Stocks’ Details
 

Lynas Corporation Limited

Decent March Quarter Results: Lynas Corporation Limited (ASX: LYC) is a leading supplier of sustainable Rare Earth materials to high growth global manufacturing supply chains, including digital age technologies and green technologies such as electric vehicles and wind turbines. In the March 2020 quarter, the company saw improved production volumes despite production constraints. LYC reported NdPr production of 1,369 tonnes and total REO production of 4,465 tonnes in March quarter. For the quarter, the company reported sales revenue of $91.2 million with sales receipts of $101 million. The results were supported by sustained customer demand from Japan, Europe and US.



Restart of Malaysia Plant: On 4 May 2020, the company announced that it has restarted the Lynas Malaysia plant, following an announcement by the Prime Minister of Malaysia on 1 May 2020 that almost all economic sectors, including manufacturing, will be allowed to operate. The plant will run at approximately 70% of Lynas NEXT production rates which will allow the company to refill supply chains and to restock depleted inventories of critical materials.
Awarded a Contract for a U.S. based Heavy Rare Earth Separation Facility: On 22 April 2020, the company announced that it has been selected for Phase I contract for a U.S. based Heavy Rare Earth separation facility. If this contract is completed successfully, it may lead to further contracts for commercial scale production and operation of a U.S. Heavy Rare Earth separation facility.

Valuation Methodology:Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation: The company is currently in a strong financial position and despite the current challenges of COVID-19, it remains committed to progressing its Lynas 2025 growth plan. In the last one month, the stock of LYC has increased by 16.56% on ASX. We have valued the stock using Price to Cash Flow based illustrative relative valuation method and have arrived at a price correction of single-digit (in percentage terms). For the purpose, we have taken peers like Champion Iron Ltd (ASX: CIA), Nickel Mines Ltd (ASX: NIC), Western Areas Ltd (ASX: WSA), etc. Considering the uncertainty around the COVID-19 impacts, expected decline in the valuation, we have a watch stance on the stock at the current market price of $1.715, down 4.457% on 14 May 2020. 

Alumina Limited

Decent Results from AWAC Joint Venture: Alumina Limited (ASX: AWC) is a metal and mining company with 40% stake in the AWAC joint venture whose assets comprise the globally leading bauxite mines and alumina refineries in Australia, Brazil, Spain, Saudi Arabia and Guinea. The company recently notified that it is going to hold its Annual General Meeting (AGM) on 20 May 2020.

In the financial year 2019, the company saw record production at AWAC’s tier 1 low cost refineries which enabled it to deliver strong margins and returns. For FY19, AWAC recorded a net profit after tax of US$565.1 million and EBITDA of US$1,260.7 million. During the year, AWAC benefitted from record annual alumina production of 12.6 million tonnes and a 7% improvement in the average cost of production to $210 per tonne.



Normal Levels of Production Sustained in AWAC Operations: In an update provided on 23 April 2020, it was confirmed that AWAC operations have been running at normal levels of production in 2020 and its assets have performed strongly during March 2020 quarter. In order to preserve cash in the current market environment, AWAC intends to hold all growth capital expenditure for the remainder of 2020, reducing spend by around $30 million.

Track Record of Paying Dividends: In the past three years, Alumina Limited has been a consistent source of strong dividends and since 2017 it has delivered an average yield for shareholders of 8.6 per cent per annum, not including franking. For FY19, the company declared total dividends of US8.0 cents per share, representing a yield of 5.0 per cent to shareholders for 2019. AWC currently has an annual dividend yield of 8.6%. In 2020, the outlook for dividends is expected to be impacted by the lower alumina prices since mid-2019 and the impact of COVID-19.

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

Price to Earnings Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)        
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months,
 
Stock Recommendation: Due to the low net debt levels and AWAC’s position as a tier one low cost producer, Alumina Limited is well placed to navigate through the challenging market conditions. In the last six months, the stock of AWC has declined by 42.89% and is trading close to its 52 weeks low price of $1.295. We have valued the stock using Price to Earnings multiple based illustrative relative valuation method and have arrived at a target price of lower double-digit upside (in % terms). For the purpose, we have taken peers like BlueScope Steel Ltd (ASX: BSL), Evolution Mining Ltd (ASX: EVN) and OZ Minerals Ltd (ASX: OZL). Considering the decent results from AWAC Joint Venture, the company’s track record of paying dividends and current trading levels, we give a “Buy” recommendation on the stock at the current market price of $1.420, up 1.068% on 14 May 2020. 

