BCI Minerals Limited

BCI Details

Q3FY22 Results: BCI Minerals Limited (ASX: BCI) is a minerals resources firm operating an industrial minerals business with a ~100% owned Mardie salt & potash project in Western Australia’s central salt production region.

• Reported Injuries and Approvals: Zero recordable injuries were registered in Q3FY22 and stood over six years without a lost-time injury (LTI). Mardie Mining Leases granted and delivered secondary approvals for construction.
• Project Commencements: Main construction began with seawater intake structure, Pond zero and accommodation village approached 70% completion stage.
• Financial Position: Iron Valley EBITDA to BCI stood at $3.5 million for the quarter. The cash balance stood at $301 million, holding zero net debt as of 31 March 2022. Debt commitments stood at $740 million for the Mardie project at the detailed documentation stage.

H1FY22 Segment EBITDA; Analysis by Kalkine Group

Key Risks and Challenges

Delays in statutory approvals, labour shortages and contractor mobilization will likely impact the overall project schedule. Moreover, supply chain constraints add to the business’s logistical stance risks.

Outlook

BCI acquired 26.3 million shares in Highfield Resources Limited and around 31.1 million in Agrimin Limited in December 2021. BCI is progressing discussions with other banks (out of the current syndicate) regarding a corporate debt facility secured by Iron Valley.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock’s historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of BCI gave a negative return of ~9.64% in the past year. The stock is currently trading lower than the 52-weeks average price level band of $0.345 - $0.615. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in percentage terms). Considering the decent construction progress and prudent acquisition strategies, the company might trade at a slight premium to its peers’ EV/Sales multiple average. For valuation, a few peers like Fortescue Metals Group Ltd (ASX: FMG), Mount Gibson Iron Ltd (ASX: MGX), Champion Iron Ltd (ASX: CIA), and others have been considered. Given the decent financial position, diversified project portfolio, decent growth prospects, current trading levels, upside indicated by valuation, and key risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the closing market price of $0.370, down by ~2.631%, as of 17 May 2022.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

BCI Daily Technical Chart, Data Source: REFINITIV

Hot Chili Limited

HCH Details

Recent Business Updates: Hot Chili Limited (ASX: HCH) is a mineral exploration company focused on developing the Costa Fuego copper hub in the coastal range of Chile.

• Key Features of Resource Upgrade in Costa Fuego copper-gold hub in Chile: HCH announced high grade indicated resources, measured at +0.6% CuEq, accounting for a third of contained copper and gold, up by 53%.
• Total Indicated Resources: The total indicated resources surged by 67% and surpassed 80% of Costa Fuego’s global resource estimate.

H1FY22 Cash Flow Movements; Analysis by Kalkine Group

Key Risks and Challenges

As of 31 March 2022, the company reported no revenue-generating assets, and any delay in drilling studies and project scoping may drain existing liquidity.

Outlook

Poste the updated resource estimates, Costa Fuego, is well positioned on the list of top-ten copper development projects, reported in company filings. Over 80% of HCH’s resources have now become indicated, and the company is confident with its pre-feasibility study to deliver ore reserves.

Stock Recommendation: The stock of HCH gave a negative return of ~33.89% in the past year. The stock is currently trading lower than the 52-weeks average price level band of $1.130 - $2.600. On a TTM basis, the stock has been valued at a Price-to-Book Value multiple of 0.7x compared to the industry median of 2.0x (Metals & Mining). This signals the stock of HCH is undervalued at current trading levels. Considering the upgraded resource estimates at its Costa Fuego copper hub, positive drilling results at its Cortadera mine, undervaluation as per the TTM valuation, the commencement of trading on the US OYC platform, decent cash balance, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of $1.210, up by ~3.862%, as of 17 May 2022.

HCH 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 depend on the investors’ appetite for upside potential, risks, holding duration, and previous holdings. Investors can consider exiting the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level where-in stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in stock prices tend to find resistance when they are rising, and an 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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