Jervois Mining Limited

JRV Details

Acquisition of New Refinery: Jervois Mining Limited (ASX: JRV) is engaged in mineral exploration and evaluation and mine construction. The market capitalisation of the company stood at $216.18 Mn as on 24^th November 2020. During Q1 FY21, the company announced the 100% acquisition of SMP Refinery in the Brazilian State of São Paulo from Companhia Brasileira de Alumínio. The company would pay a cash consideration of R$125.0 million payable in tranches, with a R$15.0 million cash deposit paid by end of December 2020.

Completion of BFS: During September 2020 quarter, the company finished an updated Bankable Feasibility Study at Idaho Cobalt Operations (ICO), which affirmed its potential to establish a near term, low-cost cobalt-copper-gold mine, with substantial prospect to augment the mineral resource and extend mine reserves once mining commences. The company recorded net cash inflow from operating activities of $817k and outflow from investing activities of $1.2 million. For the year ended 30^th June 2020, the company recorded a loss after income tax of $8.898 million as compared to $6.001 million in FY19.

Cash Flows (Source: Company Reports)

Outlook: With respect to the development of ICO, the company is planning to re-start construction in Q2-Q3 of 2021 and plans to commence production by 2022. The company has scheduled to conduct the 2020 Annual General Meeting on 30^th November 2020.

Stock Recommendation: The company closed September 2020 quarter with a cash balance of $5.4 million. Subsequent to the quarter-end, the company wrapped up an equity placement of $45.0 million. The stock of JRV has corrected 3.33% and 10.76% in the last one and three months, respectively. In addition, the stock is trading at a price to book value multiple of 1.6x as compared to the industry median of 2.7x on TTM basis. On a technical analysis front, the stock of JRV has a support level of ~$0.237 and an immediate resistance level of ~$0.350. Thus, considering the proposed acquisition of new refinery, net cash inflow from operating activities, decent outlook, and key risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.285 per share, up by 1.785% on 24^th November 2020.

JRV Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Phoslock Environmental Technologies Limited

PET Details

Fraudulent Activities at China Operations: Phoslock Environmental Technologies Limited (ASX: PET) provides engineering solutions and water treatment products to remediate polluted lakes, rivers, canals and drinking water reservoirs. In a recent market update, the company affirmed that it has recognised fraudulent activity in its China operations followed by an investigation done by KPMG. These activities include false accounting and falsification of invoices and service contracts; improper tax reporting; potential misappropriation of funds including improper payment of bonuses; and undisclosed related party transactions. In response to this, the company has initiated a restructuring of its organisation in China, with the termination of numerous senior and middle management employees. In addition, the company also executed significant changes that are likely to strengthen its China’s financial reporting procedures, delegated authority policies and general risk management framework.

1H FY20 Financial Highlights: During September 2020 quarter, the company completed successful trials in several US states, which include Utah, Washington State and Michigan. The company has also inked an MOU with a Thai distribution company for development work in Thailand. For the half-year ended 30^th June 2020, the company reported revenue amounting to $1.2 million as compared to $9.8 million in 1H FY19. Net loss for the period amounted to $5.1 million as compared to a profit of $1 million in 1H FY19.

Key Financials (Source: Company Reports)

Outlook: As a result of external factors, along with some short-term uncertainty on the timing of project resumptions, the company anticipates business and market conditions to be challenging. PET possesses a strong pipeline with a contract value of around $380 million.

Stock Details: On 17^th September 2020, the securities of the PET were placed in a trading halt at the request of the company on the pending release of an announcement. However, on 21^st September 2020, the company’s securities were suspended on the pending outcome of an independent investigation into accounting irregularities concerning PET’s China operations. The company added that the securities would be in suspension until the investigation is completed and the impact of any irregularities is quantified. The stock last traded at $0.245.

PET Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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