Jupiter Mines Limited

Tshipi Returns to Full Operation: Jupiter Mines Limited (ASX: JMS) is a metal and mining company primarily involved in the operation of the Tshipi Manganese Mine in South Africa and the sale of manganese ore. Tshipi Borwa in South Africa, of which Jupiter owns 49.9%, is one of the largest, longest-life and lowest-cost manganese exporters globally. Earlier, due to COVID-19 restrictions, operations at the Tshipi Borwa Manganese Mine were suspended temporarily. However, as per the recent update provided on 27 April 2019, the South African Government has announced that all open cast mines in South Africa will be able to commence operations at 100% levels from 1 May 2020, which includes the Tshipi Borwa Manganese Mine.

Final Dividend Declared: The company recently announced a final dividend of $0.0075 (unfranked) for the financial year ended 29 February 2020 (FY20), representing a payout ratio of almost 92%, well above the company’s stated 70% dividend policy. In FY20, Tshipi é Ntle Manganese Mining Pty Limited distributed ZAR2.015 billion in the form of dividends, demonstrating the cash generation potential of Tshipi, and the lucrative yielding dividend payment ability of Jupiter throughout the cycle.


Payout to shareholders (Source: Company reports)

What to expect: JMS currently enjoys low operating costs, a lean overhead structure, and no debt in either company, positioning it well to benefit for decades to come, from Tshipi’s large mining reserves.  The company is also expected to benefit in the shorter term as operations in South Africa return to full production from 1 May.
Valuation Methodology:Price to Cash Flow Multiple Based Relative Valuation (Illustrative)
 

Price to Cash Flow Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation: Although the stock of JMS has gained 5.88% in the last one month, it is still trading lower than the average 52 weeks low and high price of $0.190 and $0.430, respectively. We have valued the stock using Price to Cash Flow multiple based illustrative relative valuation method and arrived at a target price of lower double-digit upside (in % terms). For the purpose we have taken peers like Western Areas Ltd (ASX: WSA), Panoramic Resources Ltd (ASX: PAN), Nickel Mines Ltd (ASX: NIC) etc. Considering the company’s low operating costs, lean overhead structure, recent restart of operations at Tshipi, and current trading levels, we give a “Buy” recommendation on the stock at the current market price of $0.275, up 1.852% on 14 May 2020. 

Gold Road Resources Limited

COVID-19 Update: Gold Road Resources Limited (ASX: GOR) is a mid-tier Australian gold producer operating Tier 1 mine and exploration projects. In response to COVID-19, the company’s Management is taking a prudent and proactive approach to capital management. Yamarna (100%) remote exploration activities are continuing with all necessary precautions in place. The exploration at Cygnus JV (75% interest) has been suspended to support government actions to contain COVID-19 in regional communities. Although there is some uncertainty and risk pertaining to the potential impacts on the Gruyere operation and the company’s exploration programmes, currently there is no revision to annual production and cost guidance. 

March Quarter Highlights: During the March quarter, Gruyere (50% interest) produced 59,595 ounces of gold and remained on track to meet the annual guidance of 250,000 to 285,000 ounces. Attributable gold sales totaled 31,700 ounces at an average price of A$2,001 per ounce during the quarter. During the quarter, diamond drilling at the Gilmour Deposit intersected high-grade mineralization.


Cash flow waterfall for March quarter 2020 (Source: Company Reports)

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

EV/Sales Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation: Currently the company has a strong balance sheet with enhanced liquidity. In the past six months, the stock of GOR has gained 36.12%. The stock is currently inclined towards its 52 weeks high price of $1.830. We have valued the stock using EV/Sales multiple based illustrative relative valuation method and have arrived at a target price with limited upside (in percentage terms). For the purpose, we have taken peers like Saracen Mineral Holdings Ltd (ASX: SAR), Regis Resources Ltd (ASX: RRL), and Alkane Resources Ltd (ASX: ALK). Considering the aforesaid facts and the uncertainty and risk of potential impacts on the company’s operations from COVID-19, we have a watch stance on the stock at the current market price of $1.545 on 14 May 2020. 
 
 
Comparative Price Chart(Source: Refinitiv, Thomson Reuters)

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