Argex Titanium Inc.
RGX - TSX
Shares issued: 132 million
Shares fully diluted: ~ 153.8 million
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Based on yesterday’s extremely positive feasibility study news, Jon Hykawy, Head of Global Research, for Byron Capital issued an update to clients this morning. Mr. Hykawy bumped his SPECULATIVE BUY target on Argex to a full BUY recommendation. He also raised his target price to $3.50 from $3.00.
Here is a copy of the Argex report:
Argex Titanium Inc. (RGX - TSXV, $0.89)
Rating: BUY↑ / Target Price: $3.50↑
Robust Economic Feasibility Bodes Well
Genivar Delivers Economic Study Today: Not being a mining company, Argex was under no obligation to undertake the National Instrument 43-101 delineated Definitive Feasibility Study. However, company management has been of the opinion that a proper, third-party-vetted study on the use of its current process to produce TiO2 pigment would be of value to investors and to the company. Genivar has now delivered this study, and it indicates a robust economic potential for the first 50,000 tpa module to be constructed by Argex in Valleyfield. Based on a DCF model using a flat, $3,500/tonne price for TiO2 pigment with 50,000 tpa production commencing in 2015 and ramping to 100,000 tpa in 2017, all subject to a 14% discount rate, we are raising our target price to $3.50 from $3.00, and moving to a BUY recommendation from our previous SPECULATIVE BUY.
The Numbers: Perhaps the most critical figure, especially in this market, is the required level of capital expenditure. Capex for the first module, which is overprovisioned with grinding and leaching capacity, is estimated by Genivar to be $247.6 million, including a 20% buffer on equipment (itself roughly 50% of the overall budget) and a further general contingency of $27.4 million. To put this in proper context, reports dated July and August 2013 from Industrial Minerals and Business Day Live note that Arkein, EVRAZ and Nyanza Metals are planning to build a 50,000 tpa TiO2 plant in South Africa for roughly $420 million. This is considered by those companies to be a solid economic proposition, and implies that the Argex project would have a far stronger IRR.
From the press release, assuming a 25 year project life and 50,000 tpa annual production, Genivar assumes roughly a $3,500/tonne pigment price over the project life, along with $454 of by-product credit per tonne of TiO2 produced. Opex is roughly $1,483 per tonne of TiO2 produced, or $1,030 per tonne of TiO2 less by-product credits. For purposes of our modeling, we have assumed 2% inflation on the opex, a flat $3,500/tonne TiO2 price, and an increase to 100,000 tpa capacity in 2017 that will require an additional $120 million capital expenditure. We admit that we have made the completely unrealistic assumption that the company will not expand beyond an initial, very successful 100,000 tpa plant. Our model also incorporates a 14% discount rate, owing to both remaining technical and financing risk, along with an 8x terminal multiple in 2023.
Financial Results: The economic study suggests a pre-tax NPV of $954 million for a single, 50,000 tpa module with an 8% discount rate. Our model looks to a $640 million NPV, on double the production but with a much higher 14% discount rate and a lower long-term TiO2 price. In any event, the result is extremely robust potential returns.
Jon Hykawy, Ph.D., MBA
Head of Global Research
Clean Technologies and Materials Analyst
For a full version of this report, please click on the link below:
Argex Titanium Inc. - Robust Economic Feasibility Bodes Well
