Pilbara Minerals Limited

PLS Details

Completion of Share Purchase Plan: Pilbara Minerals Limited (ASX: PLS) is engaged in the business of exploration, development and operation of the Pilgangoora Lithium-Tantalum Project. The company announced the basis for scale back and allotment of securities issued under the SPP (Share Purchase Plan) offer and has decided to accept valid applications, totalling to approximately A$20 million. Considering the robust demand from the shareholders under SPP offer, majority of the shareholders who applied under SPP received an allotment scaled back by around 21.5% as compared to their application or as otherwise determined by Board.

Completion of Tranche 2 of CATL Placement: Contemporary Amperex Technology (HOG Kong) Limited (CATL) executed a Share Subscription Agreement for a $55.0 million strategic investment in Pilbara Minerals divided into two tranches. The company added that the received A$35.0 million on 22 October 2019, leading to the completion of Tranche 2 of the CATL Placement. The completion followed the significant support of the shareholders, shown for CATL Placement at Pilbara Minerals’ General Meeting on October 16, 2019. The shares issued to CATL through Tranche 1 and 2 totalized to approximately 183.33 million fully paid ordinary shares which were issued at the agreed price of A$0.30 per share.

Quarterly Performance:TheSeptember quarter was weak in respect of customer demand in lithium raw materials, impacted by weaker demand conditions in China. While EV production is still growing in China, the relative speed of growth has tempered over  the last 12 months, leading to a lower demand for lithium chemicals, thus, impacting price. The production was moderated at Pilgangoora Project in response to the customer requirements and current market conditions.As shown in the chart below, during the year, the company earned a revenue from contracts with customers of $42.7 million as compared to the revenue of $10.1 million in 2018, leading to higher gross profit of $6.2 million in FY19.

 
Financial Performance (Source: Company Reports)

Outlook:The company expects to achieve an annual nameplate production capacity of 330,000dmt at the Pilgangoora Project of high-quality 6% spodumene concentrate and 300,000lbs of tantalite concentrate. It also anticipates the completion of the plant rectification and improvement works in order to support lower production costs. PLS expects to see cash operating costs to steadily reduce towards the targeted level of US$320-350/dmt CFR China by the fourth quarter of FY2020.

Stock Recommendation: As per the latest development last week, local activists in Chile have closed down lithium mining operations for some of the globally major producers, owing to the protests over pervasive views of inequality.Taking cues from the development, a broad-based rally was seen in lithium stocks in last few trading sessions. The stock of PLS was down 28.87% in the past 3 months, however, in last three trading sessions, the stock has rallied ~26.7%. The gross margin of the company came in at 14.5% in FY19. EBITDA margin and net profit margin in last two years have shown some sign of improvement. The current ratio of the company stands at 2.13x, higher than the industry median of 1.75x, indicating that the company is sufficiently liquid and is capable of paying its short-term liabilities using its current assets. Considering the healthy gross margins, improving EBITDA and net margins, a reasonable outlook and above-mentioned factors, we recommend a "Speculative Buy" rating on the stock at the current market price of A$0.380 per share, up 10.145% on November 4, 2019.

 
PLS Daily Technical Chart (Source: Thomson Reuters)
 

Orocobre Limited 

ORE Details

AAL Release A Summary Cauchari PFS: Orocobre Limited (ASX: ORE) is in the exploration, development and production of lithium. Orocobre Limited has recently advised that Advantage Lithium Corporation (ALL) holds a 75% interest in the Cauchari Lithium Project and has released a summary of a Pre-Feasibility Study in accordance with the Canadian standards on Cauchari Lithium Project to the TSXV.

Record Production for Olaroz:For the first time in September Quarter, the company recorded a production of 3,093 tonnes, following a strategy of managing brine quality, new pond preparation and tailoring production to seasonal conditions. Quarterly sales revenue declined by 21% on QoQ basis to US$22.1 million, with a realised average price of US$7,111/tonne on FOB basis. For Borax Argentina, sales revenue was in-line with the previous quarter with fall in average price received by 6% due to the product mix.


Financial Performance (Source: Company Reports)

Outlook: The company believes that full-year production for FY20 will be at least 5% higher than FY19. ORE anticipates that the average sales price in the coming quarter will be approximately in the range of US$6,200 - US$6,500/tonne. For Borax Argentina, the company believes the production to be in the range of 45,000 - 50,000 tonnes for FY20. The company also anticipates its cash corporate costs to be around US$8.5 - 9.5 million, including costs related to the Stage 2 Expansion and Naraha Lithium Hydroxide Plant.

Stock Recommendation: The company showed a CAGR of 43.01% in the revenue during the time span of FY15 to FY19. Also, the gross margin of the company at 45.2% is higher than the industry median of 42%, indicating that the company is efficiently controlling its cost and is generating a profit on sales. The ROE of the company has also improved from 0.5% in FY18 to 9.6% in FY19, implying that the company is appropriately utilizing the capital of its shareholders. As per the ASX, the stock of ORE is trading towards the 52-week low and, therefore, it can be said that the current trading levels provide decent opportunities for accumulation. Considering its decent outlook, trading levels, decent capabilities to garner revenues and improvement in RoE, we recommend a “Buy” rating on the stock at the current price of A$2.750 per share, up 4.167% on November 4, 2019.

 
ORE Daily Technical Chart (Source: Thomson Reuters)

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