TAWANA RESOURCES NL (TAW) - Hartleys...Hartleys Limited Tawana Resource NL (TAW) 9 October 2018 Page 2 of 27 Tawana Res. NL Share Price TAW $0.2875 Accumulate Key Market Information

Page 1 of 27

-2146826246

Lithiu

m P

rodu

cer

TAW.asxAccumulate

Share Price - TAW

Valuation - TAW $0.31

Price Target (12 month) - TAW $0.39

Brief Business Description:

Hartleys Brief Investment Conclusion

Chairman & MD

Major Shareholders post merger

Burwill (7.2%)

Weier / Jiangte Special Electric Motor Co. Ltd (6.4%)

Tribecca (6.0%)

Company Address

Issued Capital pre-merger - TAW 578.1m

Issued Capital post merger - TAW 1186.8m

- fully diluted

Market Cap post merger

- fully diluted

Cash (31 Dec 18e) post merger A$24.4m

Debt (31 Dec 18e) post merger A$33.1m

EV post merger

EV/Resource Spod.

EV/Reserve Spod.

Prelim. (A$m) CY18e CY19e CY20e

Prod (Li Spod. eq) 0.095 0.266 0.335

Op Cash Flw -11.4 128.9 123.9

Norm NPAT -28.3 82.3 89.0

CF/Share (cps) -2.4 6.9 7.4

EPS (cps) -3.2 9.2 9.7

P/E -11.0 3.8 3.5

Mt Li2O Spod.

Resources (Li2O) 26.5 0.96% 4.2

Reserve (Li2O) 11.3 1.01% 1.9

Trent Barnett

Head of Research

Ph: +61 8 9268 3052

E: [email protected]

1214.5m

A$341.2m

A$349.2m

A$350.0m

A$82.5/t

A$184.0/t

Osborne Park, WA, 6017

In merger with SGX listed partner, AMAL. Good

quality and quantities of spodumene. Short mine life

but exploration potential to extend.

Mark Turner (Non-exec Chair.)

9 Oct 2018

$0.288

Spodumene producer in WA

Mark Calderwood (MD)

Level 3, 20 Parkland Rd,

Decent sized lithium (spodumene) producer Tawana Resources NL (TAW.asx) is a lithium producer in WA. Production is

200-300ktpa (TAW share ~50%) of high quality spodumene, although mine

life is relatively short (~5-6yrs @2.2Mtpa). The Company is merging with its

partner, Alliance Mineral Assets Ltd (AMS.sgx), our model and this research

report assumes the merger completes (1.1 AMAL per TAW). The de-listing

of TAW and ASX listing of AMAL is expected in Nov, but this is conditional.

Costs to be reduced by expansion, improved recoveries The Company is undertaking a study to add a fines circuit and significantly

increase total throughput. Currently, the preferred option is to modify the

existing DMS circuit from a 2-stream circuit processing a 1-10mm feed range

to a 3-stream circuit. It is proposed that +2mm feed would be processed

through the existing DMS plant streams and the ‘Fines’ stream would treat an

additional 20% of feed in the 2mm and 0.5mm size range. The plant

throughput rate with the addition of the fines stream is expected to increase

from ~200tph to 300tph plus increase the total DMS recovery rates, providing

a significant concentrate production increase. The higher throughput and

recoveries should reduce cash costs, and we assume ~US$425/t in CY20

(from US$575/t in July) using 0.77 USD/AUD. The capital cost estimate for

the fines circuit is expected to be significantly less than a second DMS plant.

We model A$20m in our valuation.

Tight balance sheet As disclosed in the Scheme Document, the Mergeco had a negative net

current asset position at June. Given the high strip ratio and commissioning,

we estimate minimal free-cash and a tight balance sheet into December. The

Mergeco has about $19m of pre-payments. However, the Company recently

announced two $20m loans with Tribecca, plus as production ramps up, the

free cash flow should be meaningful and able to finance the 1H capex

requirements to increase throughput. The fixed price contract (US$880/t 6%)

in CY19 reduces risk too.

Exploration ground to the north of mine The merged group will control the exploration ground immediately

surrounding the operation and most of the ground to the North. Ideally, further

exploration success will be concentrated in these areas.

Cowan exploration ground to the south of mine Cowan (COW.asx) is a to-be listed lithium explorer spun out of TAW as part

of the merger with AMAL. COW holds prospective ground to the south of the

mine. TAW has a 15% interest in the share capital of Cowan Lithium and,

subject to ASX waiver (if required), has the right to maintain its proportionate

interest in the future. Logically, any discoveries would be processed at Bald

Hill on yet to be determined commercial terms.

Initiate with Accumulate We initiate with a Accumulate. On our estimates, Mergeco is on EV/EBITDA

CY19 of 2.9x. We have a base NPV of 31cps, spot 56cps. Exploration

success that meaningfully extended mine life could have a dramatic increase

in valuation. Regionally, prospectivity appears good given Mt Marion & Mt

Cattlin are nearby and LTR.asx recently had some good intercepts at its

Buldania exploration project. Press (28 Sep) suggested GXY.asx is s/holder.

Hartleys Limited ABN 33 104 195 057 (AFSL 230052) 141 St Georges Terrace, Perth, Western Australia, 6000

Hartleys does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the

firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single

factor in making their investment decision. Further information concerning Hartleys’ regulatory disclosures can be found on Hartleys

website www.hartleys.com.au

0.00

0.10

0.20

0.30

0.40

0.50

0.60

.

5.

10.

15.

20.

25.

30.

