Galaxy Resources Limited

Increase in stake in GXY by company’s director: Metal and Mining sector company, Galaxy Resources Limited (ASX: GXY) recently announced change in its director’s interest where John Turner acquired 30,000 shares at the value of $49,500, taking the final holdings to 55,000 Fully Paid Ordinary Shares and 500,000 Unlisted Options exercisable at $2.78 on or before 14/6/2020.

In the quarterly activities update, the company announced operational highlights for Q1 2019 and production guidance for Q2 2019.It reported an increase in mined volume at Mt Cattlin by 18% to 1,168,120 bcm in Q1 2019 as compared to Q4 2018, due to an increase in the stripping ratio. With respect to Sal De Vida project, the full US$271.6 million consideration payable by POSCO in connection with the sale of the package of tenements located on the northern portion of the Salar del Hombre Muerto was released from the escrow account and transferred to Galaxy.

At James Bay project, the company’s environmental impact assessment moves to the next step of evaluation following the confirmation from the Canadian Environmental Assessment Agency of company meeting the requisite EIS guidelines.
As of 31 March 2019, its closing cash and liquid assets was reported at US$285.3 Mn along with ‘nil’ debt.

As per the market update, long started trade war concerns impacted the lithium battery supply chain. Despite these macro conditions, the end user segment of the lithium battery chain has exhibited continued demand growth. In March 2019, the China government announced the latest revision of the new energy vehicle (NEV) subsidy framework for domestic NEV manufacturers. Subsidies were reduced on lower range vehicles and the requirements for subsidy eligibility were raised.


China’s NEV subsidies multipliers data (Source: Company Reports)

What to expect: The company expects total spodumene production volumes at Mt Cattlin in the range of 45,000 dmt to 50,000 dmt in Q2 of 2019 and 180,000 dmt to 210,000 dmt for the full calendar year.At Sal De Vida project, a series of other engineering trade-off and value-add activities will commence in Q2 2019, focused on advancing project engineering and identifying any potential capital reduction opportunities. The project team has been in discussions with other regional developers regarding potential shared infrastructure options. At James Bay project, the bid process to select the test work contractor for the secondary lithium conversion program was conducted during the Q1 2019. The contract award and the commencement of the test work start are planned to occur during Q2 2019.

Stock Recommendation: Galaxy Resources’ share generated negative YTD return of 29.22%. It is trading close to its 52 weeks low level of $1.505. Its EBITDA margin and net margin for FY2018 stood at 35.3% and 97.6% better than the industry median of 28.9% and 13.2%, implying a decent financial position of the company than its peer group. Its ROE for FY2018 stood at 30.1% better than the industry median of 11.9%, implying a better return to equity-holders than its peer group.

Its current ratio for FY2018 stood at 2.96x better than the industry median of 1.56x, implying the company’s better ability to address its short-term obligations than its peer group. As per ASIC, on April 18, 2019, the short selling of Galaxy Resources’ shares stood at 17.85%.Hence, considering the aforesaid facts and current trading level, we recommend a “Speculative Buy” rating on the stock at the current market price of $1.515 (down 2.258% on April 29, 2019).
 

Pilbara Minerals Limited

March 2019 Quarterly Results Announced: Pilbara Minerals Limited (ASX: PLS) has engaged in the exploration and development of mineral resources. The company recently published corporate presentation for March 2019 quarterly results, where it reported quarterly sales of 38,562 dmt of spodumene concentrate and 30,356 lbs tantalite concentrate explored at Pilgangoora Lithium-Tantalum Project. The forecast April production has been estimated at 20-22kt (dmt, SC6.0 basis) driven by improving lithia recovery trend.

The board exercises option to participate in POSCO JV (Proposed 30%) for 40 ktpa chemical conversion facility subject to due diligence and financing (final investment decision due Jun Qtr 2019). The company has reported $103.9M cash balance in Bank on March 31, 2019. It has also reported receipt of A$50M equity from Ganfeng Lithium and A$36M from product sales.


Spodumene Concentrate Production (dmt) (Source: Company Reports)

What to expect: The company’s three-phased growth strategy that includes expansion to 7.5Mtpa processing capacity (1.2 Mtpa spodumene concentrate), development of a lithium hydroxide conversion facility and exploration target set to drive mine life extension. It also plans to extend the mine life of the Pilgangoora Project through Resource conversion and further discoveries from its 50 - 90Mt of exploration targets which include potential near-surface tonnes. With its JV with POSCO, it is positioned to expand its operations into the high-value lithium chemical market.

Stock Recommendation: Pilbara Minerals’ share generated negative YTD return of 9.66%. It is trading towards its 52 weeks low level. Its current ratio for H1FY19 stood at 1.99x better than the industry median of 1.82x, implying the company’s ability to well manage its current asset-liability concerns than its peer group. On the valuation front, its EV/sales for TTM stands at 17.6x lower than the industry median of 156.5x, indicating undervalued position at the current juncture.

Hence, considering the aforesaid facts and current trading level, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.615 per share (down 6.107% on April 29, 2019).
 

Galan Lithium Limited

Stock Price Rose Over 11% on ASX Post Positive News In Mining Sector In Argentina: Galan Lithium Limited (ASX: GLN) has an engagement in the mineral exploration, acquisition, and evaluation. The stock price of the company rose over 11% on ASX post the media reports where the Argentinian Chamber of Mining Entrepreneurs issued a report this week stating that it expects mining industry investments to reach around $29 billion and employ about 80,000 people in 2019.

The company recently announced the completion of drilling, casing and sampling of its third drillhole (C?03?19) at Candelas Lithium Brine Project located in Catamarca province, Argentina. This drill has been extended to a final depth of 454 meters. Drillhole 4 (C?04?19) has now commenced and is located ~3 kilometre south of C?03?19 and 5.3 kilometre south of drill hole C?01?19.

Financials: The operating loss after income tax of the Group for the half year ended 31 December 2018 was reported at $623,790 as compared to $631,054 in the previous corresponding period. It was predominantly due to an increase in administration and occupancy expenses, personal expenses, and expenses involved in corporate and compliance issues.


H1FY19 P&L Statement (Source: Company Reports)

What To Expect: The Hombre Muerto Lithium Project (the Project) is lithium brines project located within South America’s Lithium Triangle on the Hombre Muerto salar in Argentina. It is proven to host the highest grade and lowest impurity levels within Argentina. Galan’s primary target is the adjoining Candelas channel target, a ~15 kilometre long by 3-5 kilometre structurally controlled pull apart basin, infilled with sediments hosting brines. The company recently received formal notification that it has been granted its Pata Pila licence which lies along the western margin of the Hombre Muerto. The licence covers a large area of alluvial fan interpreted to overlie the western margin of the Hombre Muerto salar. The above-mentioned development is going to help the company in delivering sustainable value to its customers and shareholders.

Stock Recommendation: Galan Lithium’s share generated negative YTD return of 1.85%.Its current ratio for H1FY19 stood at 3.14x better than the industry median of 1.82x, implying company’s better ability to address its short-term obligations than its peer group.

Hence, considering the aforesaid facts and current trading level, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.295 (up 11.321% on April 29, 2019).
 

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