DFS – A major milestone for NOM. The DFS of Engebø increased the post-tax NPV of the project to USD344m (8% wacc) from previously estimated USD305m (6.8% wacc), increased the project lifetime to 42 years from 29 years, and slightly lifted the production of rutile and garnet per annum by 5% and 7% respectively. We are slightly more conservative than the company and estimate an NPV of USD277m, which still result in a de-risked fundamental value of NOM at NOK18.8/share. Our previous estimate was based on a PFS, which usually has an accuracy of 20-35%, and thus we de-risked the project by 20% on “estimate uncertainty”. A DFS, sometimes called a bankable study because it is detailed enough to get bank/debt financing, has an accuracy of 10-15%. Thus, we reduce the estimate uncertainty risk to 10% from previous 20%, an increase our target price accordingly.

The timing is great. With a de-risked value of NOK18.8/share and a share price of NOK2.5 we argue that the timing for buying NOM is great. The company is now fully financed until construction start, and 2021 will be an eventful year in terms of debt financing, offtake agreements and potentially construction start at the end of the year. There are several potential financing sources in terms of debt, project financing, sale of Keliber shares, offtake financing, etc. but to simplify, we have also done a conservative approach. If NOM finance 40% of the project (USD311m capex) with a private placement (significant dilution) at NOK2.0/share (20% discount to the current share price), we still estimate a SOTP valuation at NOK5.8/share and a cash flow per annum of NOK0.9/share!

Valuation. We reiterate our Buy recommendation on NOM and increase our target price to NOK7.0 form NOK5.0.