WA1 Resources Ltd (ASX: WA1) shares were on fire on Wednesday.
The ASX mining stock rocketed 27% to $20.69.
This latest gain means that the niobium explorer's shares are up 283% since this time last year.
But if you thought the gains were over, think again. That's because analysts at Bell Potter have just put out a very bullish broker note.
What's going on with this ASX mining stock?
Investors were scrambling to buy the ASX mining stock yesterday following the release of results from its initial metallurgical testwork program on niobium mineralisation at the Luni deposit of the 100% owned West Arunta Project.
As you might have guessed from the share price reaction, the program delivered strong results. It produced high-grade niobium concentrates with low impurities and at industry-comparable recovery rates through a practical two stage flotation regime.
WA1 Resources' managing director, Paul Savich, commented:
We consider this an excellent outcome towards unlocking the significant inherent strategic value of Luni. Flotation of niobium minerals is widely recognised as the key challenge to developing a conventional process flowsheet for a niobium deposit.
Broker response
Bell Potter was very pleased with the news and described it as a major de-risking event. It commented:
WA1 have passed a significant de-risking hurdle in confirming that niobium minerals from its Luni project can be concentrated via a two-stage floatation circuit with recoveries and concentrate grades in-line with dominant global producers.
This is important for two reasons; 1) niobium recovery is difficult, with typically low recoveries (as low as 30%) making most projects uneconomic and 2) we held the view that recoveries through to an end product would range between 40-45%. The fact they have exceeded that in a first pass is positive, with pathways for optimisation (eg introducing magnetic separation) providing a material value uplift.
Big returns still possible
In response, the broker has reaffirmed its speculative buy rating and upgraded its price target by almost 59% to $28.00 (from $17.65). Based on its current share price, this implies potential upside of 35% for this ASX mining stock over the next 12 months.
Bell Potter concludes:
We increase our valuation for WA1 to $28.00/sh (previously $17.65/sh) and maintain Our Speculative Buy recommendation. Our valuation for WA1 is based on a notional development scenario (NDS) for the Luni prospect. We then apply a 40% risk discount to account for the early stage of the project.
We see the potential for Luni to be a globally significant niobium project, capable of generating on average A$514m in annual EBITDA. Using Lynas (LYC, Buy TP $7.55/sh) as a comp, which trades on a 10.9x EV/EBITDA multiple, yields an enterprise value of A$5.6bn for WA1.
