Lead prices have risen sharply in the past two weeks. That is welcome news for Boab, which is progressing its Sorby Hills lead-silver-zinc project in Western Australia.
Prices for the base metal are up from US$2,130.50 per tonne two weeks ago to about US$2,319.50/t, an increase of more than 8.8%.
The current price means that lead is currently commanding a price of about $US1.052 per pound and that has some very interesting implications for Boab Metals’ (ASX:BML) value.
Earlier this year, Sydney equity research house Rawson Lewis set a price target of 85c and a valuation of 73c on the company’s shares.
This was based on an assumption that lead would trade at a price of between 93 to 95 US cents per pound.
It further noted that a 10 US cent per pound increase in lead prices – or where lead prices are currently at – would add about 20c to its valuation of Boab.
Some more food for thought — the valuation also assumed a silver price of $US18.23 to $US18.60 per ounce. Silver is currently trading at $US26.18/oz.
Boab’s share are currently at 43c and have traded in a range between 36c and 54.5c in the past six months.
The company is currently working on a fully funded definitive feasibility study for Sorby Hills and has maintained that it is on track to become a lead-silver producer in 2023.
It has already set out robust economics in its pre-feasibility study for the project, which currently has a resource of 44.9 million tonnes grading 3.2% lead, 37 grams per tonne silver and 0.5% zinc.
Net present value and internal rate of return, both measures of a project’s profitability, have been estimated at $303m and 46% respectively for a project producing 50,000t of lead and 1.5Moz of silver per annum for 10 years.
Earnings before interest, taxes, depreciation, and amortisation (EBITDA) have been estimated at $75m per annum ($127m per annum in the first two years), enough to pay back its build cost of $183m in just 1.6 years.
This is based on assumed lead prices of US$2095/t and silver prices of US$21.10/oz.
Drilling is also underway that could further increase resources at Sorby Hills along with work that increase operating margins and cash flow.
This article was developed in collaboration with Boab Metals, 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.