Oct-18Jun-18Feb-18Oct-17

Volume - RHS

TAW Shareprice - LHS

Sector (S&P/ASX SMALL RESOURCES) - LHS

A$ M

Tawana Resources NL

Source: IRESS

TAWANA RESOURCES NL (TAW)

http://www.hartleys.com.au/

Hartleys Limited Tawana Resource NL (TAW) 9 October 2018

Page 2 of 27

Tawana Res. NL Share Price

TAW $0.2875 Accumulate

Key Market Information Directors - post merger Company Information

Share Price (TAW) A$0.2875 Mark Turner (Non-exec Chair.) Level 3, 20 Parkland Rd,

Share Price (AMS terms) A$0.26 Mark Calderwood (MD)

Market Capitalisation - ordinary post merger A$341m Rob Vassie (Non-exec) Osborne Park, WA, 6017

Net debt post merger A$9m Vicki Xie (Non-exec, Weier nominee) Ph +61 8 9489 2600

Market Capitalisation - fully diluted post merger A$349m Arnold Chan Ming Fai (Non-exec, Burwell nominee)

EV post merger A$358m Joshua Ong (Non-exec) https://tawana.com.au/

Issued Capital post merger (AMAL basis) 1305.5m Geoffrey McNamara (Non-exec) http://www.alliancemineralassets.com.au

Issued Capital post merger (TAW basis) 1186.8m

Issued capital TAW pre-merger 578.1m Top Shareholders post merger Ord

Options on issue post merger (AMAL basis) 30.5 Burwill 94.0 7.2%

Issued Capital (diluted for options) post merger - AMAL 1336.0m Weier / Jiangte Special Electric Motor Co. Ltd 83.6 6.4%

Issued Capital (diluted inc. options and new capital) post merger - AMAL 1336.0m 1 Tribecca 78.3 6.0%

12month price target - TAW basis, post merger $0.39 2

3 Reserves & Resources Mt Li % Ta2O5

P&L Unit 31 Dec 18 31 Dec 19 31 Dec 20 31 Dec 21 4 Bald Hill M+I 14.4 1.02% 168

5 Bald Hill Inf 12.1 0.90% 123

Net Revenue A$m 135.2 307.1 313.1 266.2 6 Bald Hill Total 26.5 0.96% 149

Total Costs ex hedge A$m -109.8 -188.5 -186.5 -179.3 7

EBITDA A$m 4.4 120.3 126.6 86.9 8 Bald Hill Reserve 11.3 1.01% 160

- margin 3% 39% 40% 33% 9

Depreciation/Amort A$m -30.8 -34.1 -35.8 -36.4 Global Total 26.5 0.96% 149

EBIT A$m -26.5 86.3 90.7 50.5 10 Global Reserve 11.3 1.01% 160

Net Interest A$m -1.8 -3.9 0.2 1.4 Production Summary Unit Dec 18 Dec 19 Dec 20 Dec 21

Pre-Tax Profit A$m -28.3 82.3 90.9 51.9

Tax Expense A$m 0.0 0.0 -2.0 -15.6 Processed Mill Throughput Mt 0.98 1.93 2.20 2.20

Normalised NPAT A$m -28.3 82.3 89.0 36.4 Mined grade Li % 0.91% 1.10% 1.10% 1.03%

Abnormal Items A$m 0.0 0.0 0.0 0.0 Produced Spodumene - Technical Mt 0.000 0.000 0.000 0.000

Reported Profit A$m -28.3 82.3 89.0 36.4 Produced Spodumene - Battery Mt 0.088 0.243 0.303 0.282

Minority A$m 0.0 0.0 0.0 0.0 Produced Tantalite Mlb pa 0.130 0.331 0.378 0.378

Profit Attrib A$m -28.3 82.3 89.0 36.4 Produced Spodumene - Battery Eq Mt 0.095 0.266 0.335 0.317

Balance Sheet Unit 31 Dec 18 31 Dec 19 31 Dec 20 31 Dec 21 LCE equiv (0.135x Spod) ktpa 12.9 35.9 45.2 42.7

Cash A$m 24.4 128.2 244.1 309.2 Mine Life yr 6 5 4 3

Other Current Assets A$m 10.4 23.8 24.1 21.3 Assumed Mining Inventory Mt 11.7 9.9 7.7 5.5

Total Current Assets A$m 34.8 152.0 268.2 330.5 Assumed Mining Inventory - Li grade % 1.01% 1.00% 0.98% 0.94%

Property, Plant & Equip. A$m 197.3 186.3 156.4 126.0 Assumed Mining Inventory - Tant grade ppm 130 130 130 130

Exploration A$m 79.2 81.2 83.2 85.2 Capex -69.5 -23.0 -6.0 -6.0

Investments/other A$m 57.7 57.7 57.7 57.7 Costs Unit Dec 18 Dec 19 Dec 20 Dec 21

Tot Non-Curr. Assets A$m 334.2 325.2 297.3 268.9 Cost per milled tonne $A/t 130.1 87.3 75.3 72.9

Total Assets A$m 369.0 477.2 565.5 599.5 EBITDA / tonne milled ore $A/t 4.5 62.5 57.5 39.5

Total cost per milled tonne 112 98 85 81

Short Term Borrowings A$m 0.2 0.2 0.2 0.2 Total Cash Costs $A/t Spod. Batt. eq1,152 710 558 566

Other A$m 36.7 62.6 61.9 59.5 $US/t Spod. Batt. eq856 536 427 441

Total Curr. Liabilities A$m 36.9 62.7 62.1 59.7 C1: Operating Cash Cost = (a) $A/t Spod. Batt. eq1,338 633 495 507

Long Term Borrowings A$m 33.0 33.0 33.0 33.0 (a) + Royalty = (b) $A/t Spod. Batt. eq1,403 686 538 544

Other A$m 6.4 6.4 6.4 6.4 C2: (a) + depreciation & amortisation = (c) $A/t Spod. Batt. eq1,661 761 602 622

Total Non-Curr. Liabil. A$m 39.3 39.3 39.3 39.3 (a) + actual cash for development = (d) $A/t Spod. Batt. eq2,084 727 519 532

Total Liabilities A$m 76.2 102.1 101.4 99.1 AISC: (c) + Royalty $A/t Spod. Batt. eq1,727 814 645 659

Net Assets A$m 292.8 375.1 464.1 500.4 (d) + Royalty $A/t Spod. Batt. eq2,149 780 562 569

Net Debt A$m 8.7 -95.1 -211.0 -276.1 Price Assumptions Unit Dec 18 Dec 19 Dec 20 Dec 21

