Why this ASX mining stock just got a huge broker upgrade

This mining stock could be heading even higher according to analysts at Bell Potter.

| More on:
A mining employee in a white hard hat cheers with fists pumped as the Hot Chili share price rises higher today

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Materials Shares

A smiling businessman in the city looks at his phone and punches the air in celebration of good news.
Materials Shares

2 ASX lithium shares racing higher on big news

Let's see what these shares have announced this morning.

Read more »

A young man goes over his finances and investment portfolio at home.
Materials Shares

What is Goldman Sachs saying about the Pilbara Minerals share price?

The broker has given its verdict on the beaten down shares of this lithium giant.

Read more »

Mining workers in high vis vests and hard hats discuss plans for the mining site they are at as heavy equipment moves earth behind them, representing opportunities among ASX 200 shares as nominated by top broker Macquarie
Materials Shares

Fortescue shares charge higher on Red Hawk takeover boost

This mining giant is moving closer to getting a takeover deal over the line.

Read more »

A female miner wearing a high vis vest and hard hard smiles and holds a clipboard while inspecting a mine site with a colleague.
Materials Shares

Why are Pilbara Minerals shares storming higher today?

This lithium giant has made an announcement. Let's dig deeper into things.

Read more »

Image from either construction, mining or the oil industry of a friendly worker.
Materials Shares

3 ASX All Ords mining shares surging on big news

These mining shares are having a good session. But why?

Read more »

Image of young successful engineer, with blueprints, notepad and digital tablet, observing the project implementation on construction site and in mine.
Materials Shares

Forget Fortescue, Bell Potter says this ASX 200 mining stock could rise 75%

Bell Potter says this mining share could deliver big returns in 2025.

Read more »

Miner looking at a tablet.
Materials Shares

Here's the earnings forecast out to 2029 for Pilbara Minerals shares

The lithium miner has faced difficulties. Is investor excitement about to recharge?

Read more »

Man in yellow hard hat looks through binoculars as man in white hard hat stands behind him and points.
Materials Shares

Rio Tinto stock: Buy, sell, or hold in 2025?

Do analysts think investors should be loading up or avoiding this mining giant?

Read more »