Let’s Go, Rover, Let’s Go!
We initiate research coverage of Rover Metals with a Buy rating and a price target of CAD 0.92 per share, representing substantial upside from the current share price, and highlight that the current pullback in the company’s stock price (during its recent financing rounds) could be an interesting entry point for investors. Rover Metals is the only company in our peer group that has not yet published a NI 43-101 report for its lithium resource, and we believe that even the publication of a technical report should result in a first re-rating of the shares, given the fact that peers are trading at significant premiums to Rover Metals, while having published substantial smaller resources. If Rover Metals succeeds with its drilling program and defines a mineral resource, we expect a substantial re-rating of the shares and potential interest from major mining companies to take over Rover Metals’ ownership in the Let’s Go Lithium project. But even in what we consider a low probability case that the lithium project has no value, we see downside protection for investors as other (zinc-copper-lead-silver and gold) assets were not included in our valuation. We do not expect Rover Metals to continue exploring on all properties, but favour discussing other options, f. ex. a trade sale to a major mining company.
Rover Metals is a pre-resource disclosure stage mineral exploration and development company focused on acquiring and exploring early-stage projects in Canada and the U.S. By focusing top-tier jurisdictions, the Canadian based company follows a risk-averse strategy, avoiding unsafe and politically unstable countries and regions with poor respect for property rights (i. e. high nationalization risk) and a lack of legal security, and benefits from a viable infrastructure, that we believe significantly lowers the economic thresholds for converting a discovery into a mine.
Rover Metals’ undoubtedly most valuable asset, in our view, is the Let’s Go Lithium (LGL) development property in the prolific U.S. state of Nevada. Recent lab verified surface grab samples have returned multiple high-grade lithium values of more than 650 ppm lithium, in-line with the nearby Franklin Wells mine which produced hectorite clay averaging 1,000 ppm lithium. Given these sections of very high grades, LGL could create a bulk tonnage potential, in our view. LGL is a sedimentary-hosted lithium (claystone lithium) project. Similar near surface claystone lithium projects in Nevada indicate that the capex costs of claystone lithium refining are almost 50% less than geothermal brine lithium extraction.
Founded in 2010, Sphene Capital is a German based pure-play research house offering state-of-the-art research and evaluation services to European small- and mid-caps by avoiding typical conflict of interests of traditional investment banks.
As a general rule, analysts of Sphene Capital strive to understand companies better than any other analyst or investor before publishing their initiation reports. Therefore, the comprehensive initiation research reports comprise of 50-80 pages, including an extensive analysis of the value chain of the IPO candidate, its unique selling proposition, an elaborate analysis of suppliers and clients, a thorough SWOT analysis, a commercial due diligence (i. e. market and competitive analysis), an integrated financial forecast model and a profound company valuation (both DCF methodology and peer group multiples). Before publication, each of Sphene Capital’s research report will be double-checked by a fellow research colleague (“Four-eyes-principle”), ensuring highest quality and avoiding careless mistakes.
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