Small Caps | Jan 30 2012
– Nimrodel returns positive drilling results
– DJ Carmichael suggests significant increase in resource base is likely
– Retains Spec Buy rating on valuation upside
By Chris Shaw
Nimrodel Resources ((NMR)) has a 70% stake in an existing coal resource of 4.2 billion tonnes at the Takatokwane project in Botswana. A drilling campaign began late last year with a view to lifting this resource via additional discoveries at Takatokwane South in particular.
DJ Carmichael points out drilling results at Takatokwane South to date suggest significant potential for a major resource upgrade. Diamond drilling completed so far has intersected the same seams as found at the Takatokwane project, while deeper drilling has also revealed some additional seams.
One highlight of the drilling has been the thickness of the seams encountered. For example, DJ Carmichael notes Seam 2 reached a thickness of up to 21 metres and is consistently represented as a thick seam in all drill holes in the area.
Following drilling results from the first 13 holes of a 16 hole program, Nimrodel has set an exploration target of 2.0 billion tonnes in additional resources. DJ Carmichael has been more conservative and assumes a 40% yield for this target, which equates to an additional 800 million tonnes in JORC resources.
Such an assumption suggests a total resource for the combined Takatokwane and Takatokwane South projects of 3.2 billion tonnes on DJ Carmichael's numbers. Given an average for southern African explorers of around 3c per tonne in terms of Enterprise Value per resource tonne, this leads to a total valuation for Nimrodel according to DJ Carmichael of $95.7 million.
This equates to 21c per share, an increase from the previous valuation of 17c per share. Relative to a share price of around 5c per share this suggests significant value, leading DJ Carmichael to retain a Speculative Buy rating on the stock.
What supports the view of potential upside is the likelihood of positive news flow in coming months, as DJ Carmichael points out a scoping study is due for completion near the end of the first quarter of this year.
As well, DJ Carmichael notes Phase II drilling to establish a JORC resource at Takatokwane South and to determine the nest area in which to define an Indicated Resource leading to a pre-feasibility study will continues through this year.
At present Nimrodel Resources has a market capitalisation of around $22 million, meaning it slips under the radar in terms of broker coverage. As evidence of this, none of the brokers in the FNArena database provide coverage at present.
Shares in Nimrodel today are slightly lower, trading down 0.1c at 5.2c as at 12.05pm. Over the past year the stock has traded in a range of 2c to 10c.
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