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Euroz Hartleys LimitedAll information and advice is confidential and for the private information of the person to whom it is provided and is provided without any responsibility or liability on any account whatsoever on the part of Euroz Hartleys Limited or any member or employee thereof. Refer to full disclaimer at the end of this document.

Analyst Date Price Target

Trent Barnett 5th July 2021 $1.03/sh

Peers trade at big premiums to NMT

Event

US listed lithium battery recycling (LIB) peers are trading at big premiums to NMT. The share price of the main listed peer, Li-cycle, is up 23% from the end of May.

Impact

Our peer comparison suggests a NMT valuation range of $0.59-$1.53 (LIB + net cash), whilst ignoring the value of NMT’s other assets (which we value at another 30cps).

There appears no adequate explanation for the significant difference. We expect the discount to close.

Action

Buy NMT.

Via its 50% interest in Primobius, NMT is a leader in lithium battery recycling (LIB).

The demonstration plant is commissioning. Following the demonstration trials we expect offtakes for feedstock and final products. This should be a big catalyst to close the valuation discrepancies.

We have a $1.03/sh price target. This is well lower than look-through peer valuations and hence we view it as conservative once the project is de-risked.

Key Catalysty LIB demonstration trials competed – 30 September;y LIB Class 3 (DFS) Opex and Capex – November 2021y NMT secondary listing on London Stock Exchange (AIM) – 2H CY21y Nickel Asset Demerger – 31 December;y Barrambie vanadium BOO partner in Australia – Mar Qtr 2022;y Feasibility study and FID for first European LIB plant – 31 Mar 2022;y FID for first Japan LIB plant – 2HCY22;y FID for first North American LIB plant – 2HCY22;y FID for vanadium recovery project in Europe – end CY22

Neometals Ltd Year End 30 JuneShare Price 0.52 A$/sh Price Target 1.03 A$/shValuation (DCF) 0.97 A$/shWACC 12.0% Terminal Growth 0% Shares on issue 549 m, dilutedMarket Capitalisation 285.4 A$mEnterprise Value 187.9 A$mCash (31 Mar 21p) 97.5 A$mDebt (31 Mar 21p) - A$m

Key Financial Metrics 2020a 2021f 2022fRevenue (A$m) 0.0 0.0 0.0EBITDA (A$m) -16.0 -12.8 -10.2EBITA (A$m) -16.7 -18.2 -14.4Reported NPAT (A$m) -14.6 -16.5 -13.8Normalised NPAT (A$m) -11.1 -11.9 -9.9 Operating Cashflow (A$m) -11.5 -11.1 -10.0Capex (A$m)* -8.7 -2.0 -15.4Op. Free Cashflow (A$m) -20.2 -13.1 -25.4 Revenue Growth (%) nm nm nmEBITDA Growth (%) nm nm nmNorm. NPAT Growth (%) nm nm nm Normalised EPS (Ac) -2.0 -2.2 -1.8Norm. EPS growth (%) nm nmPER (x) nm nm nmEV:EBITDA (x) nm nm nmEV:EBIT (x) nm nm nm DPS (Ac) 2.0 0.0 0.0Dividend Yield (%) 3.8% 0.0% 0.0% Net Debt (A$m) -75.8 -84.7 -59.3Net Debt:Equity (%) 0% nm nmInterest Cover (x) 0.0 nm nm

Share Price Chart

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Disclaimer

Euroz Hartleys declares that it has acted as underwriter to and/or arranged an equity issue in and/or provided corporate advice to Neome-tals Ltd during the last year. Euroz Hartleys has received a fee for these services.

This analyst declares that he has a beneficial interest in Neometals Ltd.

Neometals Ltd(NMT $0.52) Buy

RESOURCES


Analysis

Peer analysis

We know of three listed comparable companies to NMT’s lithium battery recycling business.

The valuation difference to NMT is significant.

Li-cycle (PDAC.nys) is the closest peer. Given NMT has potential T.A.M. market share capped at 50% in Europe (in 50/50 JV) and possibly capped at 25% in rest-of-world, we only attribute 38% of the Li-cycle value for our look through to NMT. We use similar look-through for American Battery Technology.

