Stocks’ Details
 

Evolution Mining Limited

Acquisition of Red Lake:  Evolution Mining Limited (ASX: EVN) is involved in gold mining with a market capitalisation of $6.99 Bn as on 6^th April 2020. The company recently announced that it has wrapped up the acquisition of Red Lake Gold Mine for the US$375 million. In order to finance the acquisition and related transaction costs, a five-year term loan of A$570 million from a syndicate of six banks has been utilised. The final term loan amount is A$30 million less as compared to contemplated at the time of announcing the transaction because of the strong cash position of the business. The below picture gives an idea of free cash flow for 1H FY20:


Free Cash Flow (Source: Company Reports)       
  
No Material Impact from COVID-19:As of now, the company has not experienced any material impact on its operation from the uncertainties arising from COVID-19. With respect to Red Lake Gold Mine, the company expects production of 725,000 ounces at an AISC of A$940 – A$990/oz for FY20.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

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

Stock Recommendation:The company possesses a strong balance sheet. Moreover, it has liquidity position of around A$510 million including cash of around A$150 million and an undrawn three-year revolver of A$360 million after completion of the Red Lake acquisition and the payment of the interim dividend of A$119 million. We have valued the stock using EV to EBITDA based relative valuation approach, and for the purpose, we have taken peers such as Newcrest Mining Ltd (ASX: NCM), Northern Star Resources Ltd (ASX: NST), St Barbara Ltd (ASX: SBM), etc., and arrived at a target price, which is offering upside of lower double -digit (in percentage terms). Thus, considering strong balance sheet, decent liquidity position and the recent acquisition of Red Lake Gold Mine, we maintain a “Hold” rating on the stock at the current market price of $4.260 per share, up by 3.902% on 6^th April 2020.

Lithium Australia NL

Grant of New Patent:Lithium Australia NL (ASX: LIT) is engaged in the exploration of lithium and other minerals. The market capitalisation of the company stood at $22.79 Mn as on 6^th April 2020. LIT recently announced that IP Australia has given a Certificate of Grant for its LieNA® lithium processing technology patent. This patent now provides the company with legal protection for 20 years over the LieNA® technology. This new technology significantly improves the metallurgical recovery of lithium from fine and contaminated spodumene. The company held $3.3 million in cash as at 31^st March 2020, which implies that it is funded for at least this calendar year.


Financial Overview of 1H FY20 (Source: Company Reports)

Focus of LIT:The focus of the company revolves around elements of its business which can generate revenue in the near term.  Moreover, it is deferring technology development and exploration expenditures in the Chemicals and Raw Materials units.

Stock Recommendation:Current ratio of the company stood at 2.61x in 1H FY20 as compared to the industry median of 1.70x. This reflects that LIT is in a decent position to address its short-term obligations against the broader industry. Debt to equity of the company stood at 0.01x versus 0.22x of the industry median. The stock is trading at a price to book multiple of 0.8x as compared to the industry average (Metals & Mining) of 1.5x on TTM basis. Therefore, considering the deleveraged balance sheet and grant of the new patent, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.049 per share, up by 25.641% on 6^th April 2020, owing to the patent approval for LieNA® lithium processing technology.

Pilbara Minerals Limited

Ended March 2020 Quarter with Strong Cash Position:Pilbara Minerals Limited (ASX: PLS) is involved in the exploration of lithium and tantalum as well as mine development. The market capitalisation of the company stood at $466.98 Mn as on 6^th April 2020. During March 2020, the moderated production strategy of PLS has continued the practice of plant recovery improvements and unit cost reductions, which resulted into a strong cash position of A$108.2 million. The company managed to ship 33,893 dry metric tonnes (provisional) of spodumene concentrate product. It sold 33,998 lbs (provisional) of tantalite concentrate.

Also, PLS has inked a 5-year offtake agreement with Yibin Tianyi for 75,000tpa of high-quality spodumene concentrate from the Pilgangoora Project.


1H FY20 Key Metrics (Source: Company Reports)

Response to Soft-Market Condition:With respect to soft market conditions from COVID-19, the company continues to deploy a moderated production strategy at Pilgangoora in order to match production with customer demand to preserve working capital. 

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

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

Stock Recommendation:Asset to equity of PLS stood at 1.51x in 1H FY20 against 1.75x of the industry median. We have valued the stock using EV to Sales based relative valuation approach, and for the purpose, we have taken peers such as Orocobre Ltd (ASX: ORE), Western Areas Ltd (ASX: WSA), Regis Resources Ltd (ASX: RRL), etc., and arrived at a target price, which is offering upside of lower double- digit (in percentage terms). Therefore, in light of strong cash position during March 2020 quarter and signing of the new agreement, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.245 per share, up by 16.667% on 6^th April 2020.

MACA Limited

Receiving of New Contracts:MACA Limited (ASX: MLD) is in the contract mining services, civil contracting services and mineral processing services across Australia, and contract mining services in Brazil, South America. Recently, the company was awarded a contract for Public Road Upgrade and Access Road Works’ at the Corunna Downs Iron Ore Project for Atlas Iron Pty Ltd. MLD expects this contract to add revenue of around $38 million over the 8-month term of the project.


Work in Hand (Source: Company Reports)

Positive Outlook for FY20:On the back of strong work in hand position of $2.4 billion at Feb20, favourable market conditions in the sectors as well as a strong pipeline of opportunities with existing and new clients, the company is optimistic about the outlook for FY20. 

Valuation Methodology: P/CF Multiple Based Relative Valuation

P/CF Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months
Stock Recommendation:Gross margin and EBITDA margin of the company stood at 4.1% and 10.5% in 1H FY20, reflecting YoY growth of 1.5% and 5.3%, respectively. We have valued the stock using P/CF-based relative valuation approach, and for the purpose, we have taken peers such as Perenti Global Ltd (ASX: PRN), Emeco Holdings Ltd (ASX: EHL), Imdex Ltd (ASX: IMD) etc., and arrived at a target price, which is offering an upside of lower double-digit (in percentage terms). Hence, considering the expected positive outlook for FY20 and a strong pipeline of work, we give a “Buy” recommendation on the stock at the current market price of $0.690 per share, down by 2.817% on 6^th April 2020.

 
Comparative Price Chart (Source: Thomson Reuters)

Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as personalised advice.