Leigh Creek Energy Limited

LCK Details

Institutional Share Placement Update: Leigh Creek Energy Limited (ASX: LCK) is involved in developing responsible energy projects using innovative techniques. On 17 December 2021, the company announced a placement to Energy Exploration Capital Partners, LLC.

• Under the placement, the company is expected to raise $7.5 million for the first investment, $3.9 million for the Second Investment and $3.6 million for the Third Investment.
• The proceeds of the placement will be used for key aspects of Stage 1 onsite works and ongoing Stage 2 study and development costs.

Exploring Adblue Opportunities: On 16 December 2021, the company announced that it is exploring optionality to produce domestic AdBlue to address chronic supply shortage across Australia. The company’s Leigh Creek Urea Project (LCUP) is in a unique position to create diverse urea-based products onsite, which can include AdBlue.

Q1FY22 Operational Highlights:

• During Q1FY22, the company progressed the work activities associated with FEED for Stage 2 of the LCUP. Over the quarter, the company acquired the generators required for the upstream (Stage 1) commercialisation of the LCUP.
• Operating cash outflow for the quarter stood at $2.75 million. At the end of the quarter, the company had cash and cash equivalent of $17.7 million.

Cash and Cash Equivalent Trend (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to the risks related to supply chain issues, which could impact its operations. The company is also exposed to the uncertainties surrounding the COVID-19 pandemic and associated restrictions.

Outlook: The company is of the view that LCUP will play a major role in addressing supply chain and foreign exchange and global commodity price issues that several local industries currently face. The operating costs of LCUP are expected to be very competitive as it can produce syngas on site for as little as $1 per gigajoule – converts through to production cost of $109/tonne.

Stock Recommendation: Over the last three months, the stock has provided a return of ~54.76%. The stock is trading lower than the average 52-week price level band of $0.100- $0.310, offering a decent opportunity for accumulation. On a TTM basis, the stock is trading at a price to book value multiple of 2.7x, slightly lower than the industry (oil and gas) average of 2.8x. Considering the recently announced placement, development work at LCUP, modest outlook, current trading level, valuation on TTM basis, and key risks associated with the business, we give a “Speculative Buy” rating on the stock at the current market price of $0.1625 as on 30 December 2021, 12:30 PM (GMT+10), Sydney, Eastern Australia.

LCK Daily Technical Chart, Data Source: REFINITIV 

Castillo Copper Limited

CCZ Details

Operational Update: Castillo Copper Limited (ASX: CCZ) is mainly involved in the exploration of copper across Australia and Zambia. In an operational update provided on 6 December 2021, the company informed about the completion of the initial drilling campaign at the Arya Prospect. Based on indicative field observations from the team at site, the Board is optimistic that geological interpretations will be positive, and they will affirm the exploration potential of the Arya Prospect. On 20 December 2021, the company notified that it has relocated the Automic Perth office to Level 5 191 St Georges Terrace Perth WA 6000.

Q1FY21 Operational Highlights: During Q1FY21, the company was focused on developing the Big One Deposit within the Mt Isa copperbelt in north-west Queensland. Some of the key highlights of the quarter are as follows:

• In July 2021, the company announced 9% copper in Big One Deposit assays plus more visible mineralisation up to 26m thick.
• At Zambia Projects, the company identified large targets from an Induced Polarisation (IP) survey across the Luanshya Project in Zambia’s copper belt.
• Operating cash outflow for the quarter stood at $518k. At the end of the quarter, the company had cash of $10.26 million.

Cash and Cash Equivalent Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Copper Price Fluctuations: The company is exposed to the risks related to the fluctuations in the prices of copper as it could impact its financials.
• COVID-19 Uncertainties: The company is exposed to the risks related to the uncertainties surrounding COVID-19 pandemic as it could impact its exploration programs.

Outlook: Looking ahead, the company is focused on doing geologically modelling for the Big One Deposit, continuing its drilling at the Arya Prospect, and fully assessing the Eldorado target’s exploration potential.

Stock Recommendation: Over the last three months, the stock has been corrected by ~16.66% and is trading lower than the 52-week average price level band of $0.028 - $0.083. On a TTM basis, the stock is trading at a price to book value multiple of 2.0x, lower than the industry (Basic Materials) median of 2.5x, thus seems undervalued. Considering the company’s ongoing exploration programs, modest outlook, current trading level, valuation on TTM basis, and associated key risks, we give a “Speculative Buy” rating on the stock at the current market price of $0.029 as on 30 December 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

CCZ Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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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