Battery recycler Neometals Ltd (ASX:NMT, OTC:RDRUY, AIM:NMT) may be undervalued, but problems at Barrambie – a mining project it runs in Australia – might eat into gains it makes from improving lithium yields, according to analysts.
Research analysts at stockbroker Cavendish slashed their target price, the share price they believe would reflect fair value, for the mining and battery recycling company this week.
The stockbroker’s analysts reduced expectations for Neometals, cutting their target price to 140.4p, down from 146p, which represents a significant lift on its current share price of around 17.5p.
Analysts implied Neometals' stock could yet be undervalued after the company announced yields of over 93% at its lithium battery recycling plant, suggesting the value of the recycling technology itself is higher than Neometals’ valuation.
“With this latest improvement, we iterate our view that the value of this recycling technology alone is higher than that attributed to Neometals,” Cavendish analyst John-Marc Bunce said in a broker note.
Analysts expect higher reported lithium recovery yields will immediately create “a more valuable intermediate product for battery production”.
Lithium recovery yields at the company of over 93% are expected to “reduce operating and capital costs” and “catalyse” an existing purchase order from high-end car brand Mercedes, they said.
“It is clear this will improve the already attractive battery recycling economics, which we recently estimate could deliver post-tax project IRRs of over 15.6%,” the note said.
“It will catalyse the purchase order from Mercedes for a hydrometallurgical recovery hub, which is expected before the end of the year and valued around US$46m to Primobius.”
Cavendish, which recently merged with finnCapp, said “this latest development puts the company well ahead of EU regulations”.
However, Neometals may have eaten into a share of its own potential profits.
In addition to the Primobius battery recycling plant that the Australian mining company runs with a private company in Germany, it runs a titanium and vanadium mining project in Australia, which recently failed to agree on an off-take agreement with Jiuxing Titanium Materials Co.
Cavendish analysts said they cut their price target to reflect a reduction in the value attributed to the Barrambie mining project: “We adjust our SOTP [sum of the parts] valuation to A$2.61/share (140p/share), from A$2.72/share (146p/share), to reflect a reduction in value attributed to Barrambie."