Roth Capital Partners - Lion One Metals Coverage Report
InvestorSarfari Comments:
Roth capital rates Lion One metals a BUY with a price target of $2.50 twelve months out and this is the 2nd report in less than 2 months. They must like LION ONE! What’s there not to like - expanding resources, continuous positive drilling results, total ownership drill rigs and an on-site processing lab.
Markets are still not stable, but GOLD and metals prices seems to have rebounded this week. The short report is worth the read, as it summarizes a snapshot of the company from several angles. A quick look at the graph trend shows that the stock has been beaten down. But for those who wish to purchase LION shares close to the bought deal financing price, this may be another opportunity, if the previous dip was missed.
Comments on circumstances surrounding the recent dip can be found here.
ROTH Capital Partners
Mike Niehuser, (949) 402-5336
mniehuser@roth.com
Sales (800) 933-6830, Trading (800) 933-6820
Resources: Metals & Mining
Lion One Metals Limited | LIO.V - C$0.81 - TSXV | Buy
LIO: Exploration Guides Mine Plan
LIO is nearing production at its Tuvatu gold mine in Fiji, which may place it among the highest-grade gold mines in the world. Tuvatu is an orogenic gold deposit with potential to extend vertically over a kilometer. LIO owns a modern assay lab and eight drill rigs, which accommodates flexible and low-cost exploration. It de-risked the project by completing a financing and balancing its construction budget. LIO anticipates updating its resource estimate in 1Q23 and commencing production in 1Q24.
Drilling is defining the 500 Zone as a mineable near-term mining target.
LIO Is defining a high-grade feeder zone approximately ~400m below the current resource. Orogenic gold deposits may vertically extend for kilometers. Drilling has intercepted high-gold grades at Tuvatu at over a kilometer at depth. It is rapidly defining a ~32,000 tonne zone grading of ~20.0 g/t gold. Notable drill results are as follows:
TUDDH-608 – 21.16 g/t Au over 19.6m from 594.5m, including 25.28 g/t Au over 16.2m from 596.7m.
TUDDH-601 –23.02 g/t Au over 20.1m from 576.1m and 8.09 g/t Au over 20.7m from 602.5m.
TUG-141 – 20.86 g/t Au over 75.9m from 443.4m.
In June of 2014, a resource estimate was published which included an indicated resource of 1.1 million tonnes, grading 8.46 g/t gold, for 299,500 oz of gold, plus an inferred resource of 1.5 million tonnes, grading 9.7 g/t gold, for 468,000 oz of gold. In our opinion, with a significant amount of drilling completed since 2014, we anticipate an increase in classification, tonnes and grade for the latest resource estimate. LIO plans to publish an updated resource estimate in 1Q23. Potentially more important, the addition of the 500 Zone may become an early near-term target in the mine plan. Exploration of 500 Zone feeder drives production scenarios. Should drilling continue to define the 500 Zone as a feeder, this higher-grade zone may extend an additional 500m or more. This may lead to a revised mine development program driving production deeper, possibly earlier than anticipated.
An improved plan may include accelerating mine development, mining high-grade areas on the way to the 500 Zone. This may have the positive impact of maintaining cash flow while bringing the most economic high-grade zones into production earlier in the mine plan, while leaving the majority of the existing resource to be mined and blended with throughput from deeper in the mine.
Exhibit 1 shows a cross-section with results from six recently released metallurgical drill holes. The information from these drill holes should increase the confidence for the first three years of the mine plan. These drill holes intercepted high grades of gold over narrow intercepts relative to the potentially wider higher-grade 500 Zone. Though the 500 Zone is deeper than the current resource, in our opinion, the wider feeder zone may be an attractive target to access earlier in the mine plan.
Exhibit 1: Cross-section of SKL and Marau Lode
Exhibit 2 shows a generalized geologic model of an orogenic gold deposit and the Tuvatu geologic model. A characteristic of alkaline orogenic deposits includes the flash precipitation of gold simultaneously over the extent of the conduit. This may occur with a sudden loss of pressure where the CO2 rushes out an opening at the surface, allowing the gold to come out of solution. In our opinion, this may account for the consistency of grades over the vertical extent of the conduit. As gold permeates the brecciated rock near surface, it precipitates through fractures in veins as well as in a constrained conduit deeper in the system.
Exhibit 2: Generalized Geologic Model (left), Tuvatu Geologic Model (right)
Economics becomes a function of grade and mineable widths. Both the latest resource estimate and the 500 Zone have high gold grades. The attraction of the 500 Zone is both its higher grade and broad, consistently mineable widths. As this mineralized system may form below the resource area, extending downward to the 500 Zone, and possibly an additional 500m or more, this deeper zone may represent a highly economic zone to mine as early as possible.
VALUATION
The PEA estimated economics of a 1,000 tpd operation over a mine life of only five years at a base-case gold price of US$1,400. Under this scenario, the PEA calculated an after-tax NPV5% of US$121.7 million and an after-tax IRR of 50.9%. The after-tax NPV5% increases to US$202.8 million at an $1,800 gold price and US $243 million at a $2,000 gold price.
The PEA’s calculation was based on a five-year mine life, but stated that a seven- to ten-year mine life was likely. In our opinion, the gold price and shorter mine life used in the PEA show the resilient economics of the existing Tuvatu deposit, but do not realistically take into account LIO’s options for scaling production or further exploration potential at Tuvatu or the Navilawa Caldera. LIO is now in the process of completing its analysis on the appropriate scale to commence production at Tuvatu.
