Stocks’ Details

Kidman Resources Limited

KDR’s Share Surged Over 44% on ASX Post Its Acquisition Proposal: Kidman Resources Limited (ASX: KDR) has engagement in exploration and development of Mt Holland Lithium and gold project located near Southern Cross in WA. Wesfarmers made an announcement that it has entered into Process and Exclusivity Deed with KDR in relation to the proposal to acquire 100% of outstanding shares in KDR for $1.90 cash per share by the way of scheme of arrangement.

The price represents a premium of 47.3 % to the last closing price on May 1, 2019 and 44.4 % to the 60-day volume weighted average price and corresponds to a transaction value of around $776 Mn. This development will provide an opportunity to Wesfarmers to invest in and develop a large-scale, long-life and high-grade lithium hydroxide project in WA, along with unique partnership (50:50) with SQM (a global leader in the lithium industry).As on 1 May 2019, Wesfarmers has become a substantial holder of the group with voting power of 17.26%. In a previous update, KDR’s Non-Executive Director, Mr David Southam advised the board about his resignation with effect from April 30, 2019.

Financials:Its revenue from continuing operations for six months ended on December 31, 2018, came in at $90,262. It posted a profit before tax to $1,907,618 in 6 months ended on December 31, 2018, as compared to loss of $9,314,075 in 12 months ended on June 30, 2018.


P&L Statement (Source: Company Reports)

What To Expect: The construction of the Mt Holland lithium project is expected to commence in FY2020. The first production from the refinery is expected in FY2022.Wesfarmers’ anticipated share of capital expenditure for the development of the Mt Holland mine, concentrator and Kwinana refinery is estimated at around $600 Mn.

Lithium Outlook: The demand for Lithium remains positive, supported by the ongoing growth story of electric vehicle market globally.

KDR priorities for FY19 involves completion of definitive feasibility study for the integrated Mt Holland Lithium Project (scheduled for mid-year) and proceeding to a final investment decision.

Stock Recommendation: Kidman’s share generated positive YTD return of 18.89%. Its current ratio for six months ended on December 31, 2018, stands at 2.21x better than the industry median of 1.87x, implying the ability to manage its short-term obligations.

Hence, considering the aforesaid facts and current trading level, we recommend a “Hold” rating on the stock at the current market price of $1.870 per share (up 44.961% on May 2, 2019 owing to the release of acquisition proposal).
 

Orocobre Limited

High Production (March Qtr) & Decent Financial Performance For ORE: Orocobre Limited (ASX: ORE) has an engagement in the exploration, development, and production of Lithium at the company’s flagship Olaroz Lithium facility and the operation of Borax. The company recently published an investor presentation for the March quarter, where it highlighted record production of 3,075 tonnes despite rainfall exceeding the same period in 2017/2018 and lower evaporation rates.

It reported March quarter revenue of US$33.4 Mn on sales of 3,530 tonnes. It posted a decrease in sales price in March qtr. at US$9,451/tonne FOB as compared to December qtr., due to both direct and indirect impacts of China’s prolonged market softness.The cost of sales for March qtr was reported at US$4,193/tonne and strong gross cash margin at US$5,258/tonne. Its stage 2 expansion continues with new ponds and infrastructure. It also announced FID approval for the Naraha Lithium Hydroxide project.  

ORE’s corporate cash balance was reported at US$265.7 Mn on March 31, 2019, and its group’s net cash was reported at US$192.9 Mn.

In another announcement, the company announced Advantage Lithium Corp as operator of the Cauchari Joint Venture has filed an independent NI 43-101 Technical Report on the Cauchari JV brine deposit located in Jujuy Province, Argentina. ORE has 33.5% interest in Advantage Lithium’s issued capital and 25% directly in the JV.

In its H1FY19 result, ORE reported a profit of US$24 Mn including a tax benefit of US$15.2 Mn and a foreign exchange charge of US$7.9 Mn.


EV Investment expectation by Govt. & Auto players (Source: Company Reports)

What To Expect: As per the company’s guidance, full year production (FY19) at Olaroz Lithium Facility, will be approximately in-line to FY18. At Borax Argentina, production is expected to be between the range of 35,000 - 40,000 tonnes for FY19. Its CapEx is expected to be around US$1-2 Mn for FY19. The company’s corporate costs is expected to be around ~US$7-8 Mn for FY19.

Stock Recommendation: Orocobre’s share generated positive YTD return of 3.47%. Its net margin for H1FY19 stands at 259% better than the industry median of 13.7%, which implies extremely good bottom-line performance than its peer group. Its current ratio stands for H1FY19 stands at 49.97x, better than the industry median of 1.87x, which implies company’s better position to address its short-term obligations.

On the valuation front, its P/B multiple for TTM stands at 1.15x lower than the peer median of 2.32x, indicating undervalued position at the current juncture. Hence, considering the aforesaid facts and current trading level, we recommend a “Buy” rating on the stock at the current market price of $3.460 per share (up 5.488% on May 2, 2019).
 

Pilbara Minerals Limited

Extension To Pilgangoora Project Mine-Life to 23 Year: Pilbara Minerals Limited (ASX: PLS) is engaged into exploration and development of mineral resources primarily at Pilgangoora mine. The company recently published a corporate presentation where it highlighted about its Pilgangoora Lithium-Tantalum Project. It has established transport and port infrastructure. Its Stage 1 (2Mtpa) comprised the production of 330,000tpa spodumene and 321,000Ibspaof tantalite concentrate. Its Stage 2 (5Mtpa) comprises 800-850,000tpa of around 6% spodumene concentrate, and 800,000lbspaof +5% tantalite concentrate.The definitive feasibility study (DFS) capital is estimated at A$231 Mn.


H1FY19 P&L Statement (Source: Company Reports)

What To Expect:Scoping Study for Stage 3 project expansion delivers positive results:

• post-tax NPV of A$3.73 Bn
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• LOM project revenue of A$16.6B (real excluding tantalite)
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• LOM Project EBITDA of A$10.3B (pre-tax, real)
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• Substantial increase in the processing capacity to 7.5Mtpa to deliver average annual production of approximately 1.2Mtpa of SC6.0 spodumene concentrate and approximately 1.1Mlbspa of 30% tantalite concentrate over a 15-year mine life (based on existing Reserves).
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• Competitive LOM operating costs of approximately US$291/tonne CIF (real, net of tantalite credits)
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Stock Recommendation: Pilbara’s share generated a negative return of 16.55% on the YTD basis. Its gross margin for H1FY19 stands at 41.7% better than the industry median of 41.6%, which implies the company is in a better position to address its operating expenses than its peer group. Its current ratio for H1FY19 stands at 1.99x better than the industry median of 1.87x, which implies the company’s better ability to address it short term obligations than its peer group. Based on the foregoing, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.660 per share (up 9.091% on May 2, 2019).


Comparative Price Chart (Source: Thomson Reuters)    

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