AUDUSD US$/A$ 0.74 0.76 0.77 0.78

Cashflow Unit 31 Dec 18 31 Dec 19 31 Dec 20 31 Dec 21 Spodumene - Chemical (5.5%) US$/t 955 800 658 600

Operating Cashflow A$m -9.6 132.8 125.6 87.3 Tantalite US$/t 60 60 60 60

Income Tax Paid A$m 0.0 0.0 -2.0 -15.6 Hedging / fixed price Unit Dec 18 Dec 19 Dec 20 Dec 21

Interest & Other A$m -1.8 -3.9 0.2 1.4 Yes Yes No No

Operating Activities A$m -11.4 128.9 123.9 73.1 Sensitivity Analysis

Valuation FY21 NPAT

Property, Plant & Equip. A$m -69.5 -23.0 -6.0 -6.0 Base Case 0.28 89.0

Exploration and Devel. A$m -1.6 -2.0 -2.0 -2.0 Spot Prices 0.51 (80.9%) 153.1 (72.1%)

Other A$m 0.0 0.0 0.0 0.0 Spot USD/AUD 0.71, Chemical Spod $805/t,Tant. $90/lb.

Investment Activities A$m -71.1 -25.0 -8.0 -8.0 AUDUSD +/--10% 0.22 / 0.36 (-22.4% / 26.8%) 63.1 / 102.8 (-29.1% / 15.6%)

Spodumene - Technical +/--10% 0.28 / 0.28 (0.0% / 0.0%) 89.0 / 89.0 (0.0% / 0.0%)

Borrowings A$m 20.0 0.0 0.0 0.0 Spodumene - Chemical +/--10% 0.32 / 0.24 (13.5% / -13.7%) 106.3 / 63.8 (19.5% / -28.3%)

Equity or "tbc capital" A$m 36.5 0.0 0.0 0.0 Tantalite +/--10% 0.29 / 0.28 (2.6% / -2.6%) 90.3 / 87.6 (1.5% / -1.5%)

Dividends Paid A$m 0.0 0.0 0.0 0.0 Production +/--10% 0.35 / 0.22 (22.9% / -23.3%) 100.5 / 62.2 (13.0% / -30.1%)

Financing Activities A$m 56.5 0.0 0.0 0.0 Operating Costs +/--10% 0.24 / 0.32 (-15.2% / 15.0%) 73.9 / 95.7 (-16.9% / 7.6%)

Unpaid Capital - TAW terms, post merger

Net Cashflow A$m -26.0 103.9 115.9 65.1 Year Expires No. (m) $m Avg price % ord

31-Dec-18 0.0 0.0 0.00 0%

Shares - TAW basis Unit 31 Dec 18 31 Dec 19 31 Dec 20 31 Dec 21 31-Dec-19 0.0 0.0 0.00 0%

Ord. Shares - End - TAW m 1186.8 1186.8 1217.3 1217.3 31-Dec-20 27.7 3.4 0.12 2%

Ord. Shrs - W'ted - TAW m 1186.8 1186.8 1202.1 1217.3 31-Dec-21 0.0 0.0 0.00 0%

Dil Shares - W'ted - TAW m 1186.8 1186.8 1217.3 1247.8 31-Dec-22 0.0 0.0 0.00 0%

TOTAL 27.7 3.4 2%

Ratio Analysis Unit 31 Dec 18 31 Dec 19 31 Dec 20 31 Dec 21 Valuation - AMAL basis, post merger A$m $/shr

Cashflow Per Share A$ cps -1.0 10.9 10.3 6.0 100% Bald Hill (pre-tax NAV at disc. rate of 10%) 398 0.33

Cashflow Multiple x -27.3 2.4 2.5 4.3 Other Assets/Exploration 60 0.04

Earnings Per Share A$ cps -2.4 6.9 7.4 3.0 Hedging / offtakes -6 0.00

Price to Earnings Ratio x -11.0 3.8 3.5 8.7 COW.asx investment 2 0.00

Dividends Per Share AUD - - - - Corporate Overheads -38 -0.03

Dividend Yield % 0.0% 0.0% 0.0% 0.0% Net Cash (Debt) -9 -0.01

Net Debt / Net Debt + Equity% 3% -34% -83% -123% Tax (NPV future liability) -32 -0.02

Interest Cover X na 21.9 na na Options & Other Equity 3 0.00

Return on Equity % na 22% 19% 7% Total 377 0.28

- TAW Basis, post merger 377 0.31

Analyst: Trent Barnett

+61 8 9268 3052

"tbc capital" could be equity or debt. Our valuation is risk-adjusted for how this may be obtained.

Sources: IRESS, Company Information, Hartleys Research

9 October 2018

9 Oct 18

Model assumes merger with AMAL completes


Page 3 of 27

BALD HILL Bald Hill was commissioned in the June quarter 2018. Nameplate throughput is

1.2Mtpa, but it is already achieving 1.5Mtpa, and with modest capex for the fines circuit

2.2Mtpa (85% of 300t/h) is achievable.

The mine was already on a tantalum mining lease, and hence permitting was very

quick. The DMS plant itself is a new build (~$42m, pre working capital), and was also

constructed quickly. Crushing is via a contractor which also reduced capex. The

metallurgy allows for a simple flowsheet, which reduced process complexity. As

explained in the Scheme Document, the processing facilities comprise a new contract

crushing operation producing a product less than 10 mm. This product is fed into a

new two stage DMS (cyclones) circuit using ferrosilicon (FeSi) to control density. It

also incorporates mica removal through upflow classification using reflux classifiers.

There is rolls crushing and recycle of the coarse DMS middlings. Two size fractions

are processed through the DMS plant, a -10 + 5 mm fraction and a -5 mm + 1 mm

fraction. The -1 fraction is deslimed, passed over spirals to remove tantalum and then

dewatered and stored for future processing. The second stage DMS overflow

(middlings) is also dewatered and stored for future processing.

The product is a high grade (6% Li2O) coarse grain (+1mm) and low mica and low

iron. The first shipment of spodumene concentrate in early May 2018 averaged 6.37%

Li2O and 0.5% Fe2O3and contained less than 0.4% mica, and the second shipment of

spodumene concentrate in late May 2018 also averaged +6% Li2O and less than 0.6%

Fe2O3.

