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RESEARCH: Greenland Minerals, Major Capital Cost Reductions

FYI | Aug 05 2019

By Pitt Street Research

Kvanefjeld’s cost position improves regularly

Greenland Minerals’ Kvanefjeld project holds the world’s largest undeveloped rare earths deposit. Recently completed optimization studies have firmed up what is, by rare earth industry standards, a remarkably simple process flow sheet and a highly competitive cost-structure.

Greenland Minerals and its collaborators have progressively driven down the estimated project cost base since completion of Kvanefjeld’s initial feasibility study in 2015. The most recent feasibility study in July 2019 highlights further improvements to project metrics. The project’s capital cost estimate (US$505m) has been reduced by a further ~40% from the US$832m reported in 2016’s update of the initial feasibility study. This note revisits our 5 February 2019 update report on GGG.

Investment case

The Kvanefjeld project, which we believe can potentially start production in 2022, is particularly valuable because of its duration, its scale, its favourable metallurgy and the fact that its critical rare earth production profile mirrors long term demand forecasts.

A steady increase in rare earth and U3O8 prices, potential supply disruptions resulting from a US-China trade war and the completion of permitting in Greenland can help drive favourable sentiment and re-rate the stock into our valuation range.

New valuation range of $0.50-$0.84 per share

Using the new estimates from the July 2019 update, and the recent $7m equity raising, we now value Greenland Minerals at 44 cents per share base case and 74 cents per share optimistic case using a DCF approach with conservative assumptions on rare earth prices.

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