Small Caps | Dec 19 2011
– Nimrodel is developing a coal project in Botswana
– Resource is significant, further exploration offers additional upside
– DJ Carmichael sees value, initiates with Spec Buy rating
By Chris Shaw
Junior coal explorer Nimrodel Resources ((NMR)) is currently working to develop the Takatokwane thermal coal project in southern Botswana. In November a maiden resource of 4.23 billion tonnes of inferred coal was declared, which is the largest resource among its ASX-listed peers. Nimrodel is to earn 65% of the project.
The Takatokwane project has prompted DJ Carmichael to pick up coverage on Nimrodel, initiating with a Speculative Buy rating. Upside in the broker's view will come from further drilling, which is expected to increase the resource further.
The completion of a scoping study in coming months should also be a positive according to DJ Carmichael, as this will determine the optimal commercialisation approach for the project. This will include a market analysis for a range of potential beneficiation coal products and options to derive added value products.
One advantage is the Takatokwane resource is well located with respect to existing power and road infrastructure, though export rail infrastructure is a longer-term development issue. A rail network has been proposed but until this is present, DJ Carmichael suggests Nimrodel could commercialise its asset through power generation.
The Takatokwane project has four main coal horizons, with the largest seam reaching a maximum thickness of 17.5 metres. Seam 2 is prominent in the south-east part of the resource and DJ Carmichael suggests further drilling here will provide additional resource tonnes given indications this area has the best coal quality data.
A positive in the view of DJ Carmichael is coal quality at Takatokwane improves significantly after washing. After washing the project resource currently stands at 2.4 billion tonnes, with a relatively high average yield of 57% across all four seams.
DJ Carmichael has used 2.4 billion tonnes of washed coal inferred resource as the basis for its valuation, which generates a valuation per share of $0.17. This is regarded as conservative by the broker but still appears attractive relative to the current share price, which DJ Carmichael suggests values Nimrodel on the basis of a resource basis of just 500 million tonnes.
Phase II drilling results should act as a value catalyst for Nimrodel, predicts the Perth-based stockbroker, as should the publication of the Scoping Study document expected near the end of the March quarter of next year. The value upside is potentially significant, as DJ Carmichael notes the peer group average enterprise value per resource tonne is around 3c per share, but for Nimrodel the washed coal resource figure equates to an enterprise value per resource tonne of just 0.6c.
Elsewhere, DJ Carmichael notes Nimrodel has the Specimen Rood iron oxide copper gold project in Tasmania, which is located near the Savage River magnetite project. Drilling of this project should commence in the first half of next year and could also provide some positive news flow in the broker's view.
With a market capitalisation of just under $16 million, Nimrodel receives little coverage in the broader market. As evidence, no broker in the FNArena database offers coverage.
The shares have moved nside trading range of $0.02 to $0.10 over the past year.
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