Company Overview: Altura Mining Limited is an Australia-based company engaged in the supply of lithium raw materials. The Company is engaged in the exploration and development activities, including completion of a feasibility study at its Pilgangoora Lithium project in the Pilbara region of Western Australia. The Company's segments include coal mining, exploration services and mineral exploration. Its coal mining segment is engaged in the sale of coal. Its exploration services segment provides a range of drilling services to its customers, primarily mining and exploration companies. Its mineral exploration segment is engaged in exploration activities. The Company also has interests in producing Delta Coal project in Indonesia, which produces medium energy thermal coal, and the Tabalong Coal project, a thermal coal deposit located in South Kalimantan, Indonesia. The Tabalong Coal project consists of approximately five mining licenses.
 

AJM Details

Progress Made In Funding in 1HFY19 - Support its Business Objectives: Altura Mining Limited (ASX: AJM) is a key player in the global lithium market with the market capitalisation of circa $265.68 Mn as of April 12, 2019, and it is leveraging the increasing demand for raw materials for the manufacturing of lithium-ion batteries for electric vehicles (or EVs), and static storage uses. The company had recently declared their results for the six months ended December 2018 in which it made decent progress with respect to the funding and offtake agreements. The company’s operating loss post-tax for the half-year ended December 2018 amounted to $10,978,556 as compared to the loss of $4,334,559 in the same period of the previous year. The loss during six months to December 2018 was mainly related to the company’s administrative and corporate costs and a net foreign exchange loss in the span of six months. The objective of the company revolves around creating the shareholder value through the development of profitable mining operations as well as other supplementary mining activities which deliver robust cash flows for the company and regular dividends for the shareholders.

In the month of September, the company made an announcement that they have entered into Amendment Deed with its existing loan note holders in order to borrow a further US$15 million so that commissioning and ramp-up of Altura Lithium Project can be assisted. The terms of Amendment Deed were in line with existing US$110 million senior secured loan note facility which was executed in the month of July 2017.

The company is having a sound base of total current assets and has witnessed a strong response from the shareholders with respect to Altura Lithium Mine. Also, moving forward, the decent track record of strategy delivery might attract the interests of the market players.

 

1H FY 2019 Income Statement (Source: Company Reports)

Improvement in Balance Sheet: Altura Mining Limited is possessing decent balance sheet position which has improved in the past five years i.e. between FY 2014- FY 2018 when it comes to current assets and, particularly, cash.  The improvement in the cash position indicates that the company is having sound standing from a liquidity point of view and it can make investments towards its strategic business objectives in order to drive sustainable long-term momentum. Also, at the end of December 2018, the company was having a respectable base of total current assets. Among the liquidity ratios, current ratio stood at 1.59x in FY18 which is higher than the industry median of 1.57x displaying that the company possesses decent liquidity position. In 1HFY19, current ratio stood at 0.13x.

A Look at Altura Offtake Agreements: In the month of November, Altura Mining had signed a new binding offtake agreement (or BOA) with GFL International Co., Limited which is a wholly owned subsidiary of Ganfeng Lithium. The supply under BOA commenced in late 2018, with a minimum of 70,000 tonnes per annum from 2019 until the end of 2021. The binding offtake agreement further provides for two potential five-year extensions through to 2031.

Altura Mining also reached an agreement with the existing offtake partner, Shaanxi J&R Optimum Energy Co., Ltd (or JRO). As per the agreement, JRO would be reducing its current BOA commitment from a minimum of 100,000 tpa to a minimum of 50,000 tpa from 2019 onwards. The adjustment provides Altura with more flexibility as JRO continues to work on internal restructuring.

Undertaking of Financing Package: In February, Altura Mining had made an announcement that they are undertaking financing package in order to raise around A$28 million (before costs). The financing package consists a placement to the institutional and sophisticated investors to raise around A$23 million and a Securities Purchase Plan for the existing eligible shareholders to raise up to a further A$5 million. The company stated that the funds raised would be providing a significant working capital buffer as it moves closer to achieving the nameplate production capacity of 220,000tpa at Altura Lithium Project. Later on, the company made an announcement that, because of positive response, they have decided to increase the amount to be raised to $10.0 million from $5.0 million. The increased maximum amount would be minimising the prospect of any required scale-back of SPP Offer applications. As per the release dated March 12, 2019, the company would be allocating the funds towards the commissioning costs and ramp up costs related to the production and sale of spodumene concentrate, development costs, interest payments in pursuant with senior secured loan note facility, working capital, administration and corporate costs as well as costs of the offers.
 

