Kasbah Preferred For More Tin Upside

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– Kasbah an emerging tin play
– Significant potential upside from Achmmach project in Morocco
– Ord Minnett initiates with Buy rating

By Chris Shaw

Kasbah Resources ((KAS)) is exploring and developing the Achmmach tin project in Morocco, with Ord Minnett seeing significant potential for the future development of mining operations at the project. This potential has seen Ord Minnett initiate coverage on Kasbah with a Buy rating and price target of $0.55.

To date, Kasbah has been exploring the Achmmach project for five years, with much of the focus being on delineating an underground resource. In August of last year an initial JORC indicated resource of 2.2M tonnes at 0.8% tin and a further 4.8M tonnes at the same grade in the inferred category. 

Ord Minnett expects more of the resource to move into the measured and indicated category before the end of this year as exploration work continues. Further success is expected, as a number of holes below the East zone of the project have intersected mineralisation.

What adds to the project according to Ord Minnett is the exploration success being achieved adds to the potential for both open pit and underground mines to be developed. This is an expansion from what had been an initial focus solely on developing an underground mine. 

A scoping study for only an underground operation has been completed, Ord Minnett noting a significantly positive net present value for the project resulted from assumptions of an 800,000tpa treatment plant and mine life of 7.5 years. This implied annual production of 5,500 tonnes of tin concentrate. 

A pre-feasibility study on Achmmach is due to be completed by October of this year, with Ord Minnett currently estimating total capital costs for the project of US$105 million. Kasbah is solidly placed to fund the development, as at March 31 the company had $25.4 million in cash and no debt.

Ord Minnett now suggests any development strategy may switch to an initial open pit mine, which would bring forward cash flows and would then be followed by an underground development. This has the advantage of a significantly reduced capital drawdown required by Kasbah to develop the project.

A further advantage is the Achmmach project has relatively straightforward metallurgy, as the majority of known mineralisation is tin oxide. As Ord Minnett notes, this suggests both a high grade primary concentrate and solid recovery rates.

The outlook for tin is also supportive, as Ord Minnett's estimates suggest the tin market will remain in deficit for at least two years as demand outstrips supply. Much of this demand increase is coming from the electronics market, where tin is increasingly being used as a solder in preference to lead.

A supply deficit should support prices, Ord Minnett forecasting tin prices will trade at US$35,000 per tonne by the end of this year, with prices a chance to move as high as US$40,000 per tonne over the next five years. A long-term average price of US$25,000 per tonne is forecast.

Beyond the Achmmach project, Kasbah also has the Tamlalt gold project in Eastern Morocco. Little work has been done on this project to date, but Ord Minnett notes the project lies adjacent to the South Atlas fault. This is a major mineralisation structure in Morocco.

Factoring in expectations for the Achmmach project, Ord Minnett has set a base case valuation on Kasbah of $0.48, with an upside valuation of $0.64. Price target is set at the middle of this range at $0.55.

The potential upside to this target is better than 100% and so supports a Buy rating, though Ord Minnett notes there is elevated sovereign risk from current political turmoil among MENA nations. Current exposure to Australian-listed tin plays can be obtained from not only Kasbah but via Metals X ((MLX)), Venture Minerals ((VMS)) and Consolidates Tin Mines ((CSD)). Ord Minnett prefers Kasbah within this group.

The FNArena database shows no coverage of Kasbah Resources, which is no great surprise given a current market capitalisation of around $95 million. Over the past year the stock has traded in a range of $0.064 to $0.44.
 

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