Shares in Sky Metals Ltd (ASX: SKY) are up more than 110% over the past 12 months, but according to the analyst team at Shaw & Partners, there's plenty more upside to come.
The broker has just initiated coverage on the company with a buy rating, and a very bullish share price target, which I'll get to shortly.
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Sky Metals a triple-threat
The Shaw team began covering the company because of its exposure to three critical minerals in tin, tungsten, and silver, and a positive prefeasibility study for its Tallebung project.
The broker said:
SKY's Tallebung tin-tungsten-silver project offers direct exposure to three of the world's most strategically important critical minerals at a time of acute supply concern. The project's prefeasibility economics are robust even on conservative commodity price assumptions, yet the SKY valuation ascribes limited value to significant leverage to current tungsten prices, resource growth and exploration upside. Permitting is advancing, financing requirements are modest, and SKY has a clear pathway to becoming a meaningful non-Chinese tin-tungsten producer.
Shaw said there was strong demand for all three of the minerals at the Tallebung project, with tin one of their favoured industrial metals.
They added:
Pricing has been very strong this year on AI infrastructure, EV and 5G demand, against a fragile supply base where most primary output comes from high-risk jurisdictions. Tungsten is tighter still, with China controlling around 80% of primary production.
Shaw said Sky's Tallebung project was capital-light and fast to build, estimated to cost just $138.8 million and take only seven months to build.
The company has estimated the project's payback at under 17 months at the assumed metals prices, and less than seven months at actual spot prices.
A key milestone for the company moving forward will be environmental approvals, with Shaw saying the company was expecting to lodge its environmental impact statement by May next year.
This would be followed by development approval targeted for late 2027 and first production in mid-2028.
Sky currently has a 150-plus hole resource drilling program under way, and in late September returned more high-grade results.
Sky Managing Director Oliver Davies said:
These latest results provide further evidence of the significant growth potential we see at Tallebung, with another broad, shallow and high-grade tin intercept adding to the growing inventory of significant mineralisation identified since the cut-off for our recent Mineral Resource Estimate update.
Sky Metals shares looking cheap
Shaw & Partners has a price target of 36 cents on Sky shares compared to 16.25 cents currently.
If achieved, this would constitute a 121.5% return.
The company is valued at $173.9 million.
