Galaxy Resources Limited

Quarterly Activities Report for September 2019:Galaxy Resources Limited (ASX: GXY) is involved in the production of lithium concentrate; and exploration of minerals in Canada, Australia and Argentina. The market capitalisation of the company stood at ~$341.92 million as at 28 October 2019.

During the quarter ended 30 September 2019, total mined volume stood at 1,186,040 bcm, representing an increase of 1% quarter-on-quarter. Improved utilisation during the quarter was supported by more efficient mining practices and larger mining benches & less restricted operations after completion of the Ravensthorpe creek diversion. Despite the consistency in total material mined, ore mined for Q3 2019 increased 23% qoq following improved ore recovery. Q3 2019 average grade of ore mined was slightly higher than the budget at 1.19% Li₂O.
 

Production and Sales Statistics (Source: Company Reports)

What to Expect:As per the release, the company targeted lithium concentrate production volume for Q4FY19 has been estimated at 35,000 – 45,000 dmt, with full year guidance of 183,000 – 193,000 dmt. Target shipping volume for Q4FY19 is expected to be in the range of 30,000 – 40,000 dmt.

Stock Recommendation:GXY’s shares generated a negative YTD return of 61.87%. Its current ratio for H1FY19 stood at 4.97x, better than the industry median of 1.82x, which implies that the company has enough cash to address its short-term obligations. Its debt to equity for H1FY19 stood at 0.07x, lower than the industry median of 0.09x. Currently, the stock is trading close to lower band of its 52-week trading range of $0.815-$2.850. Hence, considering the aforesaid facts and current trading levels, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.890, up 6.587% on October 28, 2019.
 

Syrah Resources Limited

Update on Operational Review and Restructure:Syrah Resources Limited (ASX: SYR) is primarily engaged in the production ramp-up of the Balama Graphite Operation in Mozambique; sales of natural flake graphite and production of battery anode material and industrial products. The market capitalisation of the company stood at ~$163.28 million. Recently, the company announced on the sale of a convertible note to AustralianSuper Pty Ltd for the face value of $55.8 million. As per another recent announcement, Bank of America Corporation became a substantial shareholder of the company with 5.32% of the voting power.


Key Terms of the Convertible Note (Source: Company Reports)

The company has conducted a structural review of the business due to sudden and material drop in flake graphite prices during Q3 2019. The company will significantly reduce production in Q4 2019 and 2020, which will allow the natural graphite market to rebalance, with focus on product quality differentiation. Company has currently planned a production of 120kt-150kt in 2020. the company reduced production for Q3FY19 to 45K tonnes
What to expect:As per the release, due to sudden and material decrease in spot natural flake graphite prices in China, production in Q42019 is expected to be reduced 5,000 tonnes per month, to maintain operations. Managing production volumes in the current market conditions is aimed at preserving the long-term value of the business. Cash as at 31 December 2019 is expected to be approximately US$78 million. Moreover, the company is focused on cost reduction initiatives to be implemented in Q42019, benefits from which will commence from January 2020.

Stock Recommendation:SYR’s share generated negative YTD return of 73.48%. The stock is trading close to its 52 weeks low level of $0.375. Its current ratio for H1FY19 stood at 4.23x, better than the industry median of 1.82x, which implies that the company has enough cash position to address its short-term obligations. Its debt to equity ratio for H1FY19 stood at 0.03x, lower than the industry median of 0.09x. Considering the aforesaid facts, a positive outlook and current trading level, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.385 per share, down 2.532% on 28 October 2019.
 

Pilbara Minerals Limited

Pilbara Minerals Limited (ASX: PLS) is engaged in the exploration, development and operation of the Pilgangoora Lithium-Tantalum Project.

Quarterly Highlights:During the quarter ended 30 September 2019, the company produced 21,322 dry metric tonnes of spodumene concentrate at 6.06% Li₂O, as compared to 63,782 dmt in the June quarter. Subsequent to the quarter end, the company also signed its first sales contract for secondary tantalite concentrate for 36,500 lbs with expected delivery in October 2019.
 

Production & Shipment (Source: Company Reports)
 
Outlook: Two small mining campaigns to support the required plant production are expected during the December quarter. Subject to market conditions and demand assessment, mining activity on a continuous shift roster is likely to restart in Q3FY20.Based on indicative customer demand, inventory levels and current capacity to take further product, spodumene concentrate sales guidance for the December quarter has been provided in the range of 35,000 – 70,000 dmt.
 
Stock Recommendation: The stock of the company generated a negative YTD return of 57.25% and is currently trading close to the lower band of its 52-weeks trading range of $0.270-$0.885. In FY19, the company had a current ratio of 2.13x, which is higher than the industry median of 1.75x, implying that the company has enough cash position to address its short-term obligations. The company is targeting development of Pilgangoora Stage 2 for expansion of up to 5 Mtpa to produce 6.0% spodumene concentrate of approximately 800,000 to 850,000dmt. Commissioning of the Stage 2 Pilgangoora Project is being targeted during December 2020 half-year or at a date ensuring alignment of additional production with customer requirements.Considering the above factors, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.310 per share, up 10.714% on 28 October 2019, owing to the release of quarterly activities report for September 2019.

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