Galaxy Resources Limited

Total Mining Volumes Increased in Mt Cattlin: Galaxy Resources Limited (ASX: GXY) recently released its quarterly update for three months to March 31, 2019. With respect to Mt Cattlin operations, total mining volumes witnessed a rise of 18% as compared to the previous quarter because of an increase in stripping ratio.Production volume stood at 41,874 dmt which was 24% higher as compared to the previous quarter resulting because of an increased grade of ore processed, a 3% rise in the ore volume treated as well as an improved recovery of 51%.


Mt Cattlin Operations (Source: Company Reports)

With respect to James Bay project, the company stated that the team continued the interactions with the key stakeholders as well as authorities which includes providing clarifications regarding Environmental and Social Impact Assessment (or ESIA) submitted during Q4 FY 2018. In March, Canadian Environmental Assessment Agency (or CEAA) had confirmed that ESIA for James Bay Project happens to be consistent with EIS Guidelines which resulted in file moving to next step of evaluation meaning that there could be a final recommendation within the span of 12 months.

What To Expect From GXY: In Q2 FY 2019, with respect to Mt Cattlin, GXY is planning the total spodumene production volumes between 45,000 dmt to 50,000 dmt. While for the full calendar year, the expectations are in the range of 180,000 dmt- 210,000 dmt. The end user segment of lithium battery chain demonstrated continued demand growth. The Chinese new energy vehicle (NEV) sector commenced the year strongly, reflecting significant growth.

Stock Recommendation: In March 2019, China government made an announcement about the latest revision of NEV subsidy framework for domestic NEV manufacturers. The subsidies got reduced on the lower range vehicles and requirements for the subsidy eligibility got raised. The company’s current ratio stood at 2.96x which is higher than the industry median of 1.73x, reflecting the improved liquidity position of the company and its capability to address the short-term obligations.

However, the stock of GXY had delivered the return of -25% in the span of previous three months while, in the time horizon of past one month, the return stood at -21.50%. Based on the foregoing, we maintain our “Speculative Buy” recommendation on the stock at the current market price of A$1.535 per share (up 1.32% on 8 May 2019).
 

Orocobre Limited

March Quarter Production Rose 10% on PCP: During the quarter ended March 2019, Orocobre Limited (ASX: ORE) witnessed production of 3,075 tonnes which reflects a rise of 10% on the previous corresponding period (PCP) following the pond preparation as well as a strategy of managing brine quality. The company’s March 2019 quarter revenue stood at US$33.4 million on the sales of 3,530 tonnes. The sales price in the March quarter amounted to US$9,451 / tonne FOB which reflects a fall of 11% from December quarter because of both direct and indirect impacts of China’s market softness.


March 2019 Quarter Key Metrics (Source: Company Reports)

With respect to Naraha Lithium Hydroxide plant, Orocobre would be holding 75% economic interest in the project. The operating costs (excluding the primary grade lithium carbonate feedstock) have been anticipated at around US$1,500/tonne. The company stated that Naraha Lithium Hydroxide Plant would be financed via a combination of JPY9.1 billion (US$82.1 million) of the term / bridging loans as well as JPY1.0 billion (or US$9.0 million) of the shareholder equity. The two project loans were given by the Japanese banks at an effective interest rate of less than 1%. All of the financing is non-recourse to Orocobre.

What To Expect From ORE: The company stated that Olaroz happens to be a low cost, high margin producer with its gross margins of 56%.  There are expectations that FY19 production would be similar to FY18. ORE stated that lithium chemical prices are lesser than the previous periods, however, the long term fundamentals happen to be intact. There are expectations that further staged expansions would be helping in growing Olaroz production in the future.
Stock Recommendation: The stock of ORE has delivered the return of 10.73% on the YTD basis while the stock has delivered the return of 3.54% in the span of three months which might attract the market players’ attention.

The company has witnessed improvement in its key margins in 1H FY 2019 on the YoY basis which mainly reflects an improvement in its financials. Also, the company’s RoE stood at 4.7% which is higher than the industry median of 1.6% which reflects that the company has been delivering strong returns to its shareholders as compared to the concerned industry. The company’s gross margin stood at 24.8% in 1H FY 2019 which implies a YoY improvement of 14.4% reflecting that the company is in a better position to meet its operating expenses.

On the backdrop of above factors and current trading level, we maintain our “Buy” rating on the stock at the current price of A$3.450 per share (up 0.291% on 8 May 2019).  
 

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