We use 75% look-through for American Manganese given its business model is slightly different. Amercian Manganese are more of a scrap cathode foil processor than a full cycle battery recycler, and we view its T.A.M. is lower than full cycle battery recyclers like Li-cycle or Primobius (NMT/SMS Group).

Our simple peer comparison suggests a NMT look-through valuation range of $0.59-$1.53 (LIB + net cash), whilst ignoring the value of NMT’s other assets (which we value at around 30cps).

This is in-line with our DCF valuation, and hence suggests the anomaly is NMT – not the other sector peers.

This is a significant anomaly and we expect it to correct as the project is de-risked via offtakes in the lead up to FID in early CY22.

Peer Comment Location Latest Price (local currency)

Ord Shares

A$m mcap

EV (A$m)

Euroz Hartleys subjective attribution

Implied Implied/NMT

Pure plays

NMT.asx https://www.neometals.com.au/our-projects/core-projects/recycling/

Europe / USA / Japan

0.52 545 283 186

PDAC.nys https://li-cycle.com/ USA 12.33 167 2,734 1,983 38% 743 1.53

AMY.tsx https://americanmanganeseinc.com/

USA 1.3 218 304 297 75% 223 0.58

ABML.nqo https://americanbatterytechnology.com/

USA 1.87 572 1,421 1,411 38% 529 1.14

Redwood Materials Unlisted - https://www.redwoodmaterials.com/

USA

Battery Resourcers Unlisted - https://www.batteryresourcers.com/news

USA

Accurec Unlisted - https://accurec.de/ Europe

Duesenfeld Unlisted - https://www.duesenfeld.com/recycling_en.html

Europe

Shenzhen Pandpower Unlisted - http://www.pandpower.com/en/col.jsp?id=2#fai_365_top

China

Sungeel Hitech Co Ltd http://www.sungeel.com/page/history.php?lang=en

Sth Korea

Taisen Recycling https://taisen-recytech.com/about/

China

Tes-Amm https://www.tes-amm.com/battery-recycling

Singapore

Avg LIB 1186 969 499 0.91

Median LIB 863 854 529 1.14


RESOURCES



Demonstration plant commissioning

NMT has given an update on the demo plant commissioning in Germany. Remember, customers are waiting for the demo plant trials to verify their own expectations before writing offtakes for the first commercial plant.

The ‘front-end’ shredding and beneficiation circuit construction is complete and dry commissioning is in progress. The construction of the ‘back-end’ refinery circuit nearing completion.

The feasibility study is still on track for MarQ 2022 with first production in FY23. NMT is fully financed for its equity share of the construction of the first commercial plant.

The front end of the demonstration plant will produce a black mass product. We believe it is possible that the black mass could be sold commercially from the demonstration plant, and hence NMT may generate some small operational cash flow ahead of FID on the commercial plant.

Nickel demerger

Separately, last week, NMT announced its intention to demerge its Australian nickel (Mt Edwards) assets in the December quarter. We have been valuing the nickel assets at around 5cps (EV $25m).

The Mt Edwards Project is centred around the small township of Widgiemooltha, located 90 kilometres south of Kalgoorlie and 35km west of Kambalda in Western Australia. The Mt Edwards Project spans approximately 50 kilometres of strike length across the Widgiemooltha Dome. The Widgiemooltha Dome is a world class nickel sulphide camp that hosts more than seven historical nickel mines with a new mine, Mincor Resources NL’s Cassini operation, recently commencing production.

The Mt Edwards Project contains a global Mineral Resources of 10.2 million tonnes at 1.6% nickel for 162,510 tonnes of contained nickel across 11 deposits.

ASX nickel peers with no reserves trade on a median EV/resource tonne of A$423. If Mt Edwards nickel assets trade somewhere similar, the EV would be ~$70m (~12cps). At the low end of peers, the assets would trade at a look through value of ~3cps. In our valuation, we assume ~4.5cps.

