Company Overview: BCI Minerals Limited (ASX: BCI) is a minerals resources firm operating an industrial minerals business with a ~100% owned Mardie salt & potash project in Western Australia's central salt production region. BCI obtains quarterly royalty earnings from an Iron Valley project based in Western Australia operated by Mineral Resources Limited (ASX: MIN). It holds substantial shareholdings in Highfield Resources Ltd (ASX: HFR) and Agrimin Limited (ASX: AMN) and interest (~30%) in an early-stage Carnegie potash joint venture project.

BCI Details

Q3FY22 Operational Highlights:

Operational Highlights of March 2022 Quarter, Source: Analysis by Kalkine Group

Financial Highlights of 1HFY22 (Ended 31 December 2021):

• At the end of 1HFY22, BCI mobilised funds for the Mardie project development. It raised ~$360 million in equity via a placement and SPP (Share Purchase Plan) at ~$0.43 per share.
• Iron Valley royalty earnings reduced from ~$17.1 million in 1HFY21 to ~$13.6 million in 1HFY22, down ~20% Y-o-Y depicting a fall in iron ore prices and increased discounts applied to shipments.

Comparative Key Metrics Growth, Highlights; (Analysis by Kalkine Group)

Key Metrics: BCI reported a significant increase in current ratio due to the recent capital raising in 1HFY22, leading to improved liquidity with cash balance of ~$334.12 million as of 31 December 2021 versus ~$79.43 million as of 31 December 2020.

Top 10 Shareholders:

The top 10 shareholders together form ~48.76% of the total shareholding. Wroxby Pty Ltd and AustralianSuper hold a maximum stake in the company at ~19.63% and ~14.0%, respectively.

Source: Analysis by Kalkine Group

Key Risks:

• Iron Ore Price Volatility: BCI faces the risk of changes in the iron prices, demand, production, and supply conditions.
• COVID-19 Led Disruptions: The company faces logistics related issues, labour supply bottlenecks and wage cost inflation risk due to the persistence of COVID-19.

Plans:  

• An initial review of the Mardie project's cost and schedule indicates a potential material impact on the previous estimates due to the COVID-19 led disruptions. BCI targets project review completion by 30 June 2022. BCI believes if the salt and SOP prices remain elevated in the future, it will help mitigate the cost increases on projected investment returns to a certain extent.
• The company is advancing toward the detailed documentation stage for securing financing for the Mardie project. BCI is accelerating construction and site activities at the Mardie project, a potential Tier 1 project, and targets to achieve the first commercial salt sales in FY24 and the first SOP sales in early-2026. It expects to continue receiving earnings from the Iron Valley in FY23 and may obtain income from the sale of exploration tenements or other assets owned.

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of BCI gave a negative return of ~7.86% in the past month and a negative return of ~17.99% in the past six months. The stock is trading lower than the 52-weeks’ average price level band of $0.335 - $0.615. The stock has been valued using the EV/Sales-multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ mean EV/Sales multiple, considering the COVID-19 disruptions, volatility in iron and salt prices, and indicative cost overruns at the project. For this purpose of valuation, a few peers like Champion Iron Ltd (ASX: CIA), Rio Tinto Ltd (ASX: RIO), Mount Gibson Iron Ltd (ASX: MGX), and others have been considered. Considering the robust demand and pricing outlook for salt and SOP, acceleration of project activities, offtake term sheets implemented and to be executed in 2022, an indicative upside in valuation, associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $0.410, as of 4 May 2022.

BCI Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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