Edison Investment Research Limited
London, UK, 8 January 2024
Edison issues initiation on NioCorp Developments (NB): Niobium husking NioCorp is developing the Elk Creek mine in Nebraska, which currently hosts the second largest 'indicated' or better rare earth resource in the US and, once in production (potentially in FY27), will be North America's only mine producing niobium, scandium, titanium and rare earths (all of which the US define as 'critical'). A definitive feasibility study (DFS) on the project in June 2022 calculated a pre-tax internal rate of return (IRR) of 29.2% and a post-tax net present value (NPV8) of US$2,350m, or US$70.51 per existing share in issue, to which NioCorp's shares are currently trading at a 95.6% discount. However, the project now appears poised for a material change in product mix to improve its economics and reduce its previous, heavy reliance on scandium revenue.
NioCorp's DFS in June 2022 calculated a pre-tax IRR on the Elk Creek project of 29.2% (in US dollar terms) and a post-tax NPV of US$2,350m at an 8% discount rate. This equates to US$70.51 per share in issue, to which NioCorp's shares are currently trading at a 95.6% discount. Adjusted for Nebraska risk as well as stage of development (ie DFS), we calculate that this should reduce to US$23.48/share. Adjusted for the overall risk of commerciality, we calculate that it should reduce to US$15.79/share - still 5.1x the current share price. Alternatively, adopting a decidedly conservative ferro-niobium price and valuing the company based on an assumed US$425.5m equity raising in the near future in order to keep maximum leverage (net debt/[net debt+equity]) at no more than 2:1 debt:equity, we calculate a fully diluted valuation for NioCorp of US$7.16/share, rising to a peak of US$16.87/share on the cusp of the company's first significant dividend in FY33.
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1810229 08-Jan-2024
