Elemental Minerals worth A$1.35 according to Patersons...

Elemental Minerals worth A$1.35 according to Patersons Securities

Monday, August 13, 2012 by Proactive Investors

Patersons Securities has placed a buy recommendation on Elemental Minerals with a A$1.35, which is almost 70% higher than the last traded price - following exceptional results from two additional intersections at the Kola deposit. Elemental Minerals (ASX: ELM, TSX: ELM) has received a buy recommendation from Patersons Securities with a price target of $1.35, well above the last traded price of the company around the mid $0.80 range.

The following is an extract from the report.

EVENT

Elemental Minerals (ELM) announced exceptional results from two additional intersections of the new Hangingwall Seam (HWS) at the Kola deposit. The results represent the highest grade potash intersections identified to date on the Kola deposit.

- 37.80% K2O (59.86% KCl) in 3.11m sylvinite intersection in borehole EK_43 (from 222.58m) and 34.20% K2O (54.15% KCl) in 3.75m sylvinite intersection in borehole EK_45 (from 196.48m).

These results are shallower and the grade of the sylvinite is 55% higher than the previous highest grading results. When included in the resource the HWS will increase the quality of the sylvinite portion of the defined resources which contains 413 Mt Measured and Indicated Mineral Resources with an average grade of 20.39% K2O (32.39% KCl).

The HWS appears to be laterally extensive, flat to gently dipping and consistently 2-4m thick. Four of five boreholes (which intersected the HWS are in the north-western part of the Kola deposit implying it could be open to the northwest, west and southwest. The fifth hole which intersected the HWS is an isolated occurrence central to the existing resource area.

ELM have budgeted $7.8M for exploration and development for Q2 FY2013. This will fund a combination of PFS and BFS activities.


IMPACT

These results indicate mining the HWS would be a simple, conventional operation at shallower depths (200 ¡V 220m) than the remainder of the resource (250- 300m). This coupled with the grades and the potential of mining the HWS for several years will have a material impact on the capital and operating expenses.

This presents an issue for ELM at this stage in the development of the project. The discovery suggests the current development plan, including items such as the planned shaft position may not be ideal and further investigation of the HWS is warranted.

The June quarterly report stated the cash balance was $18M. The $7.8M budget for exploration and development this quarter and an administration cash burn of over $1M/qtr implies development will have to be reduced significantly or additional funds will be required by the end of the year.

ELM needed a strategic partner to take the project past the BFS and BMO Capital Markets was appointed in June evaluate financing opportunities.

In our opinion ELM remains the most attractive potash developer on the ASX and the discovery of the HWS has only enforced this opinion. Accordingly we retain our BUY recommendation.

Our price target of $1.35/share has been reduced due to a lower cash position. The price target is 25% of our NAV, which we believe fairly reflects the stage of development and significant capital required to build the project.