Hill End shares set to surge on demand for high purity alumina, says senior analyst
New research report finds investors stand to make five times their money as Hill End prepares to supply lithium battery and LED light makers
13th August 2018
Resources Rising Stars
Hill End Gold has joined the high purity alumina revolution and its shareholders stand to make a 500 per cent return from it over the next 12 months, a new research report says.
The report by Independent Investment Research senior analyst Mark Gordon values Hill End shares at 38c. This compares with their current price of ~6c, which gives the company a market capitalisation of less than $10 million.
Gordon says Hill End has seen the new opportunity in HPA, with demand forecast to grow by 15-20 per cent per annum over coming years. This growth is already being seen on the back of demand from LED lighting and is expected to accelerate as lithium batteries adopt HPA-coated separators to stop them catching fire.
He notes that while HPA has been around a long time, the new way of making it, which involves putting high purity kaolin through a leaching and purification process, is potentially a disruptive technology because it slashes the production cost.
Hill End’s technology has successfully produced the required 99.99% Al2O3, known as 4N, in bench-scale work using kaolin from its Yendon deposit, just 100km from Melbourne.
The production of 4N HPA was part of Hill End’s recently completed Pre-feasibility Study, which showed the project would generate strong financial returns.
The PFS put the capital cost at US$271 million and operating costs at US$7668 a tonne of HPA, which Gordon notes is well below operating costs of existing HPA producers at US$17,000 a tonne.
Hill End will now start a Definitive Feasibility Study, which will include a pilot plant to demonstrate the scalability of the process.
The DFS is expected to be completed in Q3, 2019, with first production targeted for late 2022.
Gordon says there are seven key reasons why Hill End is set to succeed and generate outstanding gains for shareholders.
Growth market: With the market for HPA expected to grow at between 15% and 20% a year over coming years, there will be room for new players, particularly with disruptive, lower cost production technologies.
4N HPA produced: The production of the required purity 4N HPA has demonstrated, at least on a bench scale, that the Company's HCl leach processing works and that the Yendon kaolinite is fit for purpose.
Long life operation: The resources at the Yendon kaolinite deposit are more than adequate for the 39-year operation modelled by the Company in the PFS. There is also the potential to source kaolin from Imery's nearby mining operations.
Process plant site options: Given the relatively low tonnages of material that will need to be shipped (and the relatively low cost of freight compared to operating costs and product prices) there is optionality to site the processing plant in areas with relatively low operating costs. Hill End will be conducting a plant site study as part of the upcoming DFS.
Infrastructure rich: The proposed mine site and plant site (as it stands) are well-served by transport and power infrastructure. In addition, they are proximal to residential skilled work forces.
Leveraged to success: With a current market capitalisation below A$10 million, Hill End is well leveraged to positive news flow from ongoing studies related to the DFS. This has been demonstrated by Altech, which has moved from a sub-A$10 million market capitalisation in mid-2015 to over A$70 million currently.
Experienced personnel: Company personnel have significant experience in technical and commercial aspects of the junior resources sector.
“We have a base case valuation/12-month price target of 38c a share for Hill End,” Gordon says.
“Key drivers in value will be successful pilot scale production of 4N HPA, which is expected during the upcoming DFS.
“We see considerable upside in this with material success in ongoing activities.”
Click here to read the full report from Independent Investment Research
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