The Company is recommissioning the existing 350ktpa tantalum in 2019. Most of the

tantalum ore and lithium fines is currently stockpiled, and will be processed once

commissioned. The Company is undertaking a study to add a fines circuit to

significantly increase throughput. The preferred option by the Company is to modify

the existing DMS circuit from a 2-stream circuit processing a 1-10mm feed range to a

3-stream circuit. It is proposed that +2mm feed would be processed through the

existing DMS plant streams and the ‘Fines’ stream would treat an additional 20% of

feed in the 2mm and 0.5mm size range. The plant throughput rate with the addition of

the fines stream is expected to increase from the current nominal 200tph to 300tph

with increased total DMS recovery rates, providing a significant concentrate

production increase.

Total mining and processing cash costs in July were approximately US$575/t or

AUD$785/t per tonne of spodumene. July and August processing reached 243,182

tonnes at 0.83% Li2O head grade. The strip ratio was 23:1 in the first few months of

operation, and is expected to remain high in the near term.

Royalties The Western Australian government royalty is 5.0%. There is a private royalty for

some tenements for 2.5% of the gross proceeds of sale of tantalum and tin and 5% of

all other finished processed materials (including lithium), but no current resource is

under these royalties.

Bald Hil l was

commissioned in the

June quarter 2018.

Nameplate throughput

is 1.2Mtpa, but i t is

already achieving

1.5Mtpa, and with

modest capex for the

f ines c ircuit i t could

be 2.2Mtpa by mid-

CY19


Page 4 of 27

Fig. 1: Reserves and Resources

Source: TAW

Fig. 2: View from concentrator

Source: Hartleys Site Visit 2018


Page 5 of 27

Fig. 3: Pit Design

Source: TAW

Fig. 4: Merger timetable (27 September 2018)

Source: TAW


Page 6 of 27

Fig. 5: Site layout

Source: TAW


Page 7 of 27

COWAN LITHIUM (COW.ASX) Cowan (COW.asx) is a to-be listed lithium explorer that has been spun out of TAW prior to the

merger with AMAL. The Company holds prospective ground around Bald Hill.

TAW will have ~9m shares in Cowan Lithium, and a 15% a “participation right” which, subject

to certain conditions, allows it to maintain its 15% Shareholding in the Company to maintain its

proportionate interest in the future. COW is currently in an IPO process.

In addition, for so long as TAW holds at least a 10% interest in the share capital of Cowan

Lithium, it has the right to appoint a nominee director to the board of Cowan Lithium.

Fig. 6: Cowan Lithium and Mergeco tenements

Source: TAW


Page 8 of 27

INDUSTRY EXPOSURE TAW is a lithium producer, and hence exposed to the Electric Vehicle industry.

Demand for lithium expected to grow significantly. Forecasts depend largely on the

take up of lithium battery cars, for which industry is uncertain.

Fig. 7: Hartleys simple LCE demand forecasts

Source: Hartleys

Fig. 8: Hartleys un-risked supply potential

Source: Hartleys

200700

120017002200270032003700420047005200

LithiumGlobal Demand (all industries)


Page 9 of 27

Fig. 9: Global EV sales momentum scenario….

Source: Hartleys, insideevs.com

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-29

Jul-

30

Au

g-3

1

Sep

-32

Oct

-33

No

v-3

4


0

20

40

60

80

100

120

140

Dec

-09

Jan

-11

Feb

-12

Mar

-13

Ap

r-1

4

May

-15

Jun

-16

Jul-

17

Au

g-1

8

Sep

-19

Oct

-20

No

v-2

1

Dec

-22

Jan

-24

Feb

-25

Mar

-26

Ap

r-2

7

May

-28

Jun

-29

Jul-

30

Au

g-3

1

Sep

-32

Oct

-33

No

v-3

4

Dec

-35



Page 10 of 27

GEOGRAPHIC EXPOSURE Bald Hill is located in WA, near Kalgoorlie.

Fig. 10: Project is well located to Kalgoorlie and Esperence

Source: TAW

Fig. 11: Region is prospective

Source: LTR


Page 11 of 27

PEERS AND COMPETITORS

Fig. 12: Hartleys un-risked supply potential

Source: Hartleys

Fig. 13: ASX Lithium Peer

Source: Hartleys, IRESS. *Market cap is quoted ordinary shares from IRESS. It does not dilute for options, escrow shares,

performance shares, convertible notes, recent placements etc. These can be meaningful adjustments that should be taken

into account.

Company Ticker Last Quot. Mkt CapStatus

ASX Listed

1. Mineral Resources Limited MIN 15.71 2,904 Producer (Spod.)

2. Pilbara Minerals Limited PLS 0.835 1,439 Producer (Spod.)

3. Orocobre Limited ORE 4.15 1,106 Producer (Brine)

4. Galaxy Resources Limited GXY 2.54 1,064 Producer (Spod.) & Developer (Brine)

5. Altura Mining Limited AJM 0.245 455 Producer (Spod.)

6. Global Geoscience Limited GSC 0.26 397 Developer (Unconv.)

7. Kidman Resources Limited KDR 0.965 387 Developer (Spod.)

8. Tawana Resources NL TAW 0.2875 341 Producer (Spod.)

9. Argosy Minerals Limited AGY 0.23 222 Producer (Brine)

10. AVZ Minerals Limited AVZ 0.09 181 Developer (Spod.)

11. Neometals Ltd NMT 0.255 141 Producer (Spod.)

12. Piedmont Lithium Ltd PLL 0.15 84 Developer (Spod.)


Page 12 of 27

KEY SUPPLIERS & CUSTOMERS The contract mining is performed by SMS. Cape Crushing operates the crusher.

Primero operates the process plant. The product is shipped out of Esperence, and

truck via Qube logistics.

The lithium offtake is with Burwill Commodity Ltd (JV with Jiangte Special Electric

Motor Co.). The offtake is for >5.5% Li2O and fixed at US$880/t (6% Li2O) for CY18

and CY19.

