Brokers have highlighted three ASX mining industry players as substantially underpriced, with one of them tipped to more than triple.
Brokers have highlighted three ASX mining industry players as markedly underpriced, with one of them tipped to more than triple.
Two explorers and a mining services provider have been singled out for attention.
DDH1 ‘well positioned for mining recovery’
Broker MA Moelis has a target price on surface and underground drilling services provider DDH1 (ASX:DDH) of $1.23 (versus the current price of $0.84).
MA Moelis said that while there had been fewer domestic junior raisings and IPOs this year, momentum suggested an improving trend into the remainder of CY23.
Deferral of some exploration programs among majors also suggest that drilling activity had been delayed to Q3.
DDH1’s management has previously said that it anticipated increased demand for the remainder of the period, and into the first half of 2024.
MA Moelis believes DDH is well positioned to capitalise on any uptick in sentiment and recovery, as it has leading domestic operational scale and capability.
Another tailwind for the company is that gold has been enjoying strong price momentum in 2023.
“We hold the view macro and capital markets momentum appears to be on an improving trend into the remainder of CY24, which we think will translate to stronger demand and utilisation for DDH,” said the note from MA Moelis.
Due to the current soft demand however, the broker says its price target on DDH has decreased to $1.23 (previously $1.35), but has maintained its Buy rating.
“We note DDH continues to trade at a significant, and undeserved, discount of 48 per cent to its mining services peers,” MA Moelis says.
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Develop Global ‘has a unique business model’
Broker Euroz Hartleys has a Buy recommendation on specialist underground explorer, Develop Global (ASX:DVP), with target price of $3.90 (versus current price of $3.39).
Run by industry titan Bill Beament, DVP has a two-pronged strategy: to mine its own resources, and to help others mine theirs.
The company has two projects, a 20 per cent stake in another, and one mining contract:
- Woodlawn: Zn-Cu mine in NSW with all infrastructure in place in preparation for mining
- Sulphur Springs: Zn-Cu mine in WA, 140km South of Port Hedland
- Whim Creek: ANX 80 per cent, DVP 20 per cent. Zn-Cu project 25km away from Sulphur Springs, with DFS completed in April
- Bellevue Gold: $400m contract over four years to undertake development activities at the Bellevue underground gold mine
Euroz Hartleys says DVP – using a unique model inspired by Western Mining Corporation’s set-up in the 1990s – is creating a bottom-up culture that empowers its workforce and gives incentives to drive productivity.
“We have seen this same approach at site visits to all the assets, and previously experienced it within the unique Northern Star DNA,” said Euroz Hartleys.
“You could call this a people business with mining operations.”
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The company has a new fleet and a unique approach to asset management (no rebuilds, selling old and buying new models), which aims to reduce long-term maintenance costs.
Euroz Hartleys believes the “secret sauce” for this specialist underground miner is its capability and capacity of the mining team to keep development ahead of production.
“In this way, Mr Beament has made it clear what his focus is; and it is in the name, Develop,” said the broker.
Beament has skin in the game too, with 30 per cent shares fully diluted.
“We initiated a coverage on Develop, backing management track record of success, and a belief in the model that sees optionality in all scenarios,” Euroz Hartleys said.
“We initiate with a Buy recommendation with a valuation of $3.57, and a price target of $3.90.”
EV1 share price could triple
Euroz Hartleys also has a Speculative Buy recommendation on graphite explorer Evolution Energy Minerals (ASX:EV1), with a price target of $0.76 (versus current price of $0.22).
EV1 recently released drilling results, confirming a new discovery of high-grade graphite mineralisation to the east of the Tanzanian Chilalo mining licence (to be named Chilalo East).
This discovery highlights the potential for production expansion and extensions to mine life.
EV1 recently released a DFS, along with a renegotiated offtake deadline for first production in CY23.
The Chilalo mine plan is to begin selling a concentrate (sells for about $US1.6k/t), and then move production to a micronised product (sells for about $US3k/t), as well as toll treating expandable graphite (sells for $US6k/t).
“Our price target is 76 cents per share (cps), given the risks around achieving the key financials assumptions embedded in our valuation.
“This valuation includes 60cps of growth beyond what’s envisaged in the DFS,” said the note from Euroz Hartleys.
This content first appeared on stockhead.com.au
The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.
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