Canaccord Genuity today (1 Aug) maintained its 58-c target price for Tawana Resources, the 50-50 JV partner of Alliance Mineral Assets (AMA). Given that 1 Tawana share will be swapped for 1.1 share of AMA, Singapore-listed AMA's implied target price is around 53 SGD cents. Thus, the potential upside for AMA is about 56% from its recent stock price of 34 SG cents.

Excerpts from Canaccord's report on Tawana.

Analysts: Reg Spencer & Larry Hill 

JunQ'18 - Bald Hill hits commercial production
Great start at Bald Hill: TAW has declared commercial production at Bald Hill, following a successful commissioning process. Plant performance throughout commissioning/ ramp-up has exceeded our expectations, with better-than-expected plant throughput (exceeding nameplate) and recoveries (~60%). 

spodumene3.18Lithium-bearing spodumene at Bald Hill project of Tawana and Alliance Mineral Assets. Photo: CompanyThe successful commissioning and production ramp-up reflects the favourable mineralogy of Bald Hill ore, and the quality of the TAW and Primero commissioning teams.

Tawana Resources

Share price: 
40 c

58 c

Source: Canaccord Genuity

Production better than expected: TAW has reported concentrate production of 18.8kt (100%) for the period 13/3/18 to 30/6/18, ahead of our estimates of 12kt. Product quality is reportedly meeting specs (conc. grades up to 6.14% Li2O) despite the lowgrade ore feed during commissioning.

Sales (shipped) totalled 9kt prior to declaration of commercial production, with revenue (CGe A$10.6m implying average received price of +US$890/t) capitalised against costs.

Total attributable (TAW 50%) capitalised expenditure was in line with expectations at A $19m, which net of the previously announced equity financing resulted in cash at the end of the period of $11.6m (excludes $5m equity raising completed in Jul'18).

Merger/demerger updates:
regspencerThe planned merger with Alliance is on track to be completed in late Q3/early Q4, following receipt of Singaporean regulatory approvals. Concurrently, shareholders have approved the demerger of the Cowan, Yallari and Mofe Creek projects into unlisted entity Cowan Lithium.

-- Reg Spencer (photo) and Larry Hill, 
Analysts, Canaccord Genuity

Outlook - production guidance as expected; higher mining rates to impact nearterm cash flow: 2H'CY18 guidance of 60-75kt is in line with our estimates of 65kt, and consistent with targeted annualised run rates of 155kt.

No cost guidance has been provided, but we note that waste movements will likely exceed our prior model assumptions by +10%, impacting cash flow expectations.

To provide additional flexibility, TAW is finalising a A$15m working capital facility in advance of the planned merger with JV partner Alliance Mineral Assets (40F:SGX | Not rated; see Merger for Bald Hill partners, 16/4/2018).

Valuation & Recommendation
markcalderwood6.18Mark Calderwood, MD of Tawana Resources, will be MD of the AMA-Tawana merged entity. NextInsight file photo.Model revisions include increased mining costs (waste stripping) at Bald Hill, with the negative impact on near-term cash flow partially offset by updated AUDUSD FX assumptions.

Net of the changes, our target price (NPV10%) is unchanged at A$0.58.

We maintain our SPECULATIVE BUY for TAW, with near-term potential catalysts (Resource updates 2H'18, merger completion Q4'18, FID for Stage 2 expansion Q4'18) supporting our 0.68x P/NAV.

Canaccord's full report here.

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