The Tantalum is not yet under binding offtake. There is a non-binding offtake (25

January 2018) with HC Starck Group for minimum of 600,000 pounds of tantalum

concentrate (>25% Ta₂O₅) in aggregate from April 2018 to 31 December 2020 or all

of the standard grade tantalum concentrate produced at Bald Hill within the Period if

the delivery is less than 600,000 pounds.

Fig. 14: Offtake

Source: TAW

Fig. 15: Esperence Port

Source: TAW


Page 13 of 27

MANAGEMENT, DIRECTORS AND

MAJOR SHAREHOLDERS

(POST MERGER)

Biographies from Company websites and releases

Mark Turner, Chairman

Mr Turner is a Mining Engineer with more than 30 years of experience in the resources

sector. He has been responsible for the start-up and operation of mines in Australia,

Africa and Asia. He was previously General Manager Operations of Resolute Mining

Ltd, one of Australia’s largest gold producers and Chief Operating Officer (“COO”) of

CGA Mining, before its takeover by B2 Gold for C$1.1 billion in 2010. He is currently

the Chief Operating Officer of RTG Mining Inc. Mr Turner holds a degree in Mining

Engineering from the University of New South Wales and is Fellow of the AUSIMM.

Mark Calderwood, Managing Director

Mr Calderwood is a Chartered Professional Member of the Australasian Institute of

Mining and Metallurgy, a Non-Executive Director of Amani Gold and Non-Executive

Chairman of Manas Resources Limited. Previously, Mr Calderwood spent more than

a decade with Mt Edon Gold Mines, before moving onto Border Gold, a junior gold

explorer which later became Moto Gold Mines. In 1995 he moved to Ghana to run gold

explorer Leo Shield Exploration NL’s Ghana office. Leo Shield ultimately created

Perseus Mining in 2003. Mr Calderwood was Managing Director of ASX-100 listed

gold producer Perseus Mining Limited, a West African Gold producer and explorer

from its inception in 2003 until January 2013. Mr Calderwood steered Perseus from

an exploration company to a +200,000oz per year producing gold company. Under Mr

Calderwood’s leadership Perseus discovered more than 6.8 million ounces of gold,

built the Edikan Gold Mine, Ghana, on time and on budget and started commercial

production in January 2012

Robert (Bob) Vassie, Non-exec

Mr Vassie is a Mining Engineer with 30 years’ international mining industry experience

and 18 years’ experience in a range of senior management roles with Rio Tinto. He is

currently the Managing Director & CEO of St Barbara Limited and has particular

experience in operations management, resource development strategy, mine

planning, feasibility studies, business improvement, corporate restructuring and

strategic procurement. Mr Vassie has been credited with engineering a strong

operational and strategic turnaround at St Barbara since joining there in 2014.

Economic Exposure of Board and key management Total

Total Options Shares Economic

# Exposure

Position millions rank

Directors

Mark Turner Non-Exec Chairman n/a 1,000,000

Mark Calderwood MD n/a 21,880,000

Rob Vassie Non-Exec Director n/a 1,000,000

Vicki Xie Non-exec, Weier / Jiangte Special Electric Motor Co. Ltd n/a n/a

Arnold Chan Ming Fai Non-exec, Burwell nominee n/a n/a

Joshua Ong Non-Exec Director n/a n/a

Geoffrey McNamara Non-Exec Director n/a n/a

Source: TAW / AMAL


Page 14 of 27

Vicki Xie, Non-exec

Ms Wei (Vicki) Xie is an accountant with more than 16 years’ experience in Accounting

and Finance, as well as in fund raising, acquisition and private equity investment. Ms

Xie has held Chief Financial Officer, accounting and Company Secretary roles in both

China and Australia. Ms Xie holds a Bachelor of Accounting. Ms Xie is a representative

of German company Weier Antriebe und Energietechnik GmbH (Weier), which has an

equity funding agreement with Tawana.

Arnold Fai, Non-exec

Independent Non-Executive Director of Burwill Holdings Ltd & China Lotsynergy

Holdings, Former CEO of City Green Holdings Limited and Full Seas Technology

Group. 30 years investment banking and asset management experience

Joshua Ong, Non-exec

Independent Director of Alliance since 2014. More than 20 years experience in audit,

consultancy and commercial financial control, and accounting, including over 10 years

in international accounting firms and corporates.

Geoffrey McNamara, Non-exec

More than 23 years resources sector experience as geologist, project manager,

corporate financier and fund manager. Partner at Medea Capital Partners, Non-

Executive Chairman of Cora Gold Limited


Page 15 of 27

MAJOR SHAREHOLDERS

Burwill’s shareholding will be diluted to a position where its holding will be

approximately 7.2%. Burwill is the trading house for the offtake that is in JV with

Jiangte Special Electric Motor Co.

Only two Tawana Shareholders will become substantial shareholders in AMAL as a

result of the Scheme: Weier Antriebe und Energietechnik Gmbh will hold

approximately 6.4% and Tribeca Investment Partners (who is also currently a

shareholder of AMAL) will hold approximately 6.0% (assuming no other acquisitions

are made).

Weier Antriebe und Energietechnik Gmbh Weier is a 100% owned subsidiary of lithium

industry specialist Jiangte Special Electric Motor Co. Ltd (JSMC) and Tribeca is an

Australian institution.

Fig. 16: Shareholders – post merger

Source: TAW/AMAL Scheme Document

OPTIONS, CONVERTIBLES AND UNPAID CAPITAL

The merger ratio is 1.10 AMAL for every 1 TAW. There will be ~30m options on issue

post merger.

Fig. 17: Share on issue

Source: Hartleys Research Estimates

Top Shareholders post merger Ord

Burwill 41.6 7.2%

Weier Antriebe und Energietechnik Gmbh 37.0 6.4%

Tribecca 34.7 6.0%


Page 16 of 27

FINANCIALS

PRODUCTION / PROFIT & LOSS

Company guidance Company expects 60-70kt of spodumene in Jul-Dec 2018. Assuming the fines circuit

is constructed, preliminary Company estimates are that throughput can increase to

300t/h (which we assume is ~2.2Mtpa at 85% availability).

