fbpx

Written by 08:00 Analys, Research

GRANGEX: Upwards revision of reserves accompanied by strong macro backdrop

GRÄNGESBERG EXPLORATION The ongoing preparations for the DFS of Dannemora has now yielded its second upwards revision, a 16% increase in mineral reserves to 30.8 Mt with 32.2% Iron, and over a year’s extension of the life of mine. The >4Mt reserves increase is based on recovering the 21% iron which is in the tailings deposited underground during the last production period, 2012-2015.

After a revision of our estimates for production profile, FX, life of mine and an increase in power expenses we find only a slight net effect on our fair value, now at SEK 96-165 (98-168) per share in 12-24 months. This leaves room for a considerable revaluation where we see accelerating structural demand for green CO2-free steel, a prolonged supply crisis following Russia’s cut off from Europe and progress with GRANGEX’s DFSs and environmental permits for the two projects as the main catalysts.


Johan Widmark | 2022-09-21 08:00 

This commissioned research report is for informational purposes only and is to be considered marketing communication. This research report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and Emergers is not subject to any prohibition on dealing ahead of the dissemination of investment research. This research does not constitute investment advice and is not a solicitation to buy shares. For more information, please refer to disclaimer.  
 
4Mt of tailings with 21% iron

As the company alluded to already in the PFS in January, it has now found a way to include the tailings deposited underground from the latest production period, into the mineral reserves. While the current plan is to process the tailings continuously over the production period, the company could potentially start with the tailings, as they don’t require crushing and can be put straight into the dressing plant, thereby getting a jumpstart on production. The tailing contains 21% iron, well above planned capacity cutoff at 15%, which also means that OPEX for these >4Mt will be lower than for the ore in the ground.

With regards to costs, the surge in the Nordic power price is being felt in the cost projections for Dannemora, which is to be fully electrified, where we now expect a 3-4 USD/t cost increase attributable to a higher long term power price. The 16% hike in mineral reserves also comes with a 1.2 percentage point reduction in concentration, to from 33.4% to 32.2%, which gives Dannemora a slightly lower-for-longer production profile. Most importantly we note a continued weakening of the SEK, up 20% year to date, benefitting the revenue side in our model.

Surge in phosphate rock price continues

Simultaneously, we note that the DFS and the environmental permit application for the Apatite project, which we earlier expected to be presented and filed in Q3’22, now will likely be delayed 1-2 quarters as resources are focused on Dannemora. As for prices, we’ve seen a continued pullback in the iron ore prices while the prolonged war in Ukraine and subsequent trade restrictions have continued to push prices of phosphate rock further, where prices have surged to over 300 USD/t, of which we include only a small portion into our valuation model for the Apatite project.

Along with a structural long-term growth in demand for green CO2 free iron ore and a prolonged supply crisis following Russia’s cut off from Europe we find both a strong fundamental case as well as a bright backdrop for the projects. With the major financing round for these projects most likely during H1’23, we now expect production start for the Apatite project sometime early/mid 2024 and production start in Dannemora around winter ‘24/25.

All in all, we now find support for a NPV at SEK 3.3bn and a repayment within three years. Reduced by project financing for both the Apatite project and Dannemora, where we expect debt of SEK 650m and new equity of SEK 650m, approximately SEK 2bn remains attributable to today’s shareholders. Risk adjusted with an estimated probability of successfully passing the next two years’ milestones of 65-85% per year, this provides support for a fair value today of around SEK 840-1,430m or SEK 96-165 (98-168) per share.

DISCLAIMER

This commissioned research report is for informational purposes only and is to be considered marketing communication. This research does not constitute investment advice and is not a solicitation to buy shares. Information provided here or on Emergers’ website emergers.se is not intended to be financial advice. This research shall not be construed as a recommendation or solicitation to invest in the companies described. Emergers cannot be held liable for either direct or indirect damages caused by decisions made on the basis of information in this analysis. Investors are encouraged to seek additional information as well as consult a financial advisor prior to any investment decision.

This material is not intended to be financial advice. This material has been commissioned by the Company in question and prepared and issued by Emergers, in consideration of a fee payable by the Company. Emergers charges a standard fee for the production and broad dissemination of a detailed note following by regular update notes. Fees are paid upfront in cash without recourse. Emergers may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained herein represent those of the research analyst at Emergers at the time of publication. The company has been given the opportunity to influence factual statements before publication, but forecasts, conclusions and valuation reasoning are Emergers’ own. Forward-looking information or statements contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Emergers shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained in this material.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Emergers’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in this material may not be eligible for sale in all jurisdictions or to certain categories of investors. Investors are encouraged to seek additional information as well as consult a financial advisor prior to any investment decision.

Investment in securities mentioned: Emergers has a restrictive policy relating to personal dealing and conflicts of interest. Emergers does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Emergers may have a position in any or related securities mentioned in this report, subject to Emergers’ policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Incirrata AB (Emergers)

United Kingdom
This document is prepared and provided by Emergers for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the ”FPO”) (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States
Emergers relies upon the ”publishers’ exclusion” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Emergers does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Read Less Read More

For new research on growth stocks, sign up to our newsletter