RESOURCES



Price M Cap Net Cash EV Resource Reserve Prod’n EV:Rsc EV:Rsv EV/prod

A$/sh A$m A$m A$m kt kt ktpa (FY21e) A$/t A$/t A$’000/t

Mt Edwards 163 0 0

Independence Group* IGO $7.95 6,016 87 1,629 272 215 36 5,986 7,564 46

Nickel Mines Limited NIC $1.07 2,691 171 2,520 2,175 0 35 1,158 na 71

Western Areas Ltd WSA $2.41 775 153 623 922 249 17 675 2,497 37

Mincor Resources NL MCR $1.01 441 77 364 196 65 0 1,853 5,564 na

Panoramic Resources PAN $0.15 308 27 281 258 127 0 1,089 2,216 na

Legend Mining LEG $0.11 311 40 271 0 0 0 na na na

Centaurus Metals CTM $0.80 277 20 257 616 0 0 418 na na

Poseidon Nickel Ltd POS $0.11 295 15 280 446 28 0 627 9,878 na

Lunnon Metals Ltd LM8 $0.46 65 14 52 39 0 0 1,332 na na

Duketon Mining Ltd DKM $0.34 42 30 12 118 0 0 100 na na

Median All 309 35 280 265 14 0 1,089 5,564 46

Median companies with reserves 1,124

Median companies with no reserves 418Source: EHL Estimates, Bloomberg Consensus *EV Based exclusively on Nickel assets **Production, Resources, & Reserves stated in respective equivelant metals unless stated otherwise

Source: NMT

RESOURCES



Price Target

Our price target is unchanged at $1.03/sh.

Price Target Methodology Weighting Spot 12 mth out

NPV base case 60% $0.97 $1.11

1.5x NAV 5% $1.45 $1.66

NPV at spot commodity and fx prices 9% $1.86 $2.11

NPV5 1% $6.23 $6.88

Grossed up dividend yield of 6.0% 1% $0.00 $0.00

Net cash 24% $0.18 $0.11

Risk weighted composite $0.92

12 Months Price Target $1.03

Shareprice - Last $0.520

12 mth total return (% to 12mth target + dividend) 99.0%

RESOURCES



Profit & Loss 2022F 2023F 2024F 2025FRevenue 0.0 0.0 52.7 363.8Total Costs -10.2 -8.2 -24.4 -275.2EBITDA -10.2 -8.2 28.3 88.6 margin - - 54% 24% - LIB Batt. Recyl. 0.0 0.0 32.3 40.4 - Scand. Vanadium 0.0 0.0 0.0 10.2 - LiOH Refinery 0.0 0.0 0.0 0.0 - Barrambie 0.0 0.0 0.0 40.0 - Overheads -10.2 -8.2 -4.1 -2.0D&A -4.2 -4.8 -10.6 -17.5EBIT -14.4 -13.0 17.6 71.1Net Interest 0.6 -2.8 -7.9 -12.5Pre-Tax Profit -13.8 -15.8 9.7 58.6Tax Expense 0.0 0.0 0.0 0.0Normalised NPAT -9.9 -11.3 7.0 42.2Abnormal Items -3.9 -4.4 2.7 16.4Reported Profit -13.8 -15.8 9.7 58.6Minority 0.0 0.0 0.0 0.0Profit Attrib -13.8 -15.8 9.7 58.6DPS 0.0 0.0 0.0 0.0

Cash flow (A$m) 2022F 2023F 2024F 2025FPro-forma EBITDA -10.2 -8.2 28.3 88.6Working Capital -0.3 -0.3 -4.3 -5.0Cash retained in JV 0.0 0.0 0.0 0.0Operating Cashflow -10.6 -8.4 23.9 83.6Income Tax Paid 0.0 0.0 0.0 0.0Interest & Other 0.6 -2.8 -7.9 -12.5Operating Activities -10.0 -11.3 16.0 71.2 Property, Plant & Equip. -15.4 -106.3 -204.4 -149.5Exploration and Devel. 0.0 0.0 0.0 0.0Other 0.0 0.0 0.0 0.0Investment Activities -15.4 -106.3 -204.4 -149.5 Borrowings 100.0 100.0 100.0 80.0Equity or “tbc capital” 0.0 0.0 0.0 0.0Dividends Paid 0.0 0.0 0.0 0.0Financing Activities 100.0 100.0 100.0 80.0 Net Cashflow 74.6 -17.6 -88.4 1.6