Hartleys Forecasts We assume modest loss in CY18, but strong profitability in CY19 and beyond. Our

model assumes the merger completes, and hence is on a 100% basis.

Fig. 18: Production and Profit and Loss


P&L Unit 31 Dec 18 31 Dec 19 31 Dec 20 31 Dec 21

Net Revenue A$m 135.2 307.1 313.1 266.2

Total Costs ex hedge A$m -109.8 -188.5 -186.5 -179.3

EBITDA A$m 4.4 120.3 126.6 86.9

- margin 3% 39% 40% 33%

Depreciation/Amort A$m -30.8 -34.1 -35.8 -36.4

EBIT A$m -26.5 86.3 90.7 50.5

Net Interest A$m -1.8 -3.9 0.2 1.4

Pre-Tax Profit A$m -28.3 82.3 90.9 51.9

Tax Expense A$m 0.0 0.0 -2.0 -15.6

Normalised NPAT A$m -28.3 82.3 89.0 36.4

Abnormal Items A$m 0.0 0.0 0.0 0.0

Reported Profit A$m -28.3 82.3 89.0 36.4

Minority A$m 0.0 0.0 0.0 0.0

Profit Attrib A$m -28.3 82.3 89.0 36.4


Page 17 of 27

BALANCE SHEET

Fig. 19: Balance Sheet

Continued over page


Page 18 of 27

Continued from previous page

Source: TAW/AMAL Scheme Document


Page 19 of 27

Fig. 20: Balance Sheet


Gearing ratios

Fig. 21: Gearing Ratios


Balance Sheet Unit 31 Dec 18 31 Dec 19 31 Dec 20 31 Dec 21

Cash A$m 24.4 128.2 244.1 309.2

Other Current Assets A$m 10.4 23.8 24.1 21.3

Total Current Assets A$m 34.8 152.0 268.2 330.5

Property, Plant & Equip. A$m 197.3 186.3 156.4 126.0

Exploration A$m 79.2 81.2 83.2 85.2

Investments/other A$m 57.7 57.7 57.7 57.7

Tot Non-Curr. Assets A$m 334.2 325.2 297.3 268.9

Total Assets A$m 369.0 477.2 565.5 599.5

Short Term Borrowings A$m 0.2 0.2 0.2 0.2

Other A$m 36.7 62.6 61.9 59.5

Total Curr. Liabilities A$m 36.9 62.7 62.1 59.7

Long Term Borrowings A$m 33.0 33.0 33.0 33.0

Other A$m 6.4 6.4 6.4 6.4

Total Non-Curr. Liabil. A$m 39.3 39.3 39.3 39.3

Total Liabilities A$m 76.2 102.1 101.4 99.1

Net Assets A$m 292.8 375.1 464.1 500.4

Net Debt A$m 8.7 -95.1 -211.0 -276.1

Shares - TAW basis Unit 31 Dec 18 31 Dec 19 31 Dec 20 31 Dec 21

Ord. Shares - End - TAW m 1186.8 1186.8 1217.3 1217.3

Ord. Shrs - W'ted - TAW m 1186.8 1186.8 1202.1 1217.3

Dil Shares - W'ted - TAW m 1186.8 1186.8 1217.3 1247.8

Ratio Analysis Unit 31 Dec 18 31 Dec 19 31 Dec 20 31 Dec 21

Cashflow Per Share A$ cps -1.0 10.9 10.3 6.0

Cashflow Multiple x -27.3 2.4 2.5 4.3

Earnings Per Share A$ cps -2.4 6.9 7.4 3.0

Price to Earnings Ratio x -11.0 3.8 3.5 8.7

Dividends Per Share AUD - - - -

Dividend Yield % 0.0% 0.0% 0.0% 0.0%

Net Debt / Net Debt + Equity% 3% -34% -83% -123%

Interest Cover X na 21.9 na na

Return on Equity % na 22% 19% 7%


Page 20 of 27

Fixed Assets According to scheme documents, the Mergeco has meaningful PPE & mine properties

on the balance sheet. The Bald Hill DMS plant cost TAW/AMAL ~$42m.

Debt The JV has a $5m loan agreement with Red Coast Investment, repayable on 30 June

2020 and attracts interest at the rate of 11% per annum (payable quarterly in arrears)

until 31 Dec 2019 and then 13% until 30 Jun 2020. The Company may repay the debt

at any time before maturity without penalty.

The Company has arranged two $20m loans with Tribecca to repay the Red Coast

loan, the DMS expansion and to meet ASX listing requirements (Emphasis of Matter

Requirement). The interest rates are libor+13% on drawn funds.

AMAL has a $13m debt facility with Tribeca (fully drawn down). The loan facility will

mature 24 months from the date of drawdown; with interest will accrue at 11% per

annum for the 6 months following the first drawdown of the facility and 20% pa

thereafter.

Additionally, as at 30th June, AMAL had a lithium pre-payment of A$7.3m and TAW of

~A$11.7m from Burwill. The repayments are based on 15% of the value of each

shipment of lithium concentrate.

Hedging The Company has fixed price contracts for delivery of CY18 and CY19 production at

US$880/t (6% Li2O) for CY18 and CY19 for >5.5% Li2O concentrate.

CASH FLOW

Fig. 22: Cash Flow Statement


Cashflow Unit 31 Dec 18 31 Dec 19 31 Dec 20 31 Dec 21

Operating Cashflow A$m -9.6 132.8 125.6 87.3

Income Tax Paid A$m 0.0 0.0 -2.0 -15.6

Interest & Other A$m -1.8 -3.9 0.2 1.4

Operating Activities A$m -11.4 128.9 123.9 73.1

Property, Plant & Equip. A$m -69.5 -23.0 -6.0 -6.0

Exploration and Devel. A$m -1.6 -2.0 -2.0 -2.0

Other A$m 0.0 0.0 0.0 0.0

Investment Activities A$m -71.1 -25.0 -8.0 -8.0

Borrowings A$m 20.0 0.0 0.0 0.0

Equity or "tbc capital" A$m 36.5 0.0 0.0 0.0

Dividends Paid A$m 0.0 0.0 0.0 0.0

Financing Activities A$m 56.5 0.0 0.0 0.0

Net Cashflow A$m -26.0 103.9 115.9 65.1


Page 21 of 27

Capex requirements Maintenance capex is estimated at ~$6m pa. We assume the capital required to

expand throughput to 2.2Mtpa plus the tantalum circuit restart is ~$20m.

