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.]