MoneyTalks: DDH1 undervalued; DVP has a unique model run by mining legend Bill Beament – brokers say
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).
According to the broker, while there have been fewer domestic junior raising and IPOs this year, momentum suggests 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% to its mining services peers.”
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% 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%, DVP 20%. 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
The company is creating a bottom-up culture that sees its workforce incentivised and empowered to drive productivity at operations.
This is a unique model inspired by Western Mining Corporation in the 1990s.
“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.”
The company has a brand new fleet and a unique approach to asset management (no rebuilds, selling old and buying new models), which will see long-term maintenance costs reduced.
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% 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.
“We initiate with a Buy recommendation with a valuation of $3.57, and a price target of $3.90.”
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 ~US$1.6k/t), and then move production to a micronised product (sells for ~US$3k/t), as well as toll treating expandable graphite (sells for US$6k/t).
“Our price target is 76cps, 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.
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