Corcel : Initiation of Coverage - Align Research

Corcel

Blue-sky battery metals exploration & flexible grid solutions are a compelling play on the decarbonisation of the global economy

Corcel is the old Regency Mines, a company probably best known for its vast PNG nickel laterite project Mambare which, on its own, was once valued at £40 million. It has been a bit quiet over recent years as the company has gone through a substantial restructuring since the previous Chairman was rather unceremoniously voted out by shareholders. The decks have now been cleared ready for a period of substantial growth. With James Parsons now at the helm and the 12 month "legacy clean up" phase behind them, investors can look forwards to the creation of a highly relevant vehicle.

Positioned to really benefit from expected price hike in battery metals The transition to a low carbon world has begun in earnest. Storage is needed for renewable energy to be a viable and stable source of energy, and hence the growing clamour for batteries and battery metals where a supply crunch is expected in the mid-2020sonwards with big structural price hikes.

Mambare poised to be a DSO nickel supplier to the large Chinese market A Mining Lease could be awarded in 4-6months allowing a DSO operation, funded by a JV partner. Together with Wowo Gap, another big PNG nickel project that is coming to Corcel, this could create some M&A action.

Big opportunities as the UK switches to flexible power generation Corcel is investing in energy storage/renewable projects to provide critical services to the UK grid as it transitions from coal/nuclear generated power to renewables. The initial 100MW energy storage at Burwell, Cambridge is strongly backed by a major pipeline of projects that are under review.

Peer comparisons & industry metrics suggest an initial 141% upside Our highly conservative valuation begins to show the potential. We initiate coverage of Corcel with a target price of 3.19p and Conviction buy stance.

Table: Financial overview. Source: Company accounts & Align Research

Year to end June	2019A	2020A	2021E	2022E
Revenue (£'000)	-	-	-	-
PTP (£'000)	(2,608)	(1,482)	(1,080)	(1,730)
EPS (p)	(26)	(2)	(0.72)	(0.59)

This investment may not be suitable for your personal circumstances. If you are in any doubt as to its suitability you should seek professional advice. This note does not constitute advice and your capital is at risk. This is a marketing communication and cannot be considered independent research.

20th January 2021

CONVICTION BUY

Target price - 3.19p

	Key data
	EPIC	CRCL
	Share price	1.325p
	52 week	3.35p - 0.725p
	high/low
	Listing	AIM
	Shares in issue	292m
	Market Cap	£3.87m
	Sector	Mining

12 month share price chart

Analyst details Dr Michael Green [e-mail]

IMPORTANT: Corcel is a research client of Align Research. Align Research holds an interest in the shares of CRCL. For full disclaimer information please refer to the last page of this document.

Business overview

Corcel Operations

Corcel PLC - an established AIM-listed resources company with a growth strategy focused on exploring for battery metals and flexible grid solutions. The company is seeking to use energy generation and storage to support corporate overheads as well as finance the further development of its blue-sky battery metal mining opportunities.

• Mambare Nickel/Cobalt Deposit - The company has a 41% interest in this project in SE Papua New Guinea (PNG) which lies 90km NE of Port Moresby. Mambare is one of the world's largest laterite deposits and has seen a substantial amount of exploration effort. Even so, just 3% of the main target has been drill tested, creating very substantial upside potential. Currently, an application for a Mining Lease and Environment Permit are underway which will allow for a planned direct shipping ore (DSO) operation.
• Wowo Gap Nickel/Cobalt Deposit - Also in PNG and providing obvious synergies with Mambare, is the Wowo Gap deposit where a DSO operation has also been contemplated in the past. Corcel has a A$4.7 million senior debt position in ASX-listed Resource Mining Corporation, the 100% owner of the Wowo Gap Nickel Project, and it looks as though this project is likely to come the company's way. The board sees the opportunity to create a significant regional nickel player with these two large scale projects.
• Dempster Vanadium Project - Corcel has a 50% interest in this vanadium project that is located in the Yukon in Canada. This project has more than 20km of potential strike where the target is vanadium black shale deposits which are similar to projects being developed in Nevada. Recent exploration has been highly encouraging and looks like it will generate accessible drill targets for 2021.
• Flexible grid solutions (FGS) - The company is a developer of UK based energy storage and flexible power generation projects. As the energy mix in the UK transitions from base load generation provided by coal and nuclear power generation to become largely reliant on renewables, there are significant opportunities. Such investments neatly fit in with the UK's Net Zero 2050 initiative which concerns greenhouse gas emissions and increasing pressure on the UK grid. Corcel has a 100% interest in the Burwell Battery Storage and Solar Project - a 100MW (50MW of energy storage and 50MW of solar) project in Cambridgeshire which the team are rapidly moving to a shovel ready status.

Burwell substation, location of the company's first FGS project. Source: Company

Climate change and energy transition

Climate change is considered to be the major environmental challenge facing the world. The Paris Agreement was designed to control and reduce greenhouse gas emissions and became the centre piece of the 21st Conference of the Parties (COP21) to the United Nations Framework Convention on Climate Change (UNFCCC), which took place in Paris in December 2015. The event was a watershed moment in the way in which the world interacts with the earth's atmosphere. But it really represented just the first step in a long process designed to hold countries accountable for their emissions of any CO₂, methane, and other greenhouse gases. Today CO₂ emissions are rapidly becoming a significant liability for any emitter.

Low carbon transition - shares of primary energy in BP's rapid scenario.

Source: BP Energy Outlook 2020

The transition to a low carbon world has begun in earnest. Renewable energy is set to play an increasingly important role in meeting the planet's energy needs. The Energy Research & Consultancy group Wood Mackenzie reckon that by 2032, renewables will overtake conventional power sources, making them the world's fast-growing energy source. The electrification of transport, homes and industry will require substantial investment into electricity generation for decades. Technological advances mean that the cost of developing renewables has been falling significantly, resulting in renewables like wind and solar becoming cheaper sources of electricity than those generated by fossil fuels in most parts of the world. But to be a viable and stable source of energy, they need storage.

The switch to renewables and changing demand habits is rapidly resulting in energy storage being seen as the next major frontier in electrification. Battery storage can effectively integrate high shares of solar and wind renewables in power systems around the world. Storage batteries offer a viable solution for storing intermittent energy supplies associated with renewable energy and so it is little surprise to see that the global energy storage market is growing fast. Wood Mac believes that in 2018 the market expanded to record levels with 147% year-on-year growth in GWh terms. In the next four years it expects to see growth in all directions as storage markets balloon. By 2024, the forecast is that the global market will increase to a sizeable 44GWh.