Corcel – Flexible Grid Solutions Update. Shares remain highly undervalued

November 9, 2021 | Posted by

By Dr. Michael Green

Corcel was able to report big news yesterday from its flexible grid solution arm, releasing an update across its UK based transitional energy project portfolio. This announcement brought investors up to speed with developments at the Tring Road 50MW and Avonmouth 50MW Gas Peaker Projects and also the Burwell 50MW Battery Storage Project. It does look like the pieces are all neatly now slotting into place.

At the Tring Road 50MW and Avonmouth 50MW Gas Peaker Projects, Corcel was able to confirm that the management team is now in advanced discussions with select investors for these two projects.  After a comprehensive marketing programme, these projects certainly seem to have attracted significant interest. It’s not hard to see why as such projects are critical to the UK’s transitional energy strategy as they provide flexible energy supply which is necessary in order to support the volatility that lies in the UK renewables supply especially wind and solar.

Management went onto point out that “..In support of these discussions, the Company has agreed with FPC Electric Land Ltd to extend its 100% rights over the Avonmouth project to 1 February 2022 and is in discussions with Arlington Energy Ltd regarding extending the option to lease the site at the Tring Road Project, where Corcel owns 40%…”

Meanwhile, at the Burwell 50MW Battery Storage Project, UK Power Networks has extended its 100MW grid connection offer at Burwell to Corcel beyond December 2021. Importantly, in addition there has been an extension of the company’s obligation to make any payment at that date. 

This extension partially reflects anticipated grid upgrade works that may be undertaken in the Burwell area. Obviously if these were to go ahead all projects in the area will be affected, with a likely delay of the connection date for not just the Burwell site but also at all other such sites. With such work in the offering, this may have an impact on Corcel’s previously indicated target of 2022 for the project to become operational. While all this is going on the management is working on exploring potential partnership arrangements for the project, including with the new site landowner.  Further news will be reported to investors when appropriate.     

Corcel is the natural resource exploration and development company with interests in battery metals and flexible grid solutions. Currently, the nickel price continues to fly high at US$19,600 a tonne which is good news as the company which now has two impressive nickel cobalt projects in Papua New Guinea – Mambare and Wo Wo Gap.

The Wo Wo Gap Nickel Cobalt Project has only recently been acquired and is located 200km from PNG’s capital of Port Moresby and some 150km SE of the Corcel’s first Mambare asset. The company sees significant synergies between these two projects and visualises this acquisition as a significant step in its evolution to become a leading PNG battery metal and nickel /cobalt exploration company with material scale in country and the region.

Recent GPR work at Mambare was designed to determine the location for the DSO operation for the Mining Lease. This development is likely to require US$25 – 30 million of capex and at that stage, Corcel would either be looking to bring in larger players for a JV or consider a complete disposal. Currently, the company owns 41% of the project, but given a perceived inability of BMA to fund the asset through to production, it would seem logical that the entire asset is vended into Corcel to allow for meaningful development. Chinese investor Sinom has been happy to accept Corcel’s paper as demonstrated by the 2020 debt deal and has now emerged as a highly supportive 12% plus shareholder and such backing speaks volumes for being a potential source of both offtake agreements and future funding.

Obvious synergies exist between Wo Wo Gap and Mambare which are planned to be explored in detail. The degree to which Wo Wo Gap and Mambare are combined depends on a host of factors. Putting the two of them together as a combined PNG project would make Corcel a big player in PNG and make dealings with the government a lot easier. The synergies are pretty big here with the opportunity to cherry pick the best bits for DSO at each deposit, potentially exporting using the same logistical streams and applying revenues from one to further develop the other. In the end Corcel looks like it will acquire this quite second large nickel cobalt play for a song.

Going forward, a good case could probably be made for Wo Wo Gap being worth roughly the same as Mambare, so if not the full £40 million Mambare had in 2011-12, then at least some reasonable discount to that. With nickel prices strong and Chinese producers looking to have diverse sources of ore (outside Philippines and Indonesia), Corcel looks well-placed in our view. Plans at Wo Wo Gap are likely to involve updating the JORC to 2012 standard, then progressing towards a mining lease with all the hard lessons that the team has learnt from Mambare taken into account. It is now on the cards that the Mining Lease at Mambare could be awarded in the coming months allowing a DSO operation, funded by a JV partner. Together with Wo Wo Gap, this could nicely set the scene for some valuation creation and M&A action.

We believe Corcel is highly undervalued. With the shares sitting at 1.335p our stance remains at Conviction Buy with a target price of 20.03p.

Read our recently updated research report on Corcel HERE


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