Galaxy Resources Limited

GXY’s Director Acquires Additional 50K Ordinary Shares: Galaxy Resources Limited (ASX: GXY) has an engagement in the production of lithium concentrate; and exploration for minerals in Australia, Canada and Argentina. The company recently announced that one of its Director, Martin Ronald Rowley acquired 50,000 Ordinary Shares at a value consideration of $64,750 effective from June 20, 2019, taking the final holdings to 1,058,603 Fully Paid Ordinary Shares, 4,000,000 Unlisted Options exercisable at $2.78 on or before 14/6/2020, along with indirect interest of 1,541,031 Fully Paid Ordinary Shares with Rowley Super Investments Pty Ltd and 1,969,712 Fully Paid Ordinary Shares with Jaeger Investments Pty Ltd.

March’19 Quarter Key Highlights: GXY reported production of 41,874 dry metric tonnes of spodumene concentrate. Production in the month of March’19 was reported at 17,021 dmt, equivalent to an annualized run rate of over 200,000 dmt. The average cash cost was reported at US$453 per dmt for the period. At the end of the March’19 quarter, the company reported cash and liquid assets at US$285.3 million with zero debt.

FY2018 Financial Performance: Revenue increased by 60% pcp to US$153.93 Mn in the one-year period. Net Profit after tax for the period was reported at US$150.22 Mn.


FY2018 Key Financial Metrics (Source: Company Reports)

What to expect: As per the release, in Mt Cattlin, total spodumene production volumes guidance for Q2 FY19 has been given at 45,000 dmt to 50,000 dmt, whereas for full calendar year 2019, the production guidance is estimated to be in the range of 180,000 dmt to 210,000 dmt. 

Stock Recommendation: Galaxy Resources’ share is presently trading close to its 52 weeks low level of $1.235. Its EBITDA margin and net margin for FY18 stand at 35.3% and 97.6%, which are better than the industry median of 29.5% and 14.0%, respectively, implying decent fundamentals of the company than its peer group.  Its ROE for FY18 stands at 30.1%, which is better than the industry median of 12.2%, which implies the company has generated a better return to its shareholders than its peer group.

Hence, considering the aforesaid facts and current trading level, we recommend a “Speculative Buy” rating on the stock at the current market price of $1.265 per share (down 1.556% on June 26, 2019).  
 

Orocobre Limited

Undervalued Position At Current Juncture: Orocobre Limited (ASX: ORE) has an engagement in the exploration, development and production of lithium at the company’s flagship Olaroz Lithium Facility and the operation of Borax. The company recently announced the issuance of 727,722 performance rights pursuant to the terms of the Orocobre Performance Rights and Options Plan.

In another update, the company presented its business prospects at the Macquarie ‘Australia Conference’ where it highlighted thatit achieved the highest March quarter production to date despite rainfall and lower evaporation rates and expects FY19 production to be similar to FY18. It was also mentioned that weak China domestic prices encourage growth in Chinese exports.

Q3FY19 Key Highlights: The company witnessed the best March quarter production of 3,075 tonnes at Olaroz. In comparison to the prior corresponding period, the production went up by 10% and year-to-date production at Olaroz stood at 9,150 tonnes. Sales revenue for the quarter amounted to US$ 33.4 million, up 4% Q-o-Q. After incurring expenditure on expansion activities, corporate expenses, debt repayment, etc., the company had US$265.7 million cash as at 31 March 2019.

By the end of the quarter, the Final Investment Decision for the Naraha Lithium Hydroxide Plant was approved by Toyota Tsusho Corporation and Joint Venture Boards where 75% of economic interest in the project will be held by Orocobre. In the case of Borax Argentina, the Sales revenue increased by 4% Q-o-Q. Overall sales volume in the March quarter increased by 44% to 13,041 tonnes as compared to pcp. This also accounted for 2,312 tonnes of low-value mineral sold.


H1FY19 P&L Statement (Source: Company Reports)

What to expect: FY19 production is expected to be approximately the same as FY18 production of 12,470 tonnes.

The production at Borax Argentina is expected to remain in between the range of 35,000 - 40,000 tonnes for FY19. The capital expenditure for FY19 is expected to be around US$1-2 Mn.
ORE’s corporate costs for FY19 is expected to be around US$7-8 Mn.

Stock Performance: Orocobre’s share yielded returns of 1.99% and -7.51% over a period of 6 months and 3 months, respectively. Presently, it is trading close to its 52 weeks low levels of $2.910, which indicates a decent opportunity for the accumulation. Its net margin for H1FY19 stands at 259%, which is better than the industry median of 13%, which implies the company’s bottom line performance is better than its peer group. Its current ratio for H1FY19 stands at 49.97x, which is better than the industry median of 1.89x, which implies the company is in a better position to address its short-term obligations. Moreover, on the valuation front, its EV/Sales and Price-to-Book multiple for TTM stand at 15.2x and 1.1x, which are lower than the industry median of 60.2x and 2.0x, indicating the undervalued position at the current juncture. Hence, considering the aforesaid facts and current trading level, we recommend a “Buy” rating on the stock at the current market price of $2.930 per share (down 4.87% on June 26, 2019). 

Disclaimer
 
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.