Celsius Resources cobalt play starting to impress

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Analysts at Aesir Capital have initiated coverage of Celsius Resources (ASX:CLA) with a Speculative Buy recommendation and a 12 month price target of 11 cents per share, a premium of circa 145% to Wednesday is closing price of 4.5 cents.

Though CLA’s shares are trading at a significant discount to Aesir’s target price, highly promising assay results from early drilling at the company’s Opuwo cobalt project in Namibia has driven a 20% rerating over the last fortnight.

However, there are several other facets to the company that impress Aesir with the broker explaining that comparisons between the Opuwo cobalt project and other emerging cobalt projects made it look attractive when taking into account issues facing its peers such as underlying geopolitical risks, lack of access to key infrastructure and the seemingly inferior grades.

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With regards to infrastructure, bitumen roads connect Opuwo with Windhoek/Walvis Bay, and a good quality gravel road traverses the tenement itself. The Oshakati railway is 150 kilometres by sealed road and links with the Walvis Bay port which the broker believes would have ample capacity for CLA.

The Opuwo project is also has ready access to essential services. The Kunene River provides water supply throughout the year.

The Ruacana hydro power station (320 MW), which supplies the majority of Namibia’s power is located nearby, and a 66 kV transmission line passes through the eastern boundary of the project.

Even a conservative production profile could see CLA capped at more than $100 million.

Aesir did acknowledge the need for CLA to complete its exploration program and define a JORC resource. On that note though, the broker made some positive early stage observations in saying, “CLA still needs to prove out the full 20-30 kilometre strike length and define a JORC resource but at a US$166/t basket price it is 1.4 times higher value per tonne than CleanTeQ (ASX: CLQ) and thus, if they could come up with an 80Mt resource it could theoretically justify a roughly comparable market cap of A$430m”.

While such a scenario may be stretching the bow a little at this early stage, Aesir crunched some numbers on a much smaller scale production model, saying, “At even 20Mt, which would seem extremely achievable given the strike length and the fact that 11 kilometres is already proven to be mineralized, that still equates to $107 million mkt cap for over 500% upside”.

Some of the peer comparisons highlighted by Aesir are listed below.

Aesir is impressed with CLA’s DRC-like (Democratic Republic of the Congo) nature of its deposit without any of the associated political/sovereign risks. If management can continue to prove consistent grades across the entire strike of more than 20 kilometres Aesir is confident that it will be enough to develop Opuwo economically, particularly if they are able to define higher grade zones as well.