Free cash flow On our estimate, TAW should generate strong free cash flow.

Dividends We do not assume dividends in the foreseeable future, although they are possible in

later CY19.


Page 22 of 27

EQUITY ISSUANCE We assume no further equity issuance.

Fig. 23: Share on issue – AMAL basis

Source: TAW

SENSITIVITIES

FX exposure TAW is exposed to the USD/AUD (costs are in AUD, selling prices USD).

Interest Rate exposure TAW has high cost debt. Refinance on better terms would be positive.

Commodity price exposure TAW is exposed to the lithium price (predominantly spodumene, but indirectly the

lithium carbonate and lithium hydroxide prices). A secondary consideration is the

tantalite price.


Page 23 of 27

VALUATION CONSIDERATIONS AND

PRICE TARGET METHODOLOGY

VALUATION We assume that the fines circuit is commissioned and increases throughput to

~2.2mtpa. We assume higher recoveries to 70-75% at that time. We assume capex

for the circuit is ~$20m.

Fig. 24: Key assumptions and risks for valuation Assumption Risk of not realising

assumption Risk to valuation if

assumption is incorrect

Comment

Merger completes

Moderate High We assume that the merger with AMAL completes, but we note there have been delays.

Mergeco is listed on the ASX

Moderate Moderate We assume that the mergeco is listed on the ASX. This is the intention of the Companies but

there have been delays

Throughput expanded to 2.2Mtpa

Low High We assume a fines circuit improves throughput and recoveries

Declining spodumene prices High High TAW is very sensitive to spodumene prices

Equity dilution

Low Moderate We assume no new equity

Mine life of 6 years, in excess of current reserve

High High We assume a mining inventory higher than the current reserve, which implies exploration

success

AUD appreciates High Upside / Downside We assume appreciating AUD. Which impacts our USD cost forecasts.

Exploration success Moderate High We attribute some value to exploration potential beyond the assumed mine life extension.

Conclusion We believe our TAW assumptions are realistic.

Source: Hartleys Research


Page 24 of 27

Fig. 25: Lithium Carbonate Price Assumptions

Source: Hartleys estimates

Fig. 26: AUD estimates

Source: Hartleys estimates

PRICE TARGET Our price target is based on blended scenarios.

0

5

10

15

20

25

30

Hartleys Assumption for Valuations LCUS$/t

0

200

400

600

800

1000

1200Hartleys Assumption for Valuations Spodumene 5.5%US$/t

0.40

0.50

0.60

0.70

0.80

0.90

1.00

1.10

1.20Hartleys Assumption for Valuations AUDUSD

Price Target Methodology Weighting Spot 12 mth out

NPV base case 65% $0.31 $0.35

NPV at spot commodity and fx prices 15% $0.56 $0.62

NPV spodumene US$450/t, tantalite US$60/lb 10% $0.24 $0.27

EV/EBITDA of 4.0x 5% $0.37 $0.56

NPV base case at discount rate of 6.0% 5% $0.31 $0.35

Risk weighted composite $0.34

12 Months Price Target $0.39

Shareprice - Last $0.288

12 mth total return (% to 12mth target + dividend) 37%

Source: Hartleys Estimate

Page 25 of 27

RECOMMENDATION & RISKS

INVESTMENT THESIS & RECOMMENDATION TAW is a good sized spodumene producer. The product quality positions it well and

the fixed price offtake for CY18 and CY19 alleviate near term pricing risk. The key is

exploration success to meaningfully extend mine life, which could have a dramatic

increase in valuation. Regionally, prospectivity appears good given Mt Marion & Mt

Cattlin are nearby and LTR.asx recently had some good intercepts at its Buldania

exploration project. We note recent press commentary reports sources say that

GXY.asx is on the TAW register. We initiate with an Accumulate recommendation.

RISKS The key risks for TAW (like most mining companies) is earnings disappointments

given the industry is volatile and earnings can disappoint due to commodity prices,

cost overruns, project delays, environmental regulations, taxation/royalties changes,

cost inflation or lower production. Although some earnings disappointments can be

short term and only a timing issue, other disappointments can be materially value

destructive and can sometimes overhang stocks for a long period of time (for example

environmental mismanagement). Such disappointments can be very difficult to predict

and share price reactions can be severe and immediate upon disclosure by the

company. High financial leverage (if it exists at that time) would add to the problem.

Another key risk for miners is maintaining and extending mine life or making the

prudent decision to close a mine, given mines are depleted and many have reasonably

short lives and often with reducing economics.

SIMPLE S.W.O.T. TABLE Strengths In production

Fixed price sale for CY18 and CY19 High quality spodumene Tantalite credits

Weaknesses High cost Short mine life

Opportunities Expansion to 2.2Mtpa Exploration

Threats Mine life Commodity prices

Source: Hartleys Research

The key is explorat ion

success to

meaningfully extend

mine l i fe, which could

have a dramat ic

increase in valuat ion

Hartleys Limited Tawana Resources NL (TAW) 9 October 2018

Page 26 of 27

EV/EBITDA BANDS

Fig. 2: EV/EBITDA Base case

Source: Hartleys Estimates

Fig. 3: EV/EBITDA spot case

Source: Hartleys Estimates

.00

.20

.40

.60

.80

1.00

1.20

TAW Actual

Hartleys Target

8x EV/EBITDA

6x EV/EBITDA

4x EV/EBITDA

2x EV/EBITDA

1x EV/EBITDA

Shareprice

.00

.50

1.00

1.50

2.00

2.50

TAW Actual

8x EV/EBITDA

6x EV/EBITDA

4x EV/EBITDA

2x EV/EBITDA

1x EV/EBITDA

Shareprice

Hartleys Limited ATawana Resources NL (TAW) 9 October 2018

Hartleys Limited Tawana Resources NL (TAW) 9 October 2018

Page 27 of 27

HARTLEYS CORPORATE DIRECTORY Research Trent Barnett Head of Research +61 8 9268 3052

Mike Millikan Resources Analyst +61 8 9268 2805

John Macdonald Resources Analyst +61 8 9268 3020

Paul Howard Resources Analyst +61 8 9268 3045

Aiden Bradley Research Analyst +61 8 9268 2876

Oliver Stevens Research Analyst +61 8 9268 2879

Michael Scantlebury Junior Analyst +61 8 9268 2837

Janine Bell Research Assistant +61 8 9268 2831

Corporate Finance Dale Bryan Director & Head of

Corp Fin.

