Link:

https://research.sb1markets.no/FileDownLoad.ashx?file=26cba002806f4570b020b4f458fcdfdb.pdf


Recommendation
Buy
Target price
24.00
Share price
18.80
Nordic Mining | NOM NO

SpareBank 1 Markets acted as joint book-runner in connection with the private placement in Nordic Mining in March 2023

Nordic Mining (Buy tp NOK24) – Progressing according to plan with the 20% IRR Engebø project


Conclusion
Nordic Mining is progressing according to plan with its Engebø rutile and garnet project on the west coast of Norway. Construction works are now well underway with production start for the 40+ year mine targeted for Q4 2024. The project progress and funding has been derisked following two cost-to-complete test by two separate independent engineers, and the risk for further substantial capex increases should be low following design freeze process with the EPCs. Further, the company has offtake agreements securing sales of up to the full volumes of rutile and garnet for the first five years. Hence, the pieces are falling into place. When valuing a development project like Nordic Mining’s Engebø we prefer to value a derisked project based on a normalized cost of capital and then use a discount on this NAV to account for development risk. Using a WACC of 12% we estimate a YE25 NAV (we consider the project derisked after one year of production) of NOK ~30/sh. We reiterate a Buy recommendation and lift our target price from NOK20 to NOK24, equal to a 19% discount to our unrisked NAV. Our target price implies 2026e P/E and FCFE yield of 8.3x and 14%, respectively.

Our analysis
This is Engebø. Engebø is a rutile (titanium feedstock) and garnet (industrial abrasive) project on the west coast of Norway. After 15+ years of planning and project development, construction works commenced in H1 2022 for an estimated production start in Q4 2024 from an open pit for a 40+ year life of mine. The project is so far on time and largely on budget, and the company is fully funded and sold out for the first five years of production.

Construction works well underway. Construction works on the Engebø project are now well underway and has past the halfway point towards a production start in late 2024 with first revenue in Q1 2025. The project progress timeline has been de-risked following two cost-to-complete tests performed by to separate independent engineers prior to royalty and bond drawdown. These tests serve as a third-party assessment of the Company's projections that the Engebø project has sufficient funding and will be completed on time.

Fully funded and sold out first five years. Following an extensive financing process in late 2022/early 2023, the company secured the full project financing package of USD ~280m, including a project reserve of USD 30m. On our estimates the company will have a trough position of USD ~28m once the production ramps up in late 2024/early 2025. Hence, the company should have ample liquidity to deal with unforeseen events. Nordic Mining has two rutile offtake agreements in place which secure sales of up to the full rutile production the first five years and a garnet offtake which secures sale of the full garnet volumes the first five years.

Success in the court room. Nordic Mining has seen success in the court room so far in 2024. First, In early January it was announced that the court ruled in favor of the Norwegian state regarding Nordic Mining’s discharge permit. Two NGO’s had summoned the Norwegian state claiming that the discharge permit was null and void. The court ruled in favor of the Norwegian state on all central items and the verdict also orders the two NGO’s to cover the state’s legal expenses of NOK 1.4m. The two NGOs appealed the case and it will be tried in the Court of Appeal after being heard in the EFTA court during the fall of 2024. Second, in March the Supreme court ruled in favor of Nordic Mining in the case against Artic Mineral Resources (AMR). AMR had claimed that it had right to certain parts of the Engebø deposit.

Trading at a material discount to NAV. Our preferred valuation method for a development project like Nordic Mining’s Engebø is to value a “derisked project” based on a normalized cost of capital and then set a discount to NAV to account for development risk. Using a WACC of 12% we estimate a YE25 NAV (one year of production) of NOK ~30/sh. Hence, the current share price of NOK ~19 is equal to ~0.64x NAV which we believe is to steep a discount considering the substantial development progress made over the last 12 months. We reiterate a Buy recommendation and lift our target price from NOK 20 to NOK 24, equal to a 19% discount to our unrisked NAV. At our target price the company will be trading at 2026e P/E 8.3x and FCF to equity yield of 14%.