Stocks’ Details
 

Pilbara Minerals Limited (ASX: PLS)

New Offtake Agreement Secured: Pilbara Minerals Limited (ASX: PLS) is a lithium and tantalum exploration company, involved in the development of its 100% owned, Pilgangoora Lithium-Tantalum Project. On 25 March 2020, the company announced that it has secured a new 5-year offtake agreement with Yibin Tianyi for 75,000tpa of high quality spodumene concentrate from the Pilgangoora Project. The company has already completed the first shipment of 20kt of spodumene concentrate. The second shipment is expected to happen in the late April/early May 2020. The strategic partnership with Yibin Tianyi demonstrates the quality and scale of the Pilgangoora Project, and the important role it will play in helping to meet future demand for lithium raw material supply. 

Continued Sales of Spodumene Concentrate: As per the update provided on 25 March 2020, Pilbara has not experienced any material impact to its Pilgangoora operations due to coronavirus (COVID-19) situation. Despite the global impact of COVID-19, the company experienced Continued sales of spodumene concentrate to China and South Korea during the March 2020 Quarter.


Operational Performance (Source: Company Reports)

What to Expect: Pilbara is expecting continued growth in customer demand from offtake customers over the coming years and is continuing to deploy a moderated production strategy at Pilgangoora to match production with customer demand to preserve working capital. 

Valuation Methodology: P/BV Multiple Based Relative Valuation

P/BV Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Pilbara Minerals has maintained a strong balance sheet inclusive of a significant cash balance following the successful $111.5 million capital raising late last year. PLS’s stock is trading close to its 52-weeks low price of $0.135, proving investors an opportunity for accumulation. We have valued the stock using P/BV based relative valuation method and arrived at a target price, which is offering an upside of lower double-digit (in percentage terms). Considering the company’s strong balance sheet, new 5-year offtake agreement with Yibin Tianyi, expected growth in customer demand and current trading levels, we are giving a “Speculative Buy” recommendation to the stock which is trading at $0.165, up 13.793% on 25 March 2020, owing the recently secured offtake agreement. 
 

Orocobre Limited

Precautionary Measures Placed to tackle Covid-19: Orocobre Limited (ASX: ORE) is mainly involved in the exploration and production of minerals along with a major focus on the development of potash and lithium resources in Argentina. The company recently noted that the government of Argentina has enacted the Decree of Necessity and Urgency (DNU) #297/20 on March 19, 2020, as a result of which, the Olaroz Lithium Facility (Olaroz) has moved operations to care and maintenance and plans are being developed to ensure that when quarantine restrictions are lifted production will recommence within a week. Moreover, the company has suspended all development operations related to the Stage 2 Expansion.

Positive Results from Olaroz Lithium Facility: In the first half of FY20, the company had reported positive results from the Olaroz Lithium Facility with revenue of USD 39.4 million and EBITDAIX of USD 6.1 million. Over the period, the company made material progress with the construction of the Stage 2 Expansion of the Olaroz Lithium Facility which is 25% complete and Naraha Lithium Hydroxide Plant which is 40% complete.


H1FY20 Results (Source: Company Reports)

Outlook: The company is currently in a strong financial position. As at 20 March 2020, the company had around USD 164 million of cash available for corporate purposes. In FY20, the company expects full year production from Olaroz Lithium Facility to be at least 5% higher than FY19. From Borax Argentina, the company expects the production to be in the range of 40,000 - 45,000 tonnes.

Valuation Methodology: P/BV Multiple Based Relative Valuation

P/BV Based Valuation (Source: Thomson Reuters) * 1 USD= ~1.66 AUD

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

Stock Recommendation: ORE’s stock is trading close to its 52-week low price of $1.835, offering a decent opportunity for accumulation. We have valued the stock using P/BV based relative valuation method and arrived at a target price, which is offering an upside of lower double-digit (in percentage terms). For the purpose, we have taken peers like Galaxy Resources Ltd (ASX: GXY), Pilbara Minerals Ltd (ASX: PLS) and Mineral Resources Ltd (ASX: MIN). Considering the company’s strong financial position, current trading levels and valuation, we give a “Hold” recommendation on the stock at the current market price of $2.210, up by 7.282% on 25 March 2020. 
 

Infinity Lithium Corporation Limited

Executed MoU with European Union Platform: Infinity Lithium Corporation Limited (ASX: INF) is an Australian listed minerals company focussed on serving the European lithium-ion battery supply chain and EV industry. The company recently became the first lithium project to secure European funding by entering into a non-binding Memorandum of Understanding (MoU) for a multi-staged investment and assistance package with European Union (EU) Innovation Initiative EIT InnoEnergy. Under the MoU, EIT InnoEnergy will initially invest €800,000 in Infinity at A$0.05 per share which will be allocated to the development of Phase one of an innovative two-phase pilot plant designed to produce battery lithium grade hydroxide and deliver it to selected European off takers for testing and validation.

Divestment of Potash Project: On 17 March 2020, the company announced that it has signed a binding letter of agreement for the sale of Equatorial Potash Pty Ltd to have clarity on Infinity’s focus on the development of the San José Lithium Project. In the December 2019 quarter the company spent $746k on operating activities. As at 31 December 2019, the company had cash of $662k. 


Cash Flows from Operating Activities (Source: Company’s Reports)

Stock Recommendation: INF’s stock is trading near to its 52-week low of $0.030. If compared to the previous corresponding period, the company’s EBITDA margin as well as net margin has improved in H1 FY19. The company has a Current ratio of 1.13x which is lower than the industry median of 1.7x. Considering, the company’s recently secure European funding, divestment of Equatorial Potash Pty Ltd, and current trading levels, we suggest investors to keep an eye on the stock and have a watch stance at the current market price of $0.039, up by 30% on 25 March 2020, owing to the recently secured European Funding. 

 
 
Comparative Price Chart (Source: Thomson Reuters)

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