Shares in Kairos Minerals are poised to triple as the company grows its already-substantial WA gold inventory and ramps up lithium exploration, according to a new report from Resolve Research.
The report sets a target price for Kairos Mnerals (ASX:KAI) of $0.046 – almost three times higher than their last trading price of $0.017, which had the company on a market capitalisation of $31m.
Placing a “strong buy” recommendation on the stock, Resolve analyst Dr Michael Green says the fresh valuation is underpinned by the company’s 1.1 million-ounce resource in WA’s Pilbara and its lithium targets in the State’s “premier lithium address”.
Green highlights the potential for far bigger share price gains beyond his initial $0.046 target, setting a “stretch target” of $0.092, which he says is achievable if Kairos is able to grow its resource to 1.5Moz and its lithium exploration is successful.
“Kairos is fast-tracking its lithium potential, alongside growing/advancing its Mt York Gold Project, with an aim of achieving a significantly increased resource from 1.1Moz to 1.5Moz in the near term,” Green says.
“Peer group analysis shows that the gold interests could attract a valuation of A$95m on their own.
“Establishing a 10Mt at 1% Li2O resource could conservatively add A$84m, suggesting 8c per share. That is for the future.
For now, we initiate coverage of Kairos with a target price of $0.046 and a Strong Buy stance.”
Drilling set to start in April
Posing the rhetorical question of whether Kairos is “on the brink of a spodumene pegmatite discovery”, Dr Green notes that lithium drilling is expected to start in April at the Black Cat and Crystal Palace targets at the company’s Roe Hills project, next door to Global Lithium’s (ASX:GL1) Manna Lithium Project, which hosts 32.7Mt at 1% Li2O.
“At Black Cat, Kairos is set to drill a 2.7km lithium soil anomaly and hopes to discover a Manna-lookalike,” he says in the report.
Green also puts the spotlight on what he describes as the “well-named Lucky Sump Prospect, which lies in a truly ‘fertile’ zone for lithium”, where “late-stage pegmatite intrusions contain lithium (and tantalum) in the form of spodumene – the holy grail.”
“In the Pilbara, Kairos discovered spodumene-bearing pegmatites (up to 1.9% Li2O) just 3km from Pilbara Minerals’ (ASX:PLS) world-class Pilgangoora Lithium-Tantalum mine and near Mineral Resources’ (ASX:MIN) Wodgina Mine,” he says.
There’s gold on top, too
On the gold front, Dr Green says Kairos’ Mt York Gold Project “could become a super pit”, with further exploration required to firm up the gold resource estimate.
“Of the 1.1Moz Mineral Resource Estimate, 900,000oz comes from the 3km-long single continuous deposit called the Main Trend,” Green says.
“Lack of quality core has meant no structural targeting to drive drilling. Plus, there has been a lack of drilling at depth.
“All this is being resolved by testing the potential with a +20,000m RC-DDH drilling programme which is now 50% complete and could push the Resource closer to 1.5Moz.
“Such a move would dramatically improve our valuation.”
Aiming even higher
According to Green, that’s a large part of the potential for price gains beyond his initial $0.046 target, making the case for what he labels a “stretch target” at $0.092.
“We also investigated the sort of target price that would be generated if the company attains the hypothetical 1.5Moz gold resource,” he says.
“Applying both the calculated median EV/oz figure for a total resource of A$71/ounce and A$195/ounce for Measured & Indicated categories, the value of a 1.5Moz resource would give valuations of A$106.5 million and A$146.25 million respectively and an average figure of A$126.38 million.
“Repeating the same analysis suggests $0.066 per share based on the number of shares currently in issue and $0.058 on a fully diluted basis.
Factoring in the additional valuation gained from the lithium discovery scenario would suggest a valuation per share of $0.092, which is something to consider.”
This article was developed in collaboration with Kairos Minerals, a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.