Overview: Cradle Resources Ltd (“Cradle”, “the Company”) is an Australian minerals company with operations in Tanzania. Its primary asset is a 50% interest in the Panda Hill Niobium Project (“Panda Hill”), 680km west of Dar es Salaam. Cradle has delineated Mineral Resources of 178Mt at 0.50% Nb2O5, classified as Measured, Indicated, and Inferred. A Definitive Feasibility Study (“DFS”) into a 1.3Mtpa operation completed in April 2016, estimated capex of US$196million and post-tax Net Present Value (“NPV”) of US$400million.
Catalysts: Board restructuring during 2016 has positioned Cradle to secure the necessary technical and financial resources required to bring Panda Hill into production. The Company is in discussions with potential offtake partners and project debt providers. In the oligopolistic niobium industry, overcoming these marketing and capital hurdles represents major value drivers.
Hurdles: The absence of a mining Reserve at Panda Hill reflects the structural challenge of penetrating the tightly controlled niobium market. With only three operating mines and no new niobium producers in the last 40 years – the DFS assumed Cradle can secure a circa 10% share of the market without negatively impacting prices, neither of which is assured. Cradle is reliant on external capital requires substantial additional funding to develop a mining operation at Panda Hill.
Investment View: Cradle offers speculative exposure to the niobium mining industry. We are attracted to the Company’s management team and Panda Hill’s status as the world’s most advanced undeveloped niobium deposit. Overcoming entry barriers imposed by existing producers in the niobium market is the primary risk. However with the Company trading at a substantial discount to its NPV share and delivery of the offtake partnerships and project financing representing major catalysts, we initiate coverage on Cradle as a ‘speculative buy’.
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