Pilbara Minerals Limited

PLS Details

This report is the updated version of the report published on 2 June 2022 at 3:55 PM GMT.

Latest Updates: Pilbara Minerals Limited (ASX: PLS) is operating a lithium-tantalite Pilgangoora project in the Pilbara region of Western Australia. 

Latest Material Developments; (Analysis by Kalkine Group)

Q3FY22 (Ended 31 March 2022) Highlights:

• PLS recorded ~58,383 dmt of spodumene concentrate shipments in Q3FY22 versus ~78,679 dmt in Q2FY22 on a spot sale basis. A consignment of ~20,000 dmt cargo was affected due to delays at Port Hedland.
• Sales of tantalite concentrate amounted to ~12,880 lbs in Q3FY22 compared to ~29,038lbs in Q2FY22 (December quarter) due to lower production because of ore feed changes.
• PLS processed ~613,202 dmt ore in Q3FY22 versus ~566,027 dmt in Q2FY22.

Comparative Key Metrics; (Analysis by Kalkine Group)

Key Risks: The company faces lithium price and demand outlook changes, exploration risk, product logistics disruptions, and COVID-19 uncertainty. 

Outlook: PLS confirms the production guidance for FY22 in the range of ~340K - ~380K dmt and likely towards the lower end of the spectrum if the COVID-19 disruptions continue. PLS and CXL target finalising and implementing the formal JV contract in Q3FY22.

Valuation Methodology: EV/Sales Multiple 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 PLS gave a negative return of ~22.03% in the past month. The stock is currently trading lower than the 52-weeks’ average price level band of $1.250 - $3.890. The stock has been valued using the Enterprise Value to Sales 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, considering its higher debt-to-equity ratio, and continuing COVID-19 disruptions. For this purpose of valuation, a few peers like Allkem Ltd (ASX: AKE), Mineral Resources Ltd (ASX: MIN), IGO Ltd. (ASX: IGO), and others have been considered. Considering the current trading levels, turnaround in 1HFY22 NPAT, continued robust pricing momentum of spodumene concentrate, downstream opportunity with POSCO JV partner, mid-stream opportunities with CXL partnership, and an indicative upside in valuation, we give a ‘Buy’ rating on the stock at the current market price of $2.210, as of 2 June 2022, 10:30 AM (GMT+10), Sydney, Eastern Australia.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

PLS Daily Technical Chart, Data Source: REFINITIV 

Vulcan Resources Energy Limited

VUL Details

 Recent Developments & Q3FY22 (Ended 31 March 2022) Highlights: Vulcan Energy Resources Limited (ASX: VUL) is developing a zero-carbon lithium project to produce geothermal energy and lithium hydroxide from the resources in the Upper Rhine Valley of Germany.

• VUL has the largest JORC lithium resource (~5.85Mt LCE) in Europe and is at the centre of the fastest growing lithium-ion battery markets in the world.
• In Feb 2022, VUL opened a new laboratory in Karlsruhe-Durlach to expand the analytical capability of the lithium division and maximise the process to inform the DFS (Definitive Feasibility Study).
• In Q3FY22, VUL received a new research permit named 'Cesano' in Italy, which has historically registered high geothermal heat and high lithium grades in exploration.

Comparative Summary of Cashflows; (Analysis by Kalkine Group)

Key Risks: VUL risks lithium discovery, production changes, price volatility, supply chain disruptions, and a tight labour market.

Outlook: In the near-term, VUL targets to deliver the Definitive Feasibility Study (DFS) in 2HFY22 and Phase I commercial lithium production in 2024. VUL is in discussions with regional communities for more geothermal renewable heat offtake agreements.

Valuation Methodology: Price to Book Value Multiple 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 VUL gave a negative return of ~8.18% in the past month. The stock is currently trading lower than the 52-weeks’ average price level band of $6.660 - $16.650. The stock has been valued using the Price to Book Value-multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount than its peers’ mean P/BV multiple, considering its negative net margin, negative ROE, and the risk of full-scale production & commercialisation. For this purpose of valuation, a few peers like Allkem Ltd (ASX: ALK), Prospect Resources Ltd (ASX: PSC), Arizona Lithium Ltd (ASX: AZL), and others have been considered. Considering the current trading levels, secured offtake agreements for lithium chemical product and geothermal renewable energy, low debt levels, advancement of plant commissioning, and DFS delivery, an indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $7.250, as of 2 June 2022, 10:30 AM (GMT+10), Sydney, Eastern Australia.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

VUL 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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