Stocks’ Details

Pilbara Minerals Limited

June 2020 Quarter Update: Pilbara Minerals Limited (ASX: PLS) is engaged in the exploration of lithium and tantalum. The market capitalisation of the company stood at ~$767.53 million as on 30^th July 2020. Recently, the company released its quarterly activities report for June 2020, wherein, it reported production of 34,484 dry metric tonnes (dmt) of spodumene concentrate. During the quarter, the company shipped 29,312 dmt of spodumene concentrate. Unit cash operating cost for the quarter moved towards the target of US$320-350/dmt CIF China on the back of strong product recoveries and increased plant run-time.

Quarterly spodumene concentrate shipments (dmt) (Source: Company Reports)

Refinancing of Debt Facility: The company also announced a refinancing of its existing debt facilities to support its long-term growth. PLS has received binding commitments for US$110 million senior secured debt facility from leading international bank BNP Paribas and the Clean Energy Finance Corporation. The company would use the proceeds to fund the early redemption of the existing US$100M Nordic Bond.

Future Focus: The company is focused on an expansion and diversification strategy to become one of the biggest and low-cost lithium producers, as well as a fully integrated lithium raw materials and chemicals supplier in the future.

Key Risks: The company is exposed to numerous financial risks, such as credit risk, liquidity risk, market risk and interest risk. To manage these financial risks, the company ensures enough net cash flows to meet all its financial commitments.

Valuation Methodology: Price to Sales Multiple Based Relative Valuation (Illustrative)

Price to Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: Current ratio of the company stood at 2.60x in 1HFY20 as compared to the industry median of 1.85x. This indicates that the company is well-placed to pay off its short-term obligations. The refinancing of existing debt facility is likely to deliver improved cash-flow outcomes, reduce funding costs, and places the company to capitalise on anticipated lithium raw materials demand growth. We have valued the stock using price to sales multiple based valuation method and arrived at a target price of higher single-digit (in percentage terms). For the purpose, we have taken peers such as Galaxy Resources Ltd (ASX: GXY), Orocobre Ltd (ASX: ORE), Mineral Resources Ltd (ASX: MIN), etc. Therefore, considering the decent liquidity position and refinancing of debt facilities, we give a “Hold” recommendation on the stock at the current market price of $0.370 per share, up by 7.246% on 30^th July 2020, owing to June quarter update.

Rex Minerals Limited

A Look at June 2020 Quarter: Rex Minerals Limited (ASX: RXM) is an exploration and development company. The market capitalisation of the company stood at ~$66.58 million as on 30^th July 2020. Recently, the company released its activities report for June 2020 quarter. The company stated that it operates Hillside Copper-Gold Project (Hillside) in South Australia and the Hog Ranch Gold Property (Hog Ranch) in Nevada USA. These two projects are in great neighborhoods, and both are in the right commodities at the right time. With respect to Hog Ranch Gold Property, the company is mobilising to start drilling in Q3 2020 with a focus on the shallow disseminated gold and the underlying high-grade gold targets. The company added that outlook and options for Hog Ranch have evolved and grown substantially. The company ended the June 2020 quarter with cash and cash equivalents of $2.9 million.

Cash and Cash Equivalents (Source: Company Reports)

Future Aspects: Recently, gold hit a new all-time high and copper has strengthened its place as the commodity of future demand. The company is likely to get benefit from the strengthening of these commodities prices.

Key Risks: The company’s business is sensitive to credit risk, which arises from the default of counterparty on their contractual obligations. In addition, RXM is also exposed to liquidity risk, which is influenced by the inability of the company to pay off its financial obligations.

Stock Recommendation: The stock of RXM has moved up by 194.52% and 330.00% within the last one and three months, respectively. As a result, the stock is trading towards its 52-week high levels of $0.260. On Trailing Twelve Months (TTM) basis, the stock of RXM is trading at a price to book value multiple of 3.1x as compared to the industry median (Metals & Mining) of 2.1x. Hence, considering the aforesaid facts and current trading levels along with the movement in the stock price in the past few months, we have a watch view on the stock at the current market price of $0.210 per share (down by 2.326% on 30th July 2020) and suggest investors to wait for better entry levels.

MetalsTech Limited

Drilling at Sturec Progressing Well: MetalsTech Limited (ASX: MTC) is involved in the exploration and development of advanced greenfield lithium and cobalt projects in Canada. The market capitalisation of the company stood at ~$23.86 million as on 30^th July 2020. Recently, the company notified the market that the maiden drilling program at Sturec Gold Mine is progressing well with the first hole at a depth of 100.5m. The drill hole is likely to imminently intersect the interpreted exploration target zone along with the plunge of historic drill hole STOR 3.11 at around 110m in the hole. During the March 2020 quarter, the company raised $650,000 through the issue of Redeemable notes to professional and sophisticated Chinese investors for ongoing exploration and development at Sturec Gold Mine. The following picture gives an idea of cash flows for the March 2020 quarter:

Cash Flows (Source: Company Reports)

Top Shareholders: On 30 July 2020, the company released the list of its top 40 shareholders. As per the list, JP Morgan Nominees Australia Pty Limited and Natres services Pty Ltd hold the maximum interest in the company at 26.48% and 14.75%, respectively.

Strategic Finance Agreement: On 29^th April 2020, the company notified the market that it has inked a binding strategic finance agreement with Mr Zhengrong Chen for the investment of $2.5 million through fixed price convertible notes. The company added that it is well-financed to attain its objectives at Sturec Gold Mine for FY20.

Key Risks: The business activities of the company are exposed to a variety of financial risks, such as market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk. The company manages the financial risks through internal risk reports which analyses exposures by degree and magnitude of risks.

Stock Recommendation: At the end of March 2020 quarter, the cash and cash equivalent of the company stood at $0.58 million. The stock of MTC has moved up by 108.33% and 657.88% in the last one month and six months, respectively. Also, the stock is inclined towards its 52-week high levels of $0.290. This could mean that most of the positives have been factored at the current trading levels. Hence, considering the aforesaid parameters and current trading levels, we put our wait and watch stance on the stock at the current market price of $0.255 per share, up by 2% on 30^th July 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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