Carabella Res Ltd Nsw CBLLF

TD research on KBLT Nov 29

[HARJAY]

Seems to be a large disconnect between this analysis and present price , Can anyone explain this disconnect.

Event
Earlier this week Cobalt 27 up-sized its existing $80mm credit facility to $200mm.
Proceeds from the financing along with the company's current cash position will provide the necessary funding to acquire both the first and second tranches of the Ramu Co-Ni streams for a combined $200mm.
On the back of this announcement, our note discusses the upside potential of Ramu along with the company's valuation disconnect from current pricing and long-term fundamentals.

Impact: NEUTRAL
Ramu cash flows could finance a dividend or future share buybacks - We value the two tranches of Ramu at $268mm using an 8% discount discount rate at our cobalt price deck. At current spot cobalt and nickel prices of $34.00/lb and $5.50/lb respectively, we calculate an 8%NPV of $230mm, and estimate the combined streams could generate $33mm of cash flow in 2019.
Proceeds from Ramu could easily support a 1-2% dividend yield at our 12- month target price of C$13/sh. (C$0.13-0.26/sh. or C$11-22mm). This is similar to its royalty peer group, and still allows the company to pay-down debt and repurchase shares, which trade at a 49% discount to our NAVPS of C$10.67. Management continues to work on closing the Ramu stream acquisition before year end, while any cash flows from the operation are expected to be retroactive to July 1st.
Significant discount on the Voisey's Bay stream - Under a bearish scenario in which the Ramu Co-Ni stream does not close, we value the company's physical cobalt holdings ($218mm), net cash position ($54mm), investment in Highlands, and non-cash working capital at $275.6mm or C$4.16/sh. With a current share price of C$5.24, the implied value for Voisey's Bay and the company's royalties is only $71.0mm or C$1.08/sh. As a reminder, Cobalt 27 paid $300mm or C$4.54/ sh., which would imply over a 75% discount to the purchase price, which we believe is unjustified given the Tier 1 counter-party (Vale) and stable jurisdiction (Newfoundland).

TD Investment Conclusion
We maintain our target price of C$13.00 and BUY recommendation. In our view, the most significant near-term catalyst is closing the Ramu stream transaction, which would allow the company to start paying a dividend and potentially buy back stock.