Allocation of Funds (Source: Company Reports)

Further Increase To SPP Offer: According to the release dated March 15, 2019, Altura Mining made an announcement that the Securities Purchase Plan has been further increased to $14 million in order to satisfy the continued demand from shareholders. In order to this, the total funding package would be having the effect of increasing cash reserves by around $38.5 million (before costs and on a fully subscribed basis) immediately post completion of offers. The robust demand from the shareholders was witnessed because of improved operational performance from Altura Lithium Mine.

The company had made an announcement that its Securities Purchase Plan had been wrapped up and the final interest was significantly above the maximum amount which was allowed of $14 million. Because of the strong support of the shareholders, the company had to scale-back some applications in order to meet the limits of SPP.

In Depth View of Lithium and Battery Metals Conference Presentation: In the presentation, Altura Mining stated that the commercial production has been recently declared and added that it is producing a high-quality, low-impurity, premium spodumene concentrate which is sought-after by the battery producers. There have been regular shipments which are being delivered to the North Asian customers and the company is possessing an experienced Board and Management team which are having track-record of delivering long-term shareholder value.

The company stated that Altura spodumene happens to be a highly sought-after premium product and it is gaining credibility with the customers and among the wider lithium market. Coming to the key quality characteristics, the shipments have exceeded the customer expectations with grades as high as 6.3% Li2O and averaging 6.1% Li2O, 1.04% Fe2O3 and 0.63% Mica. With respect to Stage 2 expansion, the company stated that it provides a low-risk, low-cost opportunity to double the Stage 1 production of 440,000tpa. The Stage 2 risk is expected to be minimised by the learnings from Stage 1 which includes utilising existing infrastructure to ramp up the development and ensure capital cost efficiencies, leveraging a thorough understanding of Stage 1 commissioning process and utilising operating systems which are in place from Stage 1 to minimise the costs of Stage 2.


Track Record of Strategy Delivery (Source: Company Reports)

Recent Update With Respect To Tropical Cyclone Veronica: Altura Mining Limited had provided the recent update following passage of Tropical Cyclone Veronica and its impact on the operations at Altura Lithium Mine in Pilbara region. It was mentioned that following the clearing of the main weather system, on-site staff performed an extensive inspection of mining areas and processing facilities and identified no damage.

What Might Drive Growth For Altura Mining: In a recent presentation, it was mentioned that there are expectations that worldwide lithium compounds and metals consumption would be achieving an 18% CAGR between 2017 and 2022 and that between 2012 and 2017, global lithium demand increased from 134kt LCE to 229kt LCE, reflecting a CAGR of 11%. Further, there are expectations that 93% of total demand growth would be coming from battery applications and electric vehicles alone would be making up for 80% of the total demand growth. By 2022, lithium consumption in electric vehicles would be reaching 54% of total lithium consumption as compared to 3% in 2012. There are expectations that lithium demand from the industrial applications as well as portable electronics is anticipated to witness a rise at relatively slow, but however steady, CAGR of 2.8% and 4.8%, respectively between 2017 and 2022. Therefore, we trust on the management’s ability to address growth opportunities ahead backed by its strategic approach in the lithium market.


Demand Outlook (Source: Company Reports)

Stock Recommendation: The stock of Altura Mining Limited has delivered the return of -44.44% in the span of previous six months while, in the time horizon of three months, the stock’s return stood at -24.24%. Fundamentally, the company is having a decent track record of strategy delivery as it identified the opportunity with respect to battery revolution and, with respect to Stage 1 development, there was the first production in July 2018 and the first shipment was in October 2018. Talking about commercial production, it has been meeting the quality expectations. Moreover, we expect that Altura Mining would be supported by its decent liquidity position in years to come. Currently, the stock is trading close to a 52-week lower level of $0.120, proffering a decent opportunity for accumulation. Hence, considering the aforesaid facts and current trading level, we give a “Speculative Buy” recommendation on the stock at the current market price of A$0.130 per share (up 4% on 12 April 2019).
 
 
AJM Daily Chart (Source: Thomson Reuters)

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