Stocks’ Details 

Orocobre Limited 

FY20 Results Highlights: Orocobre Limited (ASX: ORE) is a leading supplier of high-grade, high-value lithium chemicals. The company recently released its FY20 results, wherein it reported a net loss after tax of US$67.1 million, compared to a profit of US$65.4 million in FY19, mainly due to the lower average sales prices compared to FY19 and lower sales volumes. During the year, the company produced 11,922 tonnes of lithium carbonate, down by 5% on pcp due to COVID-19 shutdowns and restrictions. The company’s gross operating cash margins stood at 21% in FY20 equating to US$1,148 per tonne, despite lower prices. As at 30 June 2020, the company had cash of US$171.8 million.

FY20 Results (Source: Company Reports)

MOU Signed with PPES: On 28 August 2020, the company announced that it entered into a Memorandum of Understanding (MOU) with Prime Planet Energy & Solutions, Inc (PPES), a joint venture between Toyota (51%) and Panasonic (49%) for the long-term supply of product culminating in 30kt of lithium carbonate equivalent (LCE) in CY25.

Raising Capital via Placement and SPP: In another update on 28 August 2020, the company announced that it is raising around A$126 million from the Placement and will issue around 50 million new fully paid ordinary share. The proceeds from the placement will be used to fund Olaroz Stage 2 and deliver the Olaroz Stage 1 ramp up. Further, the proceeds will be used as capital for future growth initiatives. After conducting the Placement, the company will conduct an offer of New Shares under a no underwritten share purchase plan (SPP). Under the SPP, each eligible shareholder will be allowed to apply for up to A$30,000 of new fully paid ordinary shares free of any brokerage, commission, and transaction costs. The company is planning to raise up to $30 million under the SPP.

Equity Raising Timetable (Source: Company Reports)

Key Risks: The company is exposed to the risks related to COVID-19 pandemic as it could impact the company’s costs, production volumes and expansion activities. The company is also exposed to the risks related to the series of short-term sudden events and longer-term weather patterns, which are having an adverse impact on production in terms of cost and quality of the product.

Stock Update: Over the last three months, the stock of ORE has provided a return of 15.54%. On 28 August 2020, the securities of ORE were placed in a trading halt at the request of ORE, pending it releasing an announcement related to a proposed capital raising, including an institutional placement and share purchase plan. The securities are expected to remain in trading halt until the earlier of the commencement of normal trading on 1 September 2020 or when the announcement is released to the market. The stock last traded at $2.9.

Argosy Minerals Limited 

June 2020 Quarter Update: Argosy Minerals Limited (ASX: AGY) is a lithium mining company focused on its flagship Rincon Lithium Project (77.5% interest), located in the world-class “Lithium Triangle” in Salta Province, Argentina. During the June 2020 quarter, the company made significant progress towards the commercial scale development of Rincon Lithium Project. Over the quarter, the company delivered the maiden cargo comprising 5 tonnes of high-quality >99.5% lithium carbonate product to Mitsubishi Corporation RtM Japan Ltd. Further, the company made progress with LCE product end-users for potential commercial scale product offtake. The net cash used in operating activities stood at $462k in the June quarter. As at 30 June 2020, the company was in a decent financial position with cash reserves of ~$4.4 million.

Cash outflow From Operating Activities (Source: Company Reports)

September Quarter Objectives: In the September quarter, the company intends to continue its negotiations with potential capital providers in order to implement a funding solution and commence construction works for ~2,000tpa Li2CO3 processing plant and associated development. Further, the company wants to execute an off-take agreement for 2,000tpa battery quality lithium carbonate products with a potential strategic partner to facilitate the capex funding solution. 

Lithium Market Update: The fundamentals of the Lithium market have remained robust, despite the impact of COVID-19. It is expected that the increasing demand by end-users for batteries utilised within the electric/hybrid vehicle market and energy storage will drive lithium prices to go higher. In addition, the current build programme of battery mega-factories supports strong long-term growth in the lithium sector. The company believes that it is well-positioned to leverage off its fast-track development strategy to capitalise when higher market prices are established.

Key Risks: The company is exposed to the risk and uncertainties caused by the COVID-19 pandemic as it could create the supply chain issues and can impact the sale of electric vehicles. Further, the company’s activities expose it to a variety of financial risks, including the market risk, credit risk and liquidity risk.

Stock Recommendation: The stock of AGY has corrected by 26.09% in the past six months and is inclined towards its 52 weeks low price of $0.026, offering a decent opportunity for accumulation. On the technical analysis front, the stock has a support level of ~A$0.029 and a resistance level of ~A$0.085. For FY19, the company’s debt to equity multiple stood at 0.01x, lower than the industry median of 0.21x. On a TTM basis, the company has Price to Book multiple of 2.1x, lower than the industry average (metal and mining) of 6.1x, demonstrating that the stock might be undervalued at current levels. Considering the company’s operational progress during the June quarter, its September quarter objectives, decent financial position, robust fundamentals of lithium market and current trading levels, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.051 on 28 August 2020.

Lithium Australia NL 

Envirostream to Start Recycling EV Batteries: Lithium Australia NL (ASX: LIT) is a diversified and vertically integrated lithium mining and battery technology company with a market capitalization of $35.8 million. The company offers recycling solutions for the battery industry, as well as a safe, efficient approach to renewable energy storage. On 26 August 2020, the company announced that its 90% owned subsidiary, Envirostream Australia Pty Ltd (Envirostream), expects to begin regular recycling EOL EV batteries in the coming weeks. Envirostream recently signed recycling agreements with two additional batteries suppliers, under which, Envirostream will be responsible for the transport of battery packs to its recycling facility, protection of intellectual property, and the discharge of any residual battery energy. Following the release of this announcement, the securities of LIT were reinstated to official quotation.

Raising Capital Via Placement and SPP: On 12 August 2020, the company announced it has raised $4 million via heavily oversubscribed placement to institutions and sophisticated and professional investors. The proceeds will be used to fund the growth of Envirostream Australia Pty Ltd and Soluna Australia Pty Ltd. The company is targeting an additional equity issue of ~$2 million by way of the Share Purchase Plan (SPP). Under the SPP, each eligible shareholder will be allowed to subscribe for up to $30,000 worth of shares in the company without any brokerage and fees.

SPP Timetable (Source: Company Reports)

Key Risks: The company’s operations are dependent on factors associated with foreign operations and related regulatory risks; environmental regulation and liability; and currency risks.

What to Expect: The company is currently focusing on near-term revenue from Soluna Australia Pty Ltd and Envirostream as these units are closest to generating income. In the coming six months, the company expects significant research and development tax refunds. Along with its subsidiary - Envirostream, the company intends to facilitate a circular battery economy by establishing an ethical and sustainable supply of battery materials while concomitantly reducing negative impacts on the environment from mining and end-of-life (EOL) battery disposal.

Stock Recommendation: On a YTD basis, the stock of LIT has corrected by 17.46% and is trading lower than the average of its 52 weeks price level band, offering a decent opportunity for accumulation. On a technical analysis front, the stock has an immediate support level of ~A$0.046 and a resistance level of ~A$0.071. On a TTM basis, the stock of LIT has a price to book multiple of 1.3x, lower than the industry median (metal and mining) of 2.3x, demonstrating that the stock might be undervalued. Considering the recently signed recycling agreements by Envirostream Australia Pty Ltd, recent equity raising activities, expected significant research and development tax refunds, and current trading levels, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.052 on 28^th August 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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