15-Dec-2020:  Ord Minnett Research: Hastings Tech Metals (HAS): Thematic Firing / Upgrade to Buy

Analyst:  Dylan Kelly, Senior Research Analyst, 02 8216 6417, [email protected]

• Last Price: A$0.15
• Target Price: A$0.30 (Previously A$0.16)
• Recommendation: Speculative Buy (Previously Hold)
• Risk: Higher
• Sector: Diversified Metals and Mining
• ASX Code: HAS
• 52 Week Range ($): 0.05 - 0.16
• Market Cap ($m): 180.6
• Shares Outstanding (m): 1,204.3
• Av Daily Turnover ($m): 0.0
• 3 Month Total Return (%): 25.0
• 12 Month Total Return (%): 3.4
• Benchmark 12 Month Return (%): -1.6
• Net Debt FY21E ($m): 79.0

We have revised our HAS thesis and upgrade HAS to Speculative Buy after increasing our target by 14c to $0.30/sh. The rare earth thematic is firing and HAS’s strategic position warrants a rerate. Project economics have recently improved (capex) with further upside in opex and ore sorting. We see a debt funding solution is within reach to start construction by mid-2021. Risks include financial close and project execution, but we find the risk/reward attractive.

Revisiting Thesis: Next RE producer / Thematic Firing

• The rare earth thematic is firing in line with our thesis with permanent magnet raw materials prices rising 50% YTD (Fig 2*).
• As we wrote in our 2019 initiation Germany’s RE Solution, HAS’s Yangibana project is the world’s next Rare Earth producer due to high value ore (Pg9*), German state debt backing (Pg10*) and capital-light development strategy of partial integration (Pg11*).
• We expect the $520m construction to start mid-2021, producing 3.5ktpa of NdPr from 2024 over a +14 year life at a cost of US$17.5/kg.

Further Optimised: Layout & Ore Sorting

• Several recent modifications have enhanced the project’s economics and de-risked development. Project capex has fallen by -$68m primarily via relocating the downstream hydromet facility closer to the coast.
• Whilst early days, we see upside in apply Ore Sorting, potentially lowering costs ~20-30% and lift our NPV by ~13-30cps.

Upgrade to Buy; TP +14c to $0.30/sh

• We have made significant model changes: lowered WACC -2% to 12%, lowered capex, adjusted grades, increased share count to 1,204m (+16%) and updated the last cash balance of $20m.
• HAS is now our top pick in the sector as it provides the most compelling risk reward. We note that since 1 July HAS is up +25%, underperforming peers (+135%) and NdPr (+46%) and is overdue a rerate (Fig 3*).
• Next catalysts include converting offtake into contract agreements, a prerequisite for securing ECA debt facilities of ~A$500mm.
• Risks remain around financial close and project execution, but we take comfort in the German state conservatism (contingency, warranty).

***Note Ord Minnett acted as Lead Manager to a recent capital raising and receives fees for acting in this capacity***

* --- click on the link at the top for the full 20-page report on HAS by OM, which includes all of the figures/diagrams referred to above (Fig1, Fig2, Fig3, etc), plus many more ---

[I do not hold HAS shares.]

09-Aug-2019 - Ord Minnett has just made the following 31 July 2019 report on HAS available for free via the ASX Broker Research service that I've discussed here many times before.  The report can be accessed from here:  https://www.asx.com.au/documents/research/ords-has-initiation-jul19.pdf

Hastings Tech Metals (HAS AU)

Germany’s rare earth solution  

We initiate research coverage on HAS with a Speculative BUY and A$0.30/sh target price. HAS is our top pick among rare earth developers due to its high value orebody and the low technical risk path to production. Similar to Japan Inc’s backing of LYC in the 2000’s, we see Germany backing HAS for its future RE needs, with offtake partners (Thyssenkrupp/Schaeffler) helping to secure low cost German G’ovt loans. Key risks include project financing, ramp up and NdPr prices. We value HAS on a sum of the parts DCF using a 9.5% WACC (real) and LT NdPr Price of US$68/kg & 0.70 AUD.  

Investment Thesis:   Our top project pick

• High Value Orebody:  High NdPr endowment of 35% enables a US$20/kg basket price (key project economic determinate) almost double its peers/existing world producers.
• German Backed: Similar to Japan inc backing of Lynas in the 2000’s, we see Germany supporting HAS for its future RE needs. Signed 2x 10 year offtake MOU’s with German industrial stalwarts Thyssenkrupp and Schaeffler AG (auto manufacturer). Their support helped secure US$140m (A$200m) of low cost German G’ovt Debt.
• Shortcut to market:  Aims to produce a mixed carbonate and not fully separate RE’s, significantly reducing project technical risk and capex.
• Skin in the game:  Added certainty of seeing project through to completion is Exec Chairman Charles Lew, who owns 11.5% and has self-funded most development to date.

Company Overview

• Hastings Technology Metals (‘HAS’) is a rare earth development company that owns 100% of the Yangibana project in the Gascoyne Region of WA.
• The ~A$450m project is expects commercial production to commence by mid-2021 and quickly ramp-up to a nameplate of 15kt of Mixed Rare Earth Carbonate (‘MREC’) containing ~3.5kt of ‘NdPr’ (some 90% of revenue).
• Key risks for developing projects apply (permitting, funding, project execution/construction) as well as our NdPr, AUD forecasts.

--- click on link above for more ---

Disclosure:  I do not hold.  However I note that China - who controls almost all of the world's RE production currently - with the exception of Lynas (ASX: LYC) of course - has talked about restricting supply to the USA in retaliation for the tariffs that Trump is slapping on all of China's exports to the USA.  Wesfarmers (ASX: WES) tried to takeover Lynas recently to get their own hands on some RE production.  Rare Earths (RE)  or Rare Earth Oxides (REOs) are needed for the production of so many high tech devices these days, from computers to mobile phones to EVs to wind turbines - that any restrictions from China will cause prices to rise significantly, which would make projects like HAS's that much more economic to develop (assuming prices stay elevated for long enough for them to get into production - which could take years - as it did for Lynas).  Regardless, buying HAS shares is speculating, not investing, as they are project developers and currently are not profitable and (of course) don't pay any dividends.  May suit those with a higher risk tolerance who like the occasional well-chosen punt with a portion of their portfolio that they can afford to lose.