Balance Sheet ($m) 2022F 2023F 2024F 2025FCash 160.6 143.0 54.6 56.2Other Current Assets 1.2 1.2 7.7 46.0Total Current Assets 161.8 144.2 62.3 102.2Property, Plant & Equip. -11.2 90.4 284.2 416.2Exploration 44.1 44.1 44.1 44.1Investments/other 9.7 9.7 9.7 9.7Tot Non-Curr. Assets 42.6 144.1 337.9 470.0Total Assets 204.4 288.3 400.2 572.2 Short Term Borrowings - - - -Other 3.0 2.8 4.9 38.3Total Curr. Liabilities 3.0 2.8 4.9 38.3Long Term Borrowings 100.0 200.0 300.0 380.0Other 2.0 2.0 2.0 2.0Total Non-Curr. Liabil. 102.0 202.0 302.0 382.0Total Liabilities 105.1 204.8 307.0 420.3Net Assets 99.3 83.5 93.2 151.9Net Debt (pre AASB16) -61 57 245 324Net Debt (post AASB16) -59 58 247 325

LIB Production (100%) 2022F 2023F 2024F 2025F Throughput - - 13.69 18.25 - Production - Li Sulphate - - 2.5 3.4 - Co Sulphate - - 0.9 1.2 - Ni Sulphate - - 7.6 10.1 - Copper - - 1.4 1.9 Capex -20 -101 -121 0

LiOH Refinery (100%) 2022F 2023F 2024F 2025FLiOH 0 0 0 0Cash Costs Capex 0 0 0 -150

Scandinavian Vanadium (100%) 2022F 2023F 2024F 2025FV2O5 5.8Cash Costs -6.2Capex 0 -87 -87 -87

Barrambie (100%) 2022F 2023F 2024F 2025FConcentrate 1.1Cash Costs -140Capex 0 0 -88 -88

Valuation A$m A$/sh50% LIB 20ktpa- Germany (pre-tax NPV@12%) 138 0.2550% LIB 160ktpa- Germany (pre-tax NPV@12%) 527 0.9659% Vanadium Slag - Scandinavia (pre-tax NPV@12%) 34 0.0650% LiOH Refinery - India (pre-tax NPV@14%) 36 0.07100%% Barrambie - (pre-tax NPV@14%) 62 0.11100% Mt Edwards - Notional Value 25 0.05Other Assets/Exploration 8 0.01Forwards 0 0.00Corporate Overheads -68 -0.12Net Cash (Debt) 98 0.18AASB16 Debt 0 0.00Investments 0 0.00Tax (NPV future liability) -296 -0.54Options & Other Equity 0 0.00Total 531 0.97

Price Assumptions 2022F 2023F 2024F 2025FAUDUSD 0.75 0.74 0.74 0.74Spodumene - Chemical (ie Battery) 675 700 700 750LiOH 15000 13000 13000 13000LC 15000 13000 13000 13000Nickel 8.5 8.3 8.0 8.0Copper 4.0 3.5 3.5 3.5Cobalt 20 20 20 20V2O5 - 98% China 7.0 7.0 7.0 7.0V2O5 - 99.5% Rotterdam 8.4 8.4 8.4 8.4

Other Information

Estimated free float: 92.7%12-mth High/Low (A$/sh) $0.59 - $0.14Average daily volume (A$m) 0.5ASX Code NMTNext result Aug-21

Company DescriptionVery advanced lithium battery recyling project in Europe.

Disclaimer


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Contact DetailsEuroz Hartleys Limited +61 8 9488 1400

Research AnalystsJon Bishop - Head of Research +61 8 9488 1481Mike Millikan - Resources Analyst +61 8 9268 2805 Kyle De Souza - Resources Analyst +61 8 9488 1427Michael Scantlebury - Resources Analyst +61 8 9268 2837 Steven Clark - Resources Analyst +61 8 9488 1430Trent Barnett - Senior Analyst +61 8 9268 3052 Gavin Allen - Senior Analyst +61 8 9488 1413Harry Stevenson - Industrials Analyst +61 8 9488 1429 Seth Lizee - Associate Research Analyst +61 8 9488 1414

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