Stocks’ Details
 

Orocobre Limited

Recommenced Limited Operations at Olaroz: Orocobre Limited (ASX: ORE) is engaged in the production and exploration of minerals. Market capitalisation of the company stood at $559.73 Mn as on 13^th May 2020. Recently, the company has recommenced limited operation on Olaroz Stage 2 Expansion following the approval from Argentine authorities, communities, unions and other stakeholders. During March 2020 quarter, ORE temporarily stopped production at the Olaroz Lithium Facility because of restrictions imposed by the Argentine government due to COVID-19. The cash cost of sales declined by 3% on a QoQ basis, despite lower plant availability. This temporary shutdown of plant also resulted in a fall of 11% in production to 2,732 tonnes.


Key Metrics (Source: Company Reports)

Withdrawal of Guidance: Due to current restrictions and high likelihood of continuing disruption of future demand in global markets, the company has suspended its full-year 2020 production guidance.

Stock Recommendation: As at 31 March 2020, the cash balance of the company stood at US$163 million, out of which, the company has set aside US$11.1 million and US$29.3 million as guarantees for the Naraha debt facility and Olaroz Expansion debt facility, respectively. Gross margin and EBITDA margin of the company stood at 33.6% and 2.5% in 1HFY20, reflecting YoY growth of 4.8% and 38.6%, respectively. Current ratio of the company stood at 2.60x in 1HFY20 against the industry median of 1.76x. This implies that the company is in a decent position to address its short-term obligations against the broader industry. The stock of ORE is trading at a price to book multiple of 0.6x as compared to the industry median (Chemicals) of 1.7x on TTM basis. Hence, in light of a decent liquidity position and improvement in key margins, we give a “Buy” recommendation on the stock at the current market price of $1.900 per share, down by 5.941% on 13^th May 2020.

Pilbara Minerals Limited

Maintained Strong Balance Sheet: Pilbara Minerals Limited (ASX: PLS) is a lithium and tantalum exploration company with a market capitalisation of $466.98 Mn as on 13^th May 2020. During March 2020 quarter, the company reported spodumene concentrate production and shipment of 20,251 dmt and 33,729 dmt, respectively. The company has signed a 75,000tpa offtake agreement with Yibin Tianyi for a 5-year term. The moderated production strategy and cost reductions have helped the company to maintain a strong balance sheet. This ensures the company is well-positioned to capitalise on the market turnaround.


Cash Flows (Source: Company Reports)

Focus for Future: During 2H FY20, the company would continue to operate under a moderated production strategy. The company is also focused on an expansion and diversification strategy to become one of the biggest and lowest cost lithium producers.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Based 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 1H FY20 against the industry median of 1.76x. This implies that PLS is well-placed to pay its short-term obligations. The stock of Pilbara Minerals is inclined towards its 52-week low levels of $0.135, proffering decent opportunities to accumulate.We have valued the stock using EV to Sales multiple based illustrative relative valuation method, and for the purpose, we have taken peers such as Orocobre Ltd  (ASX: ORE),  Alkane Resources Ltd (ASX: ALK), and Altura Mining Ltd  (ASX: AJM) and arrived at a target price with an upside of lower double-digit (in percentage terms). Therefore, considering the current trading levels, decent outlook and valuation, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.235 per share, up by 11.905% on 13^th May 2020.

Galaxy Resources Limited

Decent Production in Q1 FY20: Galaxy Resources Limited (ASX: GXY) is engaged in the production of lithium concentrate and exploration of minerals. The market capitalisation of the company stood at $321.44 Mn as on 13^th May 2020. Recently, the company announced that Ausbil Investment Management Limited has made a change to holdings in PLS on 21^st April 2020 with the current voting power now at 7.952%, against the previous voting power of 8.991%. With respect to Mt Cattlin, the company reported production volume of 14,306 dry metric tonnes of lithium concentrate for the three months ended 31^st March 2020 (Q1 FY20). It achieved the final product grade of 6.06% Li2O, strengthening Mt Cattlin’s position as a reliable producer of high-quality spodumene.


Q1 2020 Production & Sales Statistics (Source: Company Reports)

Production Guidance: For Q2 FY20, the company expects lithium concentrate production volume in the range of 25,000 dmt – 30,000 dmt.

Valuation Methodology: P/BV Multiple Based Relative Valuation (Illustrative)

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

Stock Recommendation: As on 31^st March 2020, the company remained debt-free with cash and financial assets amounting to US$129.6 million. During Q1 FY20, the company has implemented a 20% salary cut to the Board and Executive teams in order to reduce corporate overheads. We have valued the stock using Price to Book Value multiple based illustrative relative valuation method and for the purpose, we have taken peers such as Orocobre Ltd  (ASX: ORE), Pilbara Minerals Ltd (ASX: PLS), West African Resources Ltd (ASX: WAF) etc. As a result, we have arrived at a target with an upside of lower double-digit (in percentage terms). Thus, considering the debt free position, decent performance in Q1 FY20, and current trading levels, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.760 per share, down by 3.185% on 13^th May 2020  

Altura Mining Limited

A Quick Look at March 2020 Quarter: Altura Mining Limited (ASX: AJM) is involved in the mining, processing and sale of lithium ore. Market capitalisation of the company stood at $119.45 Mn as on 13^th May 2020. For the quarter ended 31^st March 2020, the company reported lithium concentrate production of 42,282 wet metric tonnes. The company has shipped a single cargo of 22,564 dmt to long-term offtake partner Ganfeng Lithium in January 2020. 

 
Mining and Process Quantities (Source: Company Reports)

Focus for FY20: The company will maintain a strong production of high-quality lithium concentrate. During FY20, it is planning to reduce cash costs via operational optimization. AJM is focused on cementing the balance sheet and overall project returns.

Stock Recommendation: As on 31^st March 2020, cash and cash equivalents stood at $9.6 million, which include $8.5 million of irrevocable bank letters of credit. During the quarter, the company raised capital worth A$11.2 million via an equity placement to institutional and sophisticated investors. Current ratio of the company stood at 0.22x in 1H FY20, reflecting YoY growth of 71.0%, indicating an improved liquidity position. Hence, considering the improvement in liquidity position and focus on strengthening the balance sheet, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.040 per share on 13^th May 2020.

 
Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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