Research update Arctic Minerals Q4 2021: Mineral Resources at a Discount
22 Mar 2022
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Analysis Arctic Minerals
Arctic Minerals has reported increased mineral resources during the winter and identified promising exploration potential at Bidjovagge. The Finnish projects are generally progressing. We calculate a justified value of SEK 1.14 after a change in valuation approach and consider Arctic Minerals to be valued at a discount compared to similar companies.
A Local Nordic Exploration Company Focusing on the Early Stages
Arctic Minerals is a local Nordic mining company exploring early-stage deposits in Finland and Norway. Typically, resource drilling is necessary before a project can be valued and sold. The strategy is to divest all or part of these deposits to larger mining companies following the first phases of exploration. The Company already has a joint venture with mining giant Rio Tinto for the Peräpohja project, and a drilling program is ongoing.
Increased Mineral Resources in Bidjovagge
The projects in Arctic Minerals’ portfolio are generally moving forward. Joint venture partner Rio Tinto completed additional core drilling in Finland during the autumn. A new mineral resource estimate for the Bidjovagge deposit in Norway showed an increase in 3.3 million tonnes (2.3). A recent review of a sample of past drilling indicates good grades of metals that have not yet been included, such as cobalt. In addition, old drill cores suggest that there may be more gold-copper deposits in the vicinity than previously thought. However, the Kiiminki project has hit a snag as an exploration permit for the project has been appealed, and the case is to be decided by an Administrative Court. At the very least, this means that in-depth studies will be delayed. Overall, costs were slightly lower than we had previously anticipated. At the end of 2021, the company had cash of SEK 18 million (2).
New Valuation Approach But Similar Potential Remains
In 2022, we expect Arctic Minerals to focus its resources on continuing early stage exploration at its wholly-owned Finland projects. In addition, we expect partner Rio Tinto to become the majority owner of Peräpohja, which would further validate the project. Finally, Bidjovagge is a dark horse if a breakthrough is reached on the permitting issue or that Arctic Minerals can obtain a strong partner in the project on reasonable terms.
We have revised our valuation approach and now assume dilution in the joint venture project. In return, a relative valuation points to a higher justified value for Bidjovagge than in our previous estimates. Overall, we make only a minor adjustment to our motivated value in a base case to SEK 1.14 compared to our preliminary valuation after the updated mineral asset calculation published on 16 December 2021 (SEK 1.19 per share).
In our Bear case, we arrive at a target price of SEK 0.39 per share (previously SEK 0.41 per share). In contrast, our Bull case is raised to SEK 2.6 (previously SEK 1.92 per share) as we see a higher potential upside in Bidjovagge in an optimistic scenario.
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