Altona Rare Earths (LON: REE) shares are up 5% on the publication of an analyst report. REE shares might not perform just as that report suggests. We put this forward as a mild suggestion. Well, actually, no, we think the report leaves out a vital part of the necessary equation and should therefore be most usefully used in the smallest room. We’d also lightly point out that the report comes from a company whose services Altona pays for. So, lovely and unbiased there then.
The report itself is here: “ Our SOTP valuation totals £38.0 million. Based on the number of shares in issue (83,436,799), the per share valuation would come out at 45.5p. Using the same assumptions, on a fully diluted basis (155,683,360), we added the funds resulting from the warrants being exercised of £10.11 million. This gives a total of £48.11 million, or a share price of 30.9p, which looks to us to be the most appropriate target price for the stock over
the next 12-18 months.” Given that the current share price is just under 5 pence we think that’s a brave forecast. Heroic even - to the point of suicidal bravery even. For no, we do not expect the REE share price to rise by a factor of 600% to 800% in the next year. It might improve, that’s possible, but this sort of mechanistic calculation we have absolutely no belief in at all.
We’ve looked before at Altona Rare Earths: “Altona Rare Earths (LON: REE) has just arrived on the stock market and the shares are down 12.5% already. The market capitalisation is a couple of £ million and if we were to be really spiteful about it we'd suggest that much of that value is in the ticker - REE.
Being much more considered about it we just don't think this is likely to be a particularly successful adventure. From the information released the deposit being explored looks like something that a year or two back it would have been graded as good enough, possibly even useful. With what we know now about rare earths supply we'd down grade it to quite possibly not economic. Yes, this is us being very aggressive in our valuation but then that's one of the problems with really knowing a metals market. The expert view could be very different indeed from the market view even if the two must meet in the end.”
The thinking behind our valuation is something that this research report doesn’t consider. Which is that there are many - many many - rare earth development projects going on. Far more than necessary to supply future demand for rare earths. Therefore the low grade to middling ones are not going to get developed. As we think that Altona has one of those middling ones then we think the odds are that it never will get mined. And mining companies that don’t mine don’t have a value.
Now, OK, maybe we’re being a bit harsh here. But this analyst report is so laudatory as to be ridiculous.