Disclaimer: All information on this section is of a general nature.
Before making any investment decision, you should consult your adviser.
Hazer Group Ltd -17 Nov 2017
Hazer Group Ltd (HZR)
Path to commercialising technology in place
Hazer Group Limited (ASX:HZR) has made significant progress over the past
quarter towards commercialising their proprietary Hazer Process – the conversion,
at moderate temperature and pressure, of natural gas into hydrogen and graphite,
using iron ore as a process catalyst. In October 2017, HZR signed a non-binding
Heads of Agreement with Mineral Resources (ASX:MIN) and separately, a nonbinding
Memorandum of Understanding with Primetals Technologies, a global
engineering company.
The two agreements illustrate the adaptability of the technology. MinRes is looking
for a low-cost method of producing ultra-high purity synthetic graphite; Primetals
is looking for low CO2 emission methods of producing hydrogen for carbon capture
via methanol production, and reducing (primarily) steel plant operating costs.
The MinRes technology sharing agreement is likely to be the “first cab off the
rank”. The targeted ramp-up schedule is for production of 10,000tpa of high-value
ultra-high purity graphite by FY22E. At a forecast price of US$10,000/t, this would
equate to annual revenues of ~A$130m, and an estimated royalty stream to HZR
of ~A$16m (pre-tax) per annum. The timing and quantum of any technology
sharing arrangements with Primetals is unknown, but we calculate that royalties
for a single 1Mtpa steel plant / 500ktpa methanol plant could be in the range of
US$15mpa.
SOTP target price: A$1.00
Our estimated SOTP equity value for HZR is A$133m (A$1.00 per fully diluted
share). It is comprised of 1) a risk-weighted NPV10 of A$40m (A$0.30 per fully
diluted share) from royalties stemming from potential technology licensing
arrangements (TLAs) with MinRes, 2) a risk-weighted NPV10 of A$89m (A$0.66
per fully diluted share) from royalties stemming from potential TLAs with Primetals
Technologies and, 3) FY18E net cash of A$5m (A$0.04 per fully diluted share).
At current share price levels of A$0.54, we calculate that HZR offers some 88%
upside potential. We initiate coverage with a Speculative Buy (Higher Risk)
recommendation