• Boab Metals with its Sorby Hills lead and silver project has been uprated by Sydney equity house Rawson Lewis
  • ‘A 10 cents per pound increase in lead prices adds ~20 cents per share to our valuation’, report said
  • Price target of 85 cents and valuation of 73 cents put on Boab Metals’ shares


The underlying value of lead and silver exploration company Boab Metals (ASX:BML) with its Sorby Hills project in WA is twice its current share price and market value.

This is the conclusion of Sydney equity research house Rawson Lewis which has analysed the net present value (NPV) of Sorby Hills, one of the largest lead and silver deposits in Australia that is set to go into production in 2023.

Rawson Lewis has put a share price target of 85 cents on Boab Metals and currently values the company at 73 cents per share in its report titled, ‘Lead market to surprise on upside’.

“Our 85 cents per share price target is based on our project base case net present value at average prices of [the] last three years, a discount rate of 10.5 per cent, and a 50 per cent increase in reserves,” said the report written by Rawson Lewis analyst Michael Harrowell.


Project value at today’s prices

The NPV of a project measures the value of its future cashflow at today’s prices, and in the case of Boab Metal’s Sorby Hills project the figure is $121m this financial year, and rises to $280m in FY2024, according to Rawson Lewis.

This equates to a valuation on a per share basis for Boab Metals of 82.8 cents per share in FY2021, and rising to 97 cents per share in FY2024, said the report.

At 10.5 per cent, the discount rate for the NPV calculation is higher than the current risk-free return on a 10-year Australian government bond with a yield of 1.7 per cent.

The discount rate is however supposed to reflect the company’s individual cost of capital, project risk, and the opportunity cost of deploying the investment to another opportunity.

“We have chosen to use a weighted average cost of capital of 10.5 per cent, reflecting the higher project uncertainty, and we would expect the discount rate to move to 7 per cent as the project ramps up,” said Rawson Lewis.

In its pre-feasiblity study for Sorby Hills, which is located 50km outside Kununurra in WA, Boab Metals put a pre-tax NPV on the project of $303m.


Leveraged to global recovery

Boab Metals is highly leveraged to the lead and silver markets as the global economy starts its recovery phase from the COVID-19 pandemic which severely impacted metals prices.

“A 10 cents per pound increase in lead prices adds ~20 cents per share to our valuation,” said the report, adding that 2021 and 2022 are likely to see a rebooting of consumer interest, restocking of supply chains, and strong commodity prices generally.

Lead is particularly exposed to an expected recovery in vehicle sales which have been in decline for the past three years including a 20 per cent fall in 2020.

Consensus forecasts are that EVs with sales of 48.8 million in 2040 will outsell diesel and petrol powered vehicles by that year at 42.2 million units.

It is an often overlooked fact that lead is used in battery EVs to run low voltage functions like powering lights and door security as well as starter motors.

About 85 per cent of current lead demand is linked to the lead-acid battery sector which is used to power petrol or diesel vehicles and electric bikes, forklifts and even milk floats.


Significant lead reserves

“There are very few ASX listed companies with significant lead resources, and even fewer with lead reserves,” said the Rawson Lewis report on Boab Metals.

The company has updated its resources estimate for Sorby Hills to 44.9 million tonnes at 4.3 per cent lead equivalent (3.2 per cent lead, 37 grams per tonne silver) and 0.5 per cent zinc.

Investors in the company are currently getting 14lb of lead reserves for every $1 of the company’s enterprise value, which is higher than some other ASX lead companies.

The valuation may be even higher than the target price of 85 cents per share, at $1.11 per share if extra reserves for the Sorby Hills project are included, based on current lead and silver metal spot prices.

Rawson Lewis, in its report’s calculations for Sorby Hill, assumes a lead price of 93 to 95 US cents per pound over the FY2022 to FY2024 period, and a silver price of $US18.23 to $US18.60 per ounce for silver.

These price assumptions may be on the conservative side as lead has traded between 70 and 120 US cents per pound over the past five years, and for silver the price range for the period is $US12.50 to $US28.20 per ounce.


Share price trades in narrow range

Boab Metals’ share price is trading this week at around 42 cents and has been trading in a range of 35 cents to 55 cents since last September.

The market capitalisation of the company on the ASX is about $64m which is another important metric when considering the overall value of the exploration company.

“Normally, the market price for a miner [explorer] would be reflecting the spot prices movement, but for now the market appears to be slow to recognise the improving situation Boab finds itself in,” said the report.

A pre-feasiblity was recently completed for the company’s Sorby Hills project in northern WA that is 75 per cent owned by Boab Metals and is moving to a financial close in November.

Sorby Hills is expected to produce 47,000 tonnes of lead and 1.4 million ounces of silver in concentrate form over a period of 10 years.

There are some strong positives for Boab Metals in the coming months, including an expected update to its reserves statement for Sorby Hills in the September quarter.

The company is also scheduled to complete a definitive feasibility study for the project in the March 2022 quarter, paving the way for construction to start in the June quarter of next year.

ASX share price of Boab Metals (ASX:BML)


At Stockhead we tell it like it is. While Boab Metals is a Stockhead advertiser, it did not sponsor this article.