Rare Earths Co. Raises AU$45 Million

These funds, including US$30M from a strategic investor, should see Vital Metals Ltd. through extraction facility commissioning, now underway, noted an MST Access report.

Vital Metals Ltd. (VML:ASX) raised AU$45 million (AU$45M) and obtained a no-interest CA$5M Canadian loan, securing a solid financial position until the start of commercial rare earth (RE) carbonate sales and, thus, cash flow, a catalyst expected in late 2022-early 2023, reported MST Access analyst Michael Bentley in an August 11, 2022 research note.

Currently, Vital Metals is commissioning its rare earth extraction facility in Saskatoon, Saskatchewan, to produce RE carbonate from ore mined at the company’s Nechalacho rare earth oxide (REO) project in the Northwest Territories. The Australian firm aims to start ramping up throughput at this plant in Q4/22.

“The company is well funded against the backdrop of remaining development works at the Saskatoon extraction plant,” Bentley wrote.

Bentley noted Vital Metals also is in the process of producing a 2.5-ton carbonate sample for its Norwegian offtake partner REEtec, which, earlier in 2022, agreed to provide RE metals to German electric drivetrain company Schaeffler for five years. Vital Metals expects to finish producing the 2.5 tons in October 2022.

The analyst described Vital Metals’ recent capital infusions. The AU$45M capital raise was carried out at AU$0.04 per share, he wrote. An investment by Lionhead Resources, a mining-focused private equity firm headed by experienced mining operator and investor Richard Crookes, accounted for US$30M of the total. As a result, Lionhead earned two seats on Vital Metals’ board.

“We see Lionhead’s investment as very positive,” Bentley commented. “Lionhead’s long-term investment strategy aligns with Vital Metals’ goal to become the lowest-cost producer of mixed REO (ex-China) by developing one of the highest-grade rare earth (RE) deposits in the world and the only RE project capable of beneficiation solely by ore sorting.”

As for the CA$5M loan, Vital Metals got it from a regional economic development-focused governmental agency in Canada, noted Bentley. The mining company is to repay the monies over five years in monthly tranches, starting April 1, 2024.

“The receipt of the funding on such supportive terms from the Canadian government is a signal of the positive tone of the relations between the company and local authorities,” wrote Bentley.

The analyst revised his valuation of Vital Metals to account for the added capital and increased share base. The result was a per-share valuation decrease to AU$0.18 from AU$0.21. Bentley added that the company’s share price at the time, of around AU$0.046, does not reflect Nechalacho’s underlying value, which he estimates at AU$0.03 per share in stage one and AU$0.13 in stage two. Plus, Nechalacho offers further upside, Bentley noted.

This is because “the scale of the resource and its location in Canada uniquely position Vital Metals to supply the market with light and heavy REs from outside China,” wrote Bentley.

Vital Metals Ltd. is closed for trading at AU $0.046 on Friday, August 12, 2022.

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Disclosures for MST Capital Markets, Vital Metals, Aug. 11, 2022

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