Altura Mining Limited

Record Spodumene Concentrate Production in October 2019:Altura Mining Limited (ASX: AJM) is involved in mining, processing and sale of lithium ore at the Altura lithium project in the Pilbara region of Western Australia. On November 4, 2019, the company announced the achievement of record month of lithium concentrate production in October, with the total output of 17,951 wet metric tonnes (wmt). The Pilgangoora mine and process plant in the Pilbara region of Western Australia is effectively achieving nameplate annual production of around 220,000 tonnes of spodumene concentrate.As per the shipment details, in October 2019, AJM shipped the high-quality lithium product to Chinese offtake partners with the completion of loading of the vessel Panvision. It shipped around 11,650 wet metric tonnes of spodumene concentrate in the last week of October from its Pilgangoora mine, which is the second largest for the Month with 12,500 wmt dispatched on October 2, 2019.

Key Financial Highlights for the Quarter ended September’19:Net cash outflow from operating activities for the period was reported at $29,221,000. Net cash outflow from investing activities for the period was reported at $1,016,000. Net cash inflow from financing activities for the period was reported at $21,816,000. Cash and cash equivalents at the end of the period stood at $1,098,000.


Monthly Spodumene Production Data (Source: Company Reports)

What to Expect:The company produces high-quality lithium ore, which is low in impurities and meets the preferred specifications sought after by lithium converters and battery manufacturers.Therefore, the demand for the company’s lithium product is expected to remain high, despite a challenging market condition. Moreover, lithium’s long-term outlook seems promising and is expected to benefit the company in times to come.
Stock Recommendation:AJM’s share generated a negative YTD return of 58.67%. Currently, the stock is trading close to its 52-week low of $0.055, proffering a decent opportunity for accumulation. Its gross margin and EBITDA margin improved from negative of 176.8% and 404.2% in FY18 to positive of 7.4% and 6.1% in FY19, respectively, implying an improvement in the company’s fundamental. Company’s processing facility is able to consistently produce high-quality spodumene concentrate at its design production rate with a reduced unit cost. The company is confident of selling and shipping the concentrate in the diverse market to its valuable customer base. Hence, considering the aforesaid facts and current trading levels, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.059, down 4.839% on November 14, 2019.
 

Pilbara Minerals Limited

Recent Plant Modification Increases Lithia Recovery to 60%:Pilbara Minerals Limited (ASX: PLS) is involved in the business of exploration, development and operation of the Pilgangoora Lithium-Tantalum Project. On November 14, 2019, the company announced that it has achieved substantial uplift in lithia recovery from the Pilgangoora process plant due to the recent plant modifications. Initial optimisation has led to an achievement of 60% lithia recovery for December quarter-to-date, inclusive of commissioning, optimisation and ramp-up/down periods (which generate lower recoveries); and 66%-71% lithia recovery range and average 68.5% lithia recovery as per demonstration between November 6th and 10th during steady-state production.

In another update, PLS highlighted that the mine operation has resumed, which was shut to operate, following police investigation over the tragic incident of the contractor personnel at the mine site. The company has offered full cooperation in the ongoing investigation.

September’19 Quarter Financial Highlights: Net cash outflow from operating activities was reported at $28,761,000. Net cash outflow from investing activities was reported at $11,493,000. Net cash inflow from financing activities was reported at $37,820,000. Cash and cash equivalents at the end of the period came in at $60,896,000.


September’19 Quarter Operating Cash Flow Statement (Source: Company Reports)

What to expect:The company anticipates that with further plant optimisation and operating time, product recoveries will continue to improve with design recoveries targeted to be in the range of 72-78% lithia by June 2020, with the ultimate recovery in that range being dependent on the mineral properties of the feed ore at the time. Recovery performance is a key contributor to unit cost reductions and the company is targeting cash operating costs of USD$320 - $350/dmt CFR China (SC6.0 basis) from June 2020 once steady-state nameplate recovery (and full production volumes) are sustained.

Stock Recommendation:PLS’s share generated a negative YTD return of 57.93%. Currently, the stock has declined from its 52-week high level of $0.885 by ~66% and is currently trading close to its 52-week low of $0.270. Its current ratio for FY19 stood at 2.13x, better than the industry median of 1.82x, which implies that the company is in a better position to address its short-term obligations. The recent plant modifications have led to a significant improvement in the plant recovery rates, which of course, is a key contributor to unit cost reduction. As a result, cash operating costs in the coming quarters are expected to reduce. Despite challenging market conditions for lithium in the near-term, the company is well-positioned to maintain a balance between the demand-supply of the lithium ore and benefit from the activities supporting lower operating costs. Hence, considering the aforesaid facts and current trading levels, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.305 on November 14, 2019.

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