Lithium Australia NL 

Funding Received from The Lind Partners: Lithium Australia NL (ASX: LIT) is involved in supplying energy metals to the battery industry. The company recently received $3 million (net of costs) under its $6.3 million funding agreement with New York-based institutional fund manager, The Lind Global Macro Fund, LP, an entity managed by The Lind Partners. Lithium Australia, as well as its 100% owned subsidiary VSPC Ltd, recently received R&D rebate $1,229,442 and $876,095, respectively from the Australian Tax Office. Collectively these funds will be used to grow the Soluna Australia battery business; commercialising VSPC Ltd cathode business; progress the Envirostream Australia battery recycling business and to generate working capital. It is expected that the funding agreement with Lind Partners will allow the company to further improve its balance sheet and grow its business in ways that are environmentally responsible and sustainable.

Raw materials update: The company recently provided a raw materials update, wherein, it advised that it has been rationalising its holdings of raw materials in several regions including, the Northern Territory, Queensland, South Australia, Western Australia, Germany as well as Mexico. At Ravensthorpe, a town in western Australia, LIT is continuing with rehabilitation.

First Shipment from New Envirostream Australia Plant:On 23 December 2019, a subsidiary of LIT, Envirostream Australia Pty Ltd, announced that the first shipment of mixed metal dust (MMD) has left its upgraded battery recycling plant in Campbellfield, Victoria, representing a significant milestone in terms of revenue generation.

Rising Battery Consumption:Currently, lithium-ion batteries demand is rising by around 18% per annum. Major reason behind this is the growing popularity of electric vehicles. Currently, only 9% of lithium-ion batteries are recycled globally, and in Australia, the recycling rate is less than 3%.


Demand Scenario (Source: Company Reports)

Stock Recommendation: Notably, in the last three months, the stock witnessed a significant rise of 33.33%. The stock is available at a price to book multiple of 1.3x on trailing twelve months (TTM) basis as compared to the industry median of 1.5x. Considering the company’s recently received funding, rising battery consumption scenario, recent stock performance and valuation, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.062, up 3.333% as on 30 December 2019. 

Galaxy Resources Limited

Update on Alita Senior Secured Debt Facility:Galaxy Resources Limited (ASX: GXY) is an international lithium company with lithium production facilities in Australia, Canada as well as in Argentina. Galaxy Resources recently announced thatAlita Resources Limited outstanding senior secured loan facility of USD 32.5 million acquired by the company in August 2019 was repaid in full on 29 November 2019. The company will use these funds to repay corporate debt facility. Following this, the company will have zero debt in its balance sheet.

Corporate strategy for 2020: In the second and third quarter of 2020, the company is targeting a Final Investment Decision (FID) on Sal de Vida stage one. It has already concluded its process test work and the evaluation of alternative technologies for the Sal de Vida project and has selected an in-house developed, simplified flowsheet, which will support the development phase of the project. In 2020, at Mt Cattlin, the company is planning to implement a lower activity mine plan to reduce volumes and costs to maintain positive cash margins and preserving resource life. The company is of the view that its production and existing inventory will be sufficient to satisfy contracted commitments and additional product demand in 2020. At James Bay, the company will perform a comprehensive value engineering exercise, a detailed geotechnical program.

September Quarter Highlights:During the September quarter, the free-on-board (FOB) unit cash cost of lithium concentrate produced was US$387/ dry metric tonnes (dmt). The company reported Mt Cattlin production volume of 50,014dmt of lithium concentrate and Total shipment volume of 58,278 dmt of lithium concentrate. At the end of the September quarter, the company had cash of USD 169 million and a debt of USD 32 million. In December quarter, the company expects its lithium concentrate production to be between 35,000 – 45,000 dmt and expects total shipment volumes in the range of 30,000 – 40,000 dmt. 


Production & Operations Summary (Source: Company Reports)

Change in Substantial Holding of Lepidico Ltd:On 24 December 2019, Galaxy Resources Limited announced that it has reduced its holding in Lepidico Ltd from 9.35% to 8.095%. It now holds 375,111,112 ordinary shares of Lepidico.

Valuation Methodology:Enterprise Value to Sales Multiple Approach

Enterprise Value to Sales based Valuation (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, *1 USD = 1.43 AUD

Stock Recommendation:In the last six months, GXY’s stock declined by 28.97% and is currently trading near to its 52-week low of $0.815. Considering the recent funding received, GXY plans for 2020 and current trading levels, we have valued the stock using EV/Sales Multiple approach and arrived at a lower double-digit upside in % terms. Hence, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.945, up 5.587% as on 30 December 2019. 

Pilbara Minerals Limited

Proposed Joint venture with POSCO: Pilbara Minerals Limited (ASX: PLS) is an Australian lithium-tantalum producer focussed on the development of its 100%-owned Pilgangoora Lithium-Tantalum Project. The company is currently advancing its proposed joint venture and the pilot studies with POSCO to build and operate a downstream chemical conversion facility in South Korea, which will help it to participate in the rapidly developing South Korean lithium ion battery market. It is expected that this Joint venture will support the company’s long-standing relationship with POSCO with anticipation of Synergy maximisation through development within a larger battery raw materials industrial park. Final Investment Decisions of both Boards are expected in early 2020.

Production Update:In an update provided on 3 December 2019, the company informed that Campaign mining and processing programs are currently underway. Following recent plant modifications, the company witnessed material improvement in product recovery performance. The free-iron removal, grind optimisation and plant stabilisation works have delivered the expected product recovery improvements, with further optimisation and improvement expected after more plant operating time. In response to customer demand, the company’s production has moderated from late June 2019. The current production is only intended to meet expected demand.


Quarterly Spodumene Concentrate Update (Source: Company Reports)

Outlook:The company has a positive medium and long-term outlook for its high-quality spodumene concentrate product. This is underpinned by the recent developments within the broader lithium sector, including the US$820 million acquisition by US battery metals giant Albermale to acquire 60% of the Wodgina spodumene project, and earlier in the year Wesfarmers’ investment in Kidman Resources’ lithium project.  Backed by a strong network of global customers and with confidence in the future demand for its high-quality product, the company is considering the longer-term growth pathway for the Pilgangoora Project.

Valuation Methodology:Price to Book Value based Approach
 
Price to Book Value Based Valuation (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock is currently trading near to its 52-week low of $0.250. We have valued the stock using one relative valuation approach, i.e., price to book value (P/BV) based approach and arrived at a target price of lower double-digit (in % terms). Considering the company’s recent developments, its proposed JV with POSCO, positive outlook and current trading levels, we have valued the company using Price to Book Value based relative valuation method and arrived at a lower double-digit upside in percentage terms. Hence, we give a “Speculative buy” rating on the stock at the current market price of $0.290, up 9.434% as on 30 December 2019. 

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