Stocks’ Details

Orocobre Limited

FY19 Cash Balance Reported at US$279.8 million: Orocobre Limited (ASX: ORE) is involved in the exploration, development and production of lithium at the company’s flagship Olaroz Lithium Facility and the operation of Borax. On August 23, 2019, the company released its FY19 annual report for the period ended on June 30, 2019, wherein it highlighted that statutory Group net profit was reported at US$54.6 million, as compared to US$1.92 million in the previous year.Underlying EBITDAIX (Earnings before interest, tax, depreciation and amortisation, impairment and foreign currency gains/losses)for the period was reported at US$54.1 million,as compared to US$86.7 million in the previous period. During the period, total production of lithium carbonate stood at 12,605 tonnes.

At its Olaroz Lithium Facility, revenue on sales of 12,080 tonnes of lithium carbonate was reported at US$124.7 million, during the period.EBITDAIX after deducting export tax of US$7.5 million, was reported at US$60.9 million. The average price received for the period was reported at US$10,322/tonne FOB (Free on Board), down from US$12,578/tonne FOB in the previous corresponding period. The gross operating cash margins were reported at 58%, with lithium production costs of US$4,302/tonne, up from US$4,194/tonne in FY18, making Olaroz one of the lowest cost producers of lithium chemicals in the world. The gross cash margin for the period was reported at US$6,020/tonne. On June 30, 2019, the company held a cash balance of US$279.8 million.

In another latest update, the company announced that finance facility for Olaroz Lithium Facility Stage 2 Expansion has been finalised. The facility includes the principal amount of US$180 million, with tenor 9.5 years to maturity on 10 March 2029 at a rate less than 4% per annum. The principal repayments will be made biannually, commencing from September 10, 2022.


FY19 Income Statement (Source: Company Reports)  

What to expect: The company expects that FY20 production at its Olaroz Lithium facility, will be at least 5% higher than FY19. Further to the soft lithium carbonate pricing experience in the June half, the company expects the average sales price for the September 2019 quarter to be around US$7,250 per tonne (FOB). The production at Borax Argentina has been forecasted at 45,000 - 50,000 tonnes for FY20.

The cash corporate costs have been estimated at US$8.5 - 9.5 million, which will include costs related to the Stage 2 expansion and Naraha Lithium Hydroxide Plant.

Stock Recommendation: ORE’s share generated a negative YTD return of 25.87%. The company expects to increase its production in FY20, which will help it to improve its top-line performance. Moreover, its gross margin for FY19 stood at 45.2%, better than the result in FY18 at 25.9%. Its net margin for FY19 stood at 67.3%, better than the industry median of 14.8%, indicating that ORE was able to optimize its operations to reduce its overheads, which was reflected in the bottom-line performance. Its current ratio for FY19 stood at 3.27x, better than the industry median of 1.70x, implying a better liquidity position to address its short-term obligations. Currently, the stock is priced close to its 52 weeks low level of $2.30 with reasonable PE multiple of 7.890x, proffering a decent opportunity for accumulation. Hence, considering the aforesaid facts and current trading levels, we recommend a “Buy” rating on the stock at the current market price of $2.350, up 0.427% on August 23, 2019.
 

Galaxy Resources Limited

Debt-Free Balance Sheet as on 30 June 2019: Galaxy Resources Limited (ASX: GXY) is involved in the production of lithium concentrate and exploration for minerals in Australia, Canada, and Argentina. The company recently announced the new issuance of 150,000 Unlisted Performance Rightsunder the Company’s Incentive Award Plan, of which 50,000 will vest on each of 30 June 2020, 30 June 2021 and 30 June 2022, subject to ongoing employment at the time of vesting. Unlisted Performance Rights expire 5 years after vesting if not exercised prior.

In another update, GXY informed the market that as part of its preparation of the financial statements for the half-year ended on June 30, 2019, it has been undertaking a review of its inventory on hand and associated costs at Mt Cattlin and deferred tax assets arising from capitalised tax losses. It anticipates the impairment to be in the range of US$150 million to US$185 million. On June 30, 2019, the company held cash of around US$176.3 Mn and marketable securities of around US$27.2 Mn, with no debt on balance sheet.


