Syrah Resources Limited

SYR Details

Signing of MOU with Solar Century Africa Limited: Syrah Resources Limited (ASX: SYR) is a mineral exploration company, engaged in the development of the Balama Graphite Project in Mozambique. The market capitalisation of the company stood at ~$481.85 million as on 30^th December 2020. Recently, the company has inked a Memorandum of Understanding (MoU) with Solar Century Africa Limited in order to progress a solar and battery storage hybrid power system to work in conjunction with the existing diesel generation power plant at Balama in Mozambique. On 11^th December 2020, the company finished an institutional placement to professional and sophisticated investors and raised around $56 million. In addition, the company is targeting to raise a further $12 million through ongoing Share Purchase Plan. The company would mainly use these funds to achieve progress on a final investment decision for the construction of a 10ktpa Active Anode Material plant at Vidalia in 2H FY20.

Use of Funds (Source: Company Reports)

Quarterly Highlights: During Q3 FY20, the company achieved Total Recordable Injury Frequency Rate of 0.5 at Balama Graphite Operation. In addition, the company was focused on compliance with government directives and high standards of internal COVID-19 protocols. The company recorded net cash outflow from operating activities of US$6.6 million and US$2.3 million from investing activities. In addition, subsequent to the end of the quarter, the company achieved the first production of Active Anode Material by using Vidalia precursor.

Outlook: Looking forward, the company is on track to become the first vertically integrated producer of natural graphite AAM outside of China.

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

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company closed Q3 FY20 with a strong cash balance of US$44 million. The stock of SYR has provided a return of 8.42% in the last one month. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price, which is offering an upside of high single-digit (in percentage terms). On a technical front, the stock has a support level of ~$0.141 and a resistance level of ~$1.11. For the purpose, we have taken peers like Orocobre Ltd (ASX: ORE), Base Resources Ltd (ASX: BSE), Mineral Resources Ltd (ASX: MIN), and others. Thus, considering the decent returns in the past months, strong cash balance, and equity raising, we give a “Hold” rating on the stock at the current market price of $0.975 per share, down by 3.466% on 30^th December 2020.

SYR Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Pilbara Minerals Limited

PLS Details

Signing of Share Sale Agreement: Pilbara Minerals Limited (ASX: PLS) is engaged in the exploration of lithium and tantalum. The market capitalisation of the company stood at ~$2.44 billion as on 30^th December 2020. On 18^th December 2020, the company opened a fully underwritten 1 for 7.6 accelerated non-renounceable pro-rata entitlement offer in order to raise around $121 million, and the offer is likely to close on 11 January 2021. The retail entitlement offer follows the previously completed Institutional Entitlement Offer, wherein, the company raised around $61 million. The company would deploy these funds to finance the acquisition of the shares in Altura Lithium Operations Pty Ltd for which the company inked a Share Sale Agreement with Altura Mining Limited.

Source and Use of Funds (Source: Company Reports)

A Look at Q3 FY20: During September 2020 quarter, the company recorded spodumene concentrate production of 62,404 dry metric tonnes (dmt) against 34,484 dmt in June 2020 quarter and shipped 43,630 dmt of spodumene concentrate. In addition, the company reported Tantalite concentrate sales of 25,222 lbs for the same quarter. During FY20, the company recorded spodumene concentrate production of 90,768 dmt and sales of $84.15 million.

Outlook: The company is focused on achieving annual production of ~330,000 dmt 6% spodumene concentrate in FY21. In addition, the company would also be focused on achieving progress on incremental expansion.

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

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: As on 30^th September 2020, the cash balance of the company stood at $85.7 million. In the past three and six months, the stock of PLS has surged 197.25% and 257.80%, respectively. As a result, the stock is inclined towards its 52-week high level of $0.930. Considering this, we have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price with correction of high single-digit (in percentage terms). For the purpose, we have taken peers such as Altura Mining Ltd. (ASX: AJM), Lynas Rare Earths Ltd. (ASX: LYC) and Orocobre Ltd (ASX: ORE). On a technical analysis front, the stock has a support level of ~$0.23 and a resistance level of ~$0.933. Hence, considering the valuation and steep price movement in the past months, we are of the view that most of the positive factors have been discounted at current trading levels and give an “Expensive” rating on the stock at the current market price of $0.910 per share, up by 1.675% on 30^th December 2020.

PLS Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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