Stocks’ Details

Syrah Resources Limited

Syrah Announces First Production of Purified Spherical Graphite: Syrah Resources Limited (ASX: SYR) is an Australia based industrial minerals and technology company. The company has a market capitalisation of $179.82 million as on 8^th November 2019. Syrah has announced the first production of purified spherical graphite from its Battery Anode Material (BAM) plant, which is in USA, by using Syrah’s natural graphite from Balama. This represents an achievement in the execution of the company’s strategy of developing a vertically integrated natural graphite anode material production capability.

This is an important step forward for Syrah to develop the first large-scale fully integrated natural graphite anode material production facility outside China. The dispatch of BAM precursor products (impurified and purified spherical graphite) from the Vidalia plant for customer testing and qualification activity is a critical driver of meaningful industry engagement.

Q4 Outlook and Plan for 2020: Syrah has significantly reduced Q4 production to 5kt per month. The company has planned to produce 120kt to 150kt in 2020, subject to market conditions. Current market conditions allow the company for a restructure of the cost base, given the immediate need to enable and de-risk ongoing production ramp up is diminished and on-going lower production volumes allow for structural changes to operating philosophy. Due to these structural changes, Balama’s C1 operating cash cost reductions of ~20% to 25% savings have been identified when compared to 9M YTD 2019 cost base.


Indicative C1 costs @15k production per month (Source: Company Reports)

Stock Recommendation: The stock has generated negative returns of 44.94% and 58.49% in the last three months and six months, respectively, and it is also trading near the lower end of its 52-weeks trading range of $0.375 - $2.048. In 1H 2019, Syrah Resources Limited had a lower debt to equity ratio of 0.03x as compared to the industry median of 0.09x.The stock has a Price to Book value multiple of 0.3x on TTM basis, which is lower in comparison to the industry median of 1.6x. Therefore, considering the decent outlook for FY20, low debt to equity and price to book multiples, and current trading levels, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.460 per share, up 5.747% on 8^th November 2019.
 

Independence Group NL

Takeover Offer for Panoramic Resources Limited: Independence Group NL (ASX: IGO) is a nickel, gold and copper-zinc-silver mining, development and exploration company. The company has a market capitalisation of $3.86 billion as on 8^th November 2019.

Independence Group NL has announced its intention to make an off-market takeover offer to acquire all the ordinary shares of Panoramic Resources Limited. The company is offering 1 IGO share for every 13 Panoramic shares held.The implied offer price is 47.6 cents per Panoramic share which implies an equity value of approximately $312M.

There are several compelling reasons for Panoramic shareholders to accept the offer. By accepting IGO’s Offer, Panoramic shareholders will receive a very attractive premium of 42% to the last closing price of Panoramic Shares before the date of this bidder's statement and 51% to the one-month Volume Weighted Average Price (VWAP). The Panoramic shareholders will de-risk their investment in Panoramic within a stronger, larger, more diversified and liquid vehicle.
IGO has an extensive capability and expertise in exploration for nickel sulphides, and an underground mining and processing of nickel sulphides, which places it in an ideal position to unlock value from both the Panoramic’s exploration portfolio and Savannah operation and to deliver this value to Panoramic’s shareholders through this offer and future dividends.


Details of IGO Offer (Source: Company Reports)

Guidance for FY20: The company has issued FY20 production guidance of 27,000 to 30,000 tonnes, for nickel in concentrate and 11,000 to 12,500 tonnes for copper in concentrate. The company is expected to produce 850 to 950 tonnes of cobalt in FY20. Cash cost is expected to be between $2/lb Ni and $2.5/lb Ni. Total capex guidance for FY20 stands at $30 million - $34 million.

Stock Recommendation: IGO has shown a decent CAGR growth of 12.18% over the period of FY15 - FY19 in its total revenues. In FY19, the company’s EBITDA margin stood at 44.3% in FY19, which is above the industry median of 29.1%. Current ratio stood at 4.44x, which is above the industry median of 1.75x.  Therefore, considering the decent CAGR growth in revenues and better margins as compared to the industry, we are optimistic about the further growth of the business, moving forward. The new acquisition of Panoramic will help the company to unlock potential in the nickel market. Thus, we give a “Hold” recommendation on the stock at the current market price of $6.580 per share, up 0.612% on 8^th November 2019.

Iluka Resources Limited

Iluka Starts A Formal Review of its Two Primary Businesses:Iluka Resources Limited (ASX: ILU) is engaged in the business of exploration, project development, mining operations, processing and marketing of minerals sands. The company also has a royalty over iron ore sales revenue from BHP Billiton’s Mining Area C province in Western Australia. The company has a market capitalisation of $3.79 billion as on 8^th November 2019.

Iluka Resources Limited has started a formal review of the capital and corporate structure of its two main businesses, that are minerals sands operations and the Mining Area C royalty (MAC). This will include a review of ILU’s corporate and capital structure, which includes dividend policies and a structural separation of MAC by way of demerger. The company expects to notify the stakeholders about the results of the review along with the full-year results, in February 2020.

Quarterly Activity Report for the period ended 30 September 2019: The zircon/rutile/synthetic rutile production stood at 198kt, up by 17% from the previous quarter.The company produced 93.5kt, 47.5kt and 57kt of zircon, rutile and synthetic rutile, respectively. On a YTD basis (as on 30 September 2019), the total mineral sands production stood at 748.2kt, down 14.4% against the total mineral sands production of 874.0kt in the previous corresponding period. The company has a net debt of $89 million as at 30^th September 2019, down from $142 million as at 30^th June 2019.


Total Sales and Production Summary (Source: Company Reports)

What to Expect: The company expects commissioning of construction activity for the Eneabba mineral sands recovery project (Phase 1) is expected in H1 2020, with first sales expected in Q3 2020. The execution budget for the project is less than $10 million.The company has also undertaken some work to evaluate the potential for the Atacama deposit at the Jacinth-Ambrosia mine site, with completion targeted in Q1 2020. In addition, a diamond drilling campaign of high-grade rutile-ilmenite targets is also scheduled to be completed in the quarter.

Stock Recommendation: As per the ASX, the stock is trading marginally above the average of its 52-week low and high of $6.740 - $11.190.In H1 2019, the company’s EBITDA margin stood at 47.9%, which is above the industry median of 34.0%. Hence, considering the first sales, which is expected in Q3 and trading levels, we give a “Hold” recommendation on the stock at the current market price of $9.070 per share, up 1.115% on 8^th November 2019.


Comparative Price Chart (Source: Thomson Reuters)

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