Cadoux Ltd (ASX:CCM, OTCQB:FYIRF), which is pursuing a value-added critical minerals strategy centred on kaolin and high purity alumina (HPA), has received a valuation of A$0.37, well above its current share price of $0.058, in updated coverage by MST Access, a business arm of MST Financial services.
The company, formerly FYI Resources, engages in the exploration, evaluation and development of critical minerals and holds 100% of the Cadoux kaolin deposit, a HPA project in Western Australia.
Portfolio components
It has plans to develop a 1,000 tonnes per annum Small Scale HPA Plant (SSP) at Kwinana, south of Perth, for which a Phase 1 Engineering Feasibility Study is expected to be completed later this month and there are further plans to increase this to a commercial-sized plant with 10,000 tonnes capacity.
As part of its strategy of developing producing assets of critical minerals exposed to high-tech applications, Cadoux has a 50% stake in Minhub, which is developing a third-party downstream heavy mineral sands and rare earths production facility in collaboration with Arafura Rare Earths Ltd (ASX:ARU, OTC:ARAFF). A feasibility study for this project is expected to be completed in September 2024.
The updated coverage by MST Access is based on these two developments with the report stating that Cadoux’s high-quality portfolio is expected to drive value.
“Globally significant” plant
With a targeted full production of 10,000 tonnes per annum, MST said Cadoux’s commercial-size HPA plant would be globally significant, servicing a wide range of potential customers.
The company is implementing a phased path to production with an initial 1,000 tonnes demonstration plant to further de-risk and optimise the commercialisation phase.
Demand for HPA
MST forecasts that the high-quality HPA product to be produced will drive EBITDA margins above 70%.
HPA’s application in batteries, semiconductors and LED technology is expected to drive demand and pricing for HPA as a critical component in batteries, which MST says will be supported by current global decarbonisation and electrification thematics.
In addition, HPA's input into LED technology will drive additional demand growth.
Cadoux’s targeted ‘Five Nines’ (99.999% Al2O3) product will be the highest-quality HPA available to the market and will attract premium pricing.
Further added value
MST expects that the Minhub investment and rare earths project will set Cadoux up for further added value.
Minhub is developing a facility aimed at processing mineral sands to extract rare earths within Australia and contribute to growing a significant in-country rare earths industry. This will have the potential to drive the development of stranded mineral sands and rare earths projects.
“We attribute a small value to this project, with the upcoming PFS being a key catalyst for a potential increase to the valuation of CCM,” MST Access said.
HPA key driver
"Our sum-of-the-parts valuation of A$0.37 per share is driven by our risked NPV valuation for the HPA project. We see significant upside from the current share price as CCM first successfully funds and then develops the project," the MST research report said.
It said the key risks for the company were funding, execution and construction. “With funding, CCM is looking at a mix of debt, strategic investment, government loans and equity.”