We have modeled several production scenarios. In our opinion, a modest-scale operation of 300 to 500 tpd over 10 years at a gold price of $1,800, with a 10% discount rate, may be valued at ~C$249 million, or ~C $1.60 per share. We anticipate that over the next 12 months, LIO has the potential to demonstrate a resource potential of two million ounces of gold at Tuvatu. This could support stepping up to 1,000 to 1,250 tpd over a mine life of 10 to 20 years. Our model shows a potential valuation of a larger facility resulting in a valuation of C$423 million, or ~C$2.50 per share.
In our opinion, as Tuvatu in the Navilawa Caldera has been identified as an alkaline gold system, it has the potential to grow into a multi-million oz gold resource. In addition, given the proximity, and numerous positive characteristics, LIO’s position in the Navilawa Caldera could match or better Vatukoula, with an 11 million oz deposit and an 85-year operating history. Beyond Tuvatu, given early exploration results within the Navilawa Caldera, we believe that there is the potential for an additional three to four Tuvatu-like prospects.
We reiterate our price target of C$2.50 per share. Factors that could impede LIO from achieving our price target include but are not limited to: inability to define additional resources, declining gold prices, development and construction challenges and inability to access additional capital and exploration risk.
RISKS
Political risk. Natural resource companies are subject to significant political risk. Although most mining jurisdictions have known laws, potential exists for these laws to change.
Commodity price risk. All natural resource companies have some form of commodity price risk. This risk is not only related to final products, but can also be in regards to input costs and substitute goods.
Operational and technical risk. Natural resources companies have significant operational and technical risks. Despite completing NI 43-101 compliant (or similar) resource estimates, deposits can still vary significantly compared to expectations. Additionally, numerous unforeseeable issues can occur with operations and exploration activities.
Pre-revenue risk. Pre-revenue natural resource companies are dependent on available cash, marketable assets and the ability to borrow or sell equity into capital markets to fund development including exploration and construction. There is no guarantee that the company will become cash flow positive.
Market risk. Although most natural resource companies are more closely tied to individual commodity price performance, large business cycle forces or economic crises can impact a company’s valuation significantly.
Cautionary Note to US Investors: Estimates of Measured, Indicated and Inferred Resources “Measured Mineral Resources” and “Indicated Mineral Resources.” U.S. investors are advised that although these terms are required by Canadian regulations, the U.S. Securities and Exchange Commission (SEC) does not recognize them, and describes the equivalent as “Mineralized Material.” U.S. investors are cautioned not to assume that these terms are any form of guarantee.
“Inferred Mineral Resources.” U.S. Investors are advised that while this term is required by Canadian regulations, and the SEC does not recognize it. “Inferred Mineral Resources” are not delineated with a great deal of certainty and should not be considered likely to be brought into production in whole or in part.
COMPANY DESCRIPTION
LIO's primary asset is the 100% owned, fully permitted high grade Tuvatu Alkaline Gold Project, located on the island of Viti Levu in Fiji. LIO is developing a low-cost, high-grade underground gold mining operation at Tuvatu with exploration upside at depth and covering the entire Navilawa Caldera, alkaline gold system with a seven-kilometer strike across the caldera
Note: Company reports under IFRS, June fiscal year end. Rounding may result in quarterly EPS not summing to annual EPS
Mike Niehuser. mniehuser@roth.com (949) 402-5336
Regulation Analyst Certification ("Reg AC"): The research analyst primarily responsible for the content of this report certifies the following under Reg AC: I hereby certify that all views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Disclosures:
Shares of Lion One Metals Limited may be subject to the Securities and Exchange Commission's Penny Stock Rules, which may set forth sales practice requirements for certain low-priced securities. Rating and Price Target History for: Lion One Metals Limited (LIO.V) as of 10-04-202
Each box on the Rating and Price Target History chart above represents a date on which an analyst made a change to a rating or price target, except for the first box, which may only represent the first note written during the past three years.
Distribution Ratings/IB Services shows the number of companies in each rating category from which Roth or an affiliate received compensation for investment banking services in the past 12 month.
Distribution of IB Services Firmwide
Our rating system attempts to incorporate industry, company and/or overall market risk and volatility. Consequently, at any given point in time, our investment rating on a stock and its implied price movement may not correspond to the stated 12- month price target.
Ratings System Definitions - ROTH employs a rating system based on the following:
Buy: A rating, which at the time it is instituted and or reiterated, that indicates an expectation of a total return of at least 10% over the next 12 months.
Neutral: A rating, which at the time it is instituted and or reiterated, that indicates an expectation of a total return between negative 10% and 10% over the next 12 months.
Sell: A rating, which at the time it is instituted and or reiterated, that indicates an expectation that the price will depreciate by more than 10% over the next 12 months.
Under Review [UR]: A rating, which at the time it is instituted and or reiterated, indicates the temporary removal of the prior rating, price target and estimates for the security. Prior rating, price target and estimates should no longer be relied upon for UR-rated securities.
Not Covered [NC]: ROTH does not publish research or have an opinion about this security.
ROTH Capital Partners, LLC expects to receive or intends to seek compensation for investment banking or other business relationships with the covered companies mentioned in this report in the next three months. The material, information and facts discussed in this report other than the information regarding ROTH Capital Partners, LLC and its affiliates, are from sources believed to be reliable, but are in no way guaranteed to be complete or accurate. This report should not be used as a complete analysis of the company, industry or security discussed in the report. Additional information is available upon request. This is not, however, an offer or solicitation of the securities discussed. Any opinions or estimates in this report are subject to change without notice. An investment in the stock may involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Additionally, an investment in the stock may involve a high degree of risk and may not be suitable for all investors. No part of this report may be reproduced in any form without the express written permission of ROTH. Copyright 2022. Member: FINRA/SIPC
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