GXY’s Q2FY19 Production & Sales Metrics (Source: Company Reports)

What to expect: As per the release, lithium concentrate production volume for Q3FY19 has been estimated at 45,000 – 55,000 dmt, with full-year guidance estimates at 180,000 – 210,000 dmt. Target shipment volumes and sales for Q3FY19 has been estimated at 60,000 – 70,000 dmt.

Stock Recommendation: Galaxy Resources Limited’ share generated a negative YTD return of 44.98%. Despite slowing growth in China, various other emerging and developed markets such as India and European Union, are implementing structural changes to boost the electrification of their infrastructure and transportation, providing a boost to Lithium-Ion batteries in the coming times. This is expected to help the company in delivering a sustainable return to its shareholders. Moreover, its EBITDA margin and net margin for FY18 stood at 35.3% and 97.6%, better than the industry median of 30.2% and 14.8%, respectively, which implies a decent fundamental for the company. Its ROE for FY18 stood at 30.1%, better than the industry median of 12.3%. Its current ratio for FY18 stood at 2.96x, better than the industry median of 1.70x. Currently, the stock is priced close to its 52 weeks low level of $1.085 with reasonable PE multiple of 2.310x, exhibiting a decent opportunity for accumulation. Hence, considering the aforesaid facts and current trading levels, we recommend a “Hold” rating on the stock at the current market price of $1.205 (down 0.413% on August 23, 2019), ahead of its half-year results which are to be released on 29 August 2019 (post -market close).
 

Pilbara Minerals Limited

PLS’s share plunges over ~7% on FY19 Earnings Decline: Pilbara Minerals Limited (ASX: PLS) is involved in the exploration, development and operation of the Pilgangoora Lithium-Tantalum project. The company recently published its FY19 annual report for the period ended June 30, 2019, wherein it highlighted the consolidated net loss for the year at $28.9 million as compared to a loss of $19.4 million in the previous year. The loss included non-cash items such as share based payment expense of $2.2 million, depreciation and amortisation cost of $4.3 million and unrealised foreign exchange loss of $6.5 million largely related to the restatement of the USD denominated secured bond to AUD. The revenue from contracts with customers for FY19 was reported at $42.79 Mn, a ~320% increase over the previous year. On 30 June 2019, the company held a cash balance of $63.6 million. The Board of Directors recommended no dividend for the period.

In another update, the company announced about the issue of new 550,798 ordinary fully paid shares, which will be issued on vesting of 550,798 unlisted performance rights issued under the company’s FY18 executive remuneration framework pursuant to the Company’s Employee Award Plan. 

FY19 Income Statement (Source: Company Reports)

What to expect: The company reached an agreement with Great Wall Motor Company to provide a US$25 million prepayment facility in exchange for an additional 75,000tpa of offtake supply of spodumene concentrate from Stage 2 production.Great Wall Motor Company’s total Stage 2 offtake agreement is 150,000tpa.

With the completion of Stage 3 scoping study in the March 2019 Quarter, the Company commenced a partnering process to consider Stage 3 offtake and the potential sale of a minority project level interest in the Pilgangoora Project in the range of 20% to 49%.

Stock Recommendation: Pilbara Minerals Limited’ share generated a negative YTD return of 46.90% andis currently priced close to its 52 weeks low level of $0.375. Company’s three-phased growth strategy included expansion to 7.5Mtpa processing capacity (1.2Mtpa spodumene concentrate), development of a lithium hydroxide conversion facility and exploration target to drive mine life extension. Moreover, development in Electric Vehicle segment in various countries is expected to drive the lithium demand in future, leading to the requirement of increase in production in the coming times. Additionally, its current ratio for H1FY19 stood at 1.99x, better than the industry median of 1.88x, which implies the company is in a better position to address 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 $0.385 (down 7.229% on August 23, 2019, owing to the release of FY19 results).


Comparative Price Chart (Source: Thomson Reuters)  

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