+61 8 9268 2829

Richard Simpson Director +61 8 9268 2824

Ben Crossing Director +61 8 9268 3047

Ben Wale Director +61 8 9268 3055

Stephen Kite Director +61 8 9268 3050

Scott Weir Director +61 8 9268 2821

Scott Stephens Associate Director +61 8 9268 2819

Rhys Simpson Associate Director +61 8 9268 2851

Michael Brown Executive +61 8 9268 2822

Registered Office

Level 6, 141 St Georges Tce Postal Address:

Perth WA 6000 GPO Box 2777

Australia Perth WA 6001

PH:+61 8 9268 2888 FX: +61 8 9268 2800

www.hartleys.com.au [email protected]

Note: personal email addresses of company employees are structured

in the following manner: [email protected]

Hartleys Recommendation Categories

Buy Share price appreciation anticipated.

Accumulate Share price appreciation anticipated but the risk/reward is

not as attractive as a “Buy”. Alternatively, for the share

price to rise it may be contingent on the outcome of an

uncertain or distant event. Analyst will often indicate a

price level at which it may become a “Buy”.

Neutral Take no action. Upside & downside risk/reward is evenly

balanced.

Reduce /

Take profits

It is anticipated to be unlikely that there will be gains over

the investment time horizon but there is a possibility of

some price weakness over that period.

Sell Significant price depreciation anticipated.

No Rating No recommendation.

Speculative

Buy

Share price could be volatile. While it is anticipated that,

on a risk/reward basis, an investment is attractive, there

is at least one identifiable risk that has a meaningful

possibility of occurring, which, if it did occur, could lead to

significant share price reduction. Consequently, the

investment is considered high risk.

Institutional Sales Carrick Ryan +61 8 9268 2864

Justin Stewart +61 8 9268 3062

Simon van den Berg +61 8 9268 2867

Digby Gilmour +61 8 9268 2814

Jayme Walsh +61 8 9268 2828

Veronika Tkacova +61 8 9268 3053

Wealth Management Nicola Bond +61 8 9268 2840

Bradley Booth +61 8 9268 2873

Adrian Brant +61 8 9268 3065

Nathan Bray +61 8 9268 2874

Sven Burrell +61 8 9268 2847

Simon Casey +61 8 9268 2875

Tony Chien +61 8 9268 2850

Tim Cottee +61 8 9268 3064

David Cross +61 8 9268 2860

Nicholas Draper +61 8 9268 2883

John Featherby +61 8 9268 2811

Ben Fleay +61 8 9268 2844

James Gatti +61 8 9268 3025

John Goodlad +61 8 9268 2890

Andrew Gribble +61 8 9268 2842

David Hainsworth +61 8 9268 3040

Murray Jacob +61 8 9268 2892

Gavin Lehmann +61 8 9268 2895

Shane Lehmann +61 8 9268 2897

Steven Loxley +61 8 9268 2857

Andrew Macnaughtan +61 8 9268 2898

Scott Metcalf +61 8 9268 2807

David Michael +61 8 9268 2835

Jamie Moullin +61 8 9268 2856

Chris Munro +61 8 9268 2858

Michael Munro +61 8 9268 2820

Ian Parker +61 8 9268 2810

Matthew Parker +61 8 9268 2826

Charlie Ransom

(CEO)

+61 8 9268 2868

David Smyth +61 8 9268 2839

Greg Soudure +61 8 9268 2834

Sonya Soudure +61 8 9268 2865

Dirk Vanderstruyf +61 8 9268 2855

Samuel Williams +61 8 9268 3041

Disclaimer/Disclosure

The author of this publication, Hartleys Limited ABN 33 104 195 057 (“Hartleys”), its Directors and their Associates from time to time may hold

shares in the security/securities mentioned in this Research document and therefore may benefit from any increase in the price of those securities.

Hartleys and its Advisers may earn brokerage, fees, commissions, other benefits or advantages as a result of a transaction arising from any advice

mentioned in publications to clients.

This report was prepared solely by Hartleys Limited. ASX Limited ABN 98 009 642 691 and its related bodies corporate (“ASX”) did not prepare

any part of the report and has not contributed in any way to its content. The role of ASX in relation to the preparation of the research reports is

limited to funding their preparation, by Hartleys Limited, in accordance with the ASX Equity Research Scheme. ASX does not provide financial

product advice. The views expressed in this research report may not necessarily reflect the views of ASX. To the maximum extent permitted by

law, no representation, warranty or undertaking, express or implied, is made and no responsibility or liability is accepted by ASX as to the

adequacy, accuracy, completeness or reasonableness of the research reports. The analyst travelled to site at the expense of TAW, with all

associated costs being covered by TAW. Any financial product advice contained in this document is unsolicited general information only. Do not

act on this advice without first consulting your investment adviser to determine whether the advice is appropriate for your investment objectives,

financial situation and particular needs. Hartleys believes that any information or advice (including any financial product advice) contained in this

document is accurate when issued. Hartleys however, does not warrant its accuracy or reliability. Hartleys, its officers, agents and employees

exclude all liability whatsoever, in negligence or otherwise, for any loss or damage relating to this document to the full extent permitted by law.

Documents

TAWANA RESOURCES NL (TAW) - Hartleys...Hartleys Limited Tawana Resource NL (TAW) 9 October 2018 Page 2 of 27 Tawana Res. NL Share Price TAW $0.2875 Accumulate Key Market Information