Lynas Corporation Limited

Top-line and bottom-line declined in 1H19: Lynas Corporation Limited (ASX: LYC) is a mining company engaged in integrated extraction and processing of Rare Earth mineral in Australia and Malaysia. The company is also involved in the development of Rare Earth deposits. Recently, the company updated that it will release its full year FY19 results for the period ended 30 June 2019 on 29 August 2019.

Acquisition of Lynas has been called off: On 26 March 2019, Wesfarmers announced that it had made a conditional, non-binding indicative proposal to the Board of Lynas Corporation to acquire Lynas for $2.25 a share. On 22August 2019, Wesfarmers updated with a press release that they are not progressing with the above Proposal and do not intend to pursue it further. Wesfarmers came with the above announcement after receiving the market update from Lynas on 16 August 2019, confirming the conditions for renewal of the operating licence for the company’s LAMP facility in Malaysia.

LYC updated about its Quarterly performance for the period ending 30 June 2019wherein LYC posted operating cash flow at A$37 million with closing cash balance of A$89.7 million against A$67.1million in Q3FY19. Finance costs for the period, came at A$6.1 million which included a principal repayment of A$2.7 million. Sales revenue stood at an A$87.5 million with average selling price of A$18.5/kg. Total REO sales volume stood at 4,723 tonnes with a sales receipt (Cash) of A$106 million, for the period.


Quarterly Snapshot (Source: Company Reports)

LYC reported its quarterly NdPr (Neodymium-Praseodymium) production at 1,505 tonnes with total REO production at 4,651 tonnes. Due to increasing trade tensions and persistent softer demand inside China, the average price of NdPr remained low. The US-China trade tensions have brought Rare Earths back into the limelight, raising concerns regarding the security of supply and risks associated with single sourcing. The company received a gold medal in EcoVadis CSR assessment, rating Lynas Malaysia among the top 5% of evaluated companies.

H1FY19 highlights: In H1FY19, LYC posted revenue of A$179.801 million, declined 10.5% on y-o-y basis. Reported net profit at A$19.024 million in 1H19 recorded a decline of 62.6% from 1H18. During the period, EBITDA came in at A$50.797 million, which was 38.8% lower than H1FY18 EBITDA of A$83.0 million. Total assets at the end of 1H19, were valued at A$812.8 million including cash at A$53.7 million, inventories at A$59.5 million and property, plant and equipment came at $597.7 million. Borrowings were higher at A$241.2 million than A$225.1 million in 30June 2019. Total equity of LYC was at A$461.4 million at the end of 31December 2018.


1H19 Financial Snapshot (Source: Company Reports)

Stock recommendation: On 26 August 2019, the stock of LYC closed at A$2.320 with a market capitalisation of A$1.57 billion. The stock has delivered returns of -6.97% and 29.34% during last the 3 months and 6 months, respectively. Moreover, its EV/EBITDA and P/E multiple for TTM stand at 21.5x and 186.07x, respectively Price to book of LYC stood at 3.4x on a TTM basis against industry median 1.6x on TTM basis.On valuation front, the stock seems expensive at current levels. Hence, considering the stock price movement on YTD and last 6 months, current higher valuations and FY19 scheduled results on 29 August, we advise investors to keep a close eye on the stock and upcoming results. Hence, we suggest a watch stance on the stock at the current market price of A$2.320, up 2.203% as on 26 August 2019, ahead of its full results for the period ending 30 June 2019 which are to be released on the morning of Thursday 29 August 2019.
 

Greenland Minerals Limited

Significant decline in Lower operating costs: Greenland Minerals Limited (ASX: GGG) is an exploration and development company, engaged in the development of high?quality mineral projects across Greenland.The company’s flagship project is the Kvanefjeld Rare Earth project (rare earth elements, uranium, zinc). The Kvanefjeld Project is projected to be one of the highest global producers of key magnet metals including neodymium, praseodymium, dysprosium and terbium, along with by?production of uranium and zinc.

On 6 June 2019, Greenland Minerals Limited informed that the company has issued 58,333,334 shares, as a share placement to institutional and sophisticated investors to fund the (1) further advance technical development of the Kvanefjeld project, (2) progress the mining licence application through public consultation and impact benefit agreement negotiations, and (3) continued development of downstream processing and path to market strategy and project commercialisation.

Recently, the company posted its Q2FY19 highlights wherein it mentioned a 40% reduction in capital cost at US$505M and a decline in operating costs by 40%, resulting in unit costs of higher than US$4/kg of REO (Rare Earth Oxide). The company also updated about its operating performance and mentioned that reagent consumption has reduced followed by decline in power requirements. Kvanefjeld Project has a smaller footprint and lower impacts while producing higher rare earth. As per the company’s update, Neodymium oxide production was increased to 4266 tpa, Praseodymium oxide to 1426 tpa, Dysprosium oxide to 270 tpa and Terbium oxide to 44 tpa.

The company reported its Quarterly cash flow activities for the period ended 30 June 2019 wherein it posted net cash used in operating activities at $1.017 million and cash balance at the end of the quarter at $4.736 million.

FY18 Financial Highlights: GGG reported its FY18 revenue at $0.133 million against $0.127 million in FY17 and a net loss of $2.829 million in FY18. The Company’s expenditure in ‘director and employee benefit’ stood at $1.075 million, professional fees at $0.835 million, whereas other expenses stood at $0.947 million. In FY18, the company reported cash balance of $6.702 million plant property and equipment at $0.863 million and Capitalised exploration and evaluation expenditure at $85.292 million. Net Assets of GGG as on 31 December 2018 was at $91.768 million.


FY18 Financial Snapshot (Source: Company Reports)

Stock recommendation: The stock of GGG made a close of $0.140 on 26 August 2019. The stock has a market capitalization of $160.78m with 1.19 billion shares outstanding. 52- week trading range for the stock stands at $0.049 - $0.165. GGG has given healthy returns of 28.57% and 145.45% in the last 3 months and 6 months, respectively. The company has been progressing well with the operation of Kvanefjeld Project.

The company has continued to position the Kvanefjeld Project to be developed as a globally significant and long-life producer of rare earth products. To capture the opportunity, the company requires to work closely with the Greenland Government to ensure that the project is successfully developed, adding to the value of shareholders. Considering the aforesaid facts, we recommend a “Hold” rating on the stock at the current market price of A$0.140, up 3.704% on 26 August 2018.

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.