long term AUD/USD = 0.75
  • These ‘base case’ forecasts exclude significant additional value that can be generated through operational enhancements, mine life extensions, and new dry mining opportunities. There is potentially a significant dredging project nearby which may be the Company’s next focus for Phase 2 growth.
  • Funding is being finalized during September for a debt/equity split assumed to be 50:50. Our valuation includes dilution for a raise at the current share price and which could be conservative given future positive announcements that may include the debt financing terms from a leading Australian bank and a project ‘re-valuation’ given the currently higher commodity prices.
  • The recent announcement by Iluka that it has increased its Zircon Reference Price by US$130/t to US$1,100/t is a sign of an improving zircon market.

The development of the Boonanarring project is a major step forward as the Company transitions to a producer and generates earnings and cash flows. This allows the Company to then pursue a strong growth path given it has a portfolio of projects that can be accelerated.


Hence, Breakaway Research has a BUY recommendation on Image Resources