Galaxy Resources Limited

Completion of POSCO transaction: Galaxy Resources Ltd (ASX: GXY) has recently disclosed that the final settlement of the sale of a package of tenements located on the northern portion of the Salar del Hombre Muerto to POSCO has now been completed. This was signified following the registration of the tenement and usufruct transfers by the local Mining Court in Salta Province.

As per the quarterly update for the period ended as on 31 December 2018, a volume expansion of 27% was witnessed over the previous quarter at the MT Cattlin operations on account of the increased ore mined and the increased stripping ratio. The company had US$41.1 million in cash and liquid securities and was debt free as at 31 December 2018.
 
What to Expect from MT Cattlin: Regarding the MT Cattlin, the company is targeting a production of spodumene in the range of 40,000 dmt to 45,000 dmt in Q1 of 2019 while, for the full calendar year, it expected to be in the range of 180,000 dmt to 210,000 dmt. 
 

 
GXY Production and sales numbers (Source: Company Reports)
 
On the financial metrics front, the EBITDA margins at the end of June 2018 came in at 45.8% as compared to the industry median of 39.1%, while the same was negative in the pcp, signifying a turnaround in the financial performance. Meanwhile, the stock price has fallen 24.91% in the past six months and is trading below the average of 52 weeks high and low level of ~$2.77. Fundamentally, the company has a strong balance sheet, robust mining volumes were registered during the quarter, the company’s stock return in the previous 6 months can be considered a matter of concern.  Hence, we maintain our “Speculative Buy” recommendation on the stock at the current market price of $2.230 per share (up 1.364% on 26 February 2019).
 

Pilbara Minerals Limited

A Look at Key Numbers: Australian lithium producer, Pilbara Minerals Limited (ASX: PLS) continued to deliver positive progress at its 100%-owned Pilgangoora Lithium-Tantalum Project in Western Australia during December 2018 quarter with the production ramping up. The company recently issued a release which contains results of operations for half-year ended December 31, 2018.  

The Group’s consolidated loss after tax for the half-year ended 31 December 2018 was $11,899,000 (31 December 2017: loss after tax of $9,973,000). The loss includes exploration expenses of $4,415,000 (31 December 2017: $3,219,000), an unrealised foreign exchange loss of $6,094,000 (31 December 2017: $132,000) related to the Company’s US$100M Nordic bond debt facility and noncash share-based payment expenses of $1,788,000 (31 December 2017: $2,631,000).


 
 
Total Ore Mined and Processed & sold (Source: Company Reports)

What to Expect From PLS: The company seeks to work for the objectives which revolve around completing the development and mine world class lithium-tantalum deposit at Pilgangoora Project which is 100% owned and is situated in Pilbara region of Western Australia and continuing to conduct the exploration activities at Pilgangoora Project so that existing JORC resource and reserve can be increased.

The market outlook happens to be robust and there is a growing demand for the companies underlying product i.e., lithium. However, the stock has delivered the return of -12.94% in the span of previous 6 months and trading close to a 52-week low level of $0.570. By looking at ramp-up the plant towards nameplate capacity at Pilgangoora project; completion of Stage 2 funding; and decent lithium outlook, we, therefore, maintain our “Speculative Buy” recommendation on the stock at the current market price of $0.760 per share (up 2.703% on 26 February 2019).
 

Orocobre Ltd

Olaroz one of the lowest cost producers of lithium globally:  Orocobre Ltd (ASX: ORE) reported a net profit after tax of US$24 Mn for 1H FY 2019. The company reported total production of 6,075 tonnes of lithium carbonate, out of which a total of 5,163 tonnes of lithium carbonate was sold in 1HFY2019 generating a revenue of US$63.5 Mn.

The company has reported an improvement in its average price realization to US$12,295/tonne, up from US$11,415/tonne in PCP resulting in a 7.7% improvement.


Orocobre Supply and Demand Forecast (Source: Company Reports)

The Final Investment Decision (“FID”) approval for Stage 2 Expansion of the Olaroz Lithium Facility has been given by Orocobre, Toyota Tsusho Corporation (“TTC”) and JV boards.

What to Expect Moving Forward: The demand for the battery is set to go up from 183kt LCE to 991kt LCE in the year 2028 and this should bode well for the lithium manufacturers. However, in the short term, the company anticipates the average price realization per unit to deteriorate in the imminent quarters due to the worldwide price decline in lithium carbonate.

Meanwhile, the stock price has fallen 49.21% in the past one year. However, the stock is trading towards the lower levels and is now looking attractive for accumulation in this price level on the back of favourable outlook for the battery demand. By looking at its three pivotal agreements with its joint venture partner TTC and decent fundamentals, we, therefore, maintain our “Buy” rating on the stock at the current market price of $3.780 per share (up 7.082% on 26 February 2019).
 

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