In the last nine months, Neo Energy Metals (LON:NEO) has undergone quite a transformation.
If a certain London broker’s analyst is proved right, its main-market listed shares could have a massive upside.
Having risen 23% yesterday, they are now priced at just 1.01p each, while the Price Objective is a massive 20p!
The Business
The company is a Uranium developer and mining company.
It holds up to a 70% stake in the Henkries Uranium Project, an advanced, low-cost mine in South Africa’s Northern Cape Province.
The Henkries deposit is located across the border from Namibia, which is host to many operating uranium mines including Rossing and Langer Heinrich.
It has been estimated that the historical investment in the project was over $30m in exploration and feasibility studies, NEO aims to increase the project’s mineral resources and complete an updated feasibility study, ahead of a determination of the development schedule at the end of this year to bring Henkries into production.
The company is led by a proven board and management team, with experience in uranium and mineral project development in Southern Africa.
The strategy focuses on an accelerated development and production approach to generate cash flow from Henkries, while planning for long-term exploration and portfolio growth in the highly prospective Uranium district of South Africa.
The £14.3m capitalised company’s shares are also listed on the A2X Markets (A2X: NEO), an independent South African stock exchange, aiming to expand its investor base and help to facilitate strategic acquisitions of uranium projects, particularly within South Africa.
The Henkries Uranium Project
Henkries, covering an area of nearly 743 sq. km, is an advanced and near-term, low-cost uranium project capable of an accelerated development and production timetable, with over $30m of historical expenditure.
The uranium mineralisation is hosted in soft, shallow paleochannel sediments mostly within 5-10m of the surface.
It offers simple shallow open-pit mining, and it has favourable processing technology with historical pilot scale test work demonstrating good recoveries.
The company forecasts low capital and operating costs for its Henkries development, with the project benefitting from excellent infrastructure.
The last Mineral Resource Estimate for Henkries Central and part of Henkries North, was prepared in 2022, it is now considered that there is a potential to expand the Mineral Resource and thereby provide a significant exploration upside.
There is an Update now underway on the Feasibility Study which was completed by former owner Anglo American.
The company’s Board believes that there is now a clear pathway to low-cost production.
Recent Proposed Acquisition
Earlier this month the company reported that it has agreed to acquire from Sunshine Mineral Reserve for £16.5m, the Beisa uranium project in the Witwatersrand Basin of South Africa.
The Beisa project is described as one of the largest undeveloped uranium resources in South Africa with ‘Inferred’ resources of 90.24mlbs of U3O8 (plus an additional 4.17moz of gold hosted within the Beisa uranium Reef and the adjacent Beatrix Reef).
The Beisa North Uranium Project covers the Beisa Reef, which is present from a depth of 350m to the north of the Beisa Uranium Mine.
The shallow depths and steep configuration of the Beisa Reef favour the typical narrow underground mining methods of the Witwatersrand Basin, considered the most appropriate for reducing the dilution of the uranium-gold ore.
CEO Sean Heathcote stated that:
“This acquisition is a major milestone for Neo Energy Metals, and significantly expands our footprint in one of the richest and long-standing uranium-producing regions in the world.
It strengthens the company’s ability to achieve its strategic goal of becoming a major player in the global uranium market and as South Africa’s leading uranium company.
In the coming weeks, we will look to finalise the formal documentation and regulatory approvals for the acquisition with the team at Sunshine Mineral Reserves and in parallel with that finalise the debt-funding arrangements.”
The completion of the deal is expected to be no later than Monday 30th September.
Analyst View
At First Equity, its analyst Jason Robertson has just issued a Buy Note on the group.
He notes that the upside to his valuation comes from potential increases in uranium and gold market prices, increased resource size and improvement in the current ‘Inferred’ resource at Beisa, and the continued project de-risking as both Henkries and Beisa move nearer production.
Robertson considers that Beisa adds 17p to 20p to the existing valuation of 3.33p and the ambitious acquisition value-led accretive strategy being pursued, his company continues to rate the shares as a ‘Buy’ with a target price.
In My View
Matters are beginning to move at a good pace for the only primary-listed uranium mine development company in London to offer investors direct exposure to the uranium sector.
It is also one of the most advanced, high-grade uranium companies capable of near-term production.
If First Equity proves correct in its assumptions then the shares, now only 1.01p could well be in for a substantial uplift in price.