Sandfire Resources Limited
SFR Details
Latest Developments: Sandfire Resources Limited (ASX: SFR) is engaged in the exploration and production of copper and gold in Western Australia, Botswana (South Africa), and the US. On 11 March 2022, AustralianSuper Pty Limited increased its shareholding from ~11.58% to ~12.59% in SFR.
1HFY22 Results Overview:
- SFR reported ~US$130.2 million in 1HFY22 as earnings before net finance and income tax expense from its DeGrussa operations in Western Australia versus ~US$112.4 million in 1HFY21.).
- Post the acquisition of MATSA mining operations in Spain on 1 February 2022, SFR held ~US$321.4 million cash on hand including ~US$50.0 million cash from MATSA. SFR is undertaking operational integration post the acquisition and has plans to implement a 5-year roadmap to optimise the project’s operational performance.
Comparative Production & Sales Highlights; (Analysis by Kalkine Group)
Key Risks: The company faces the risk of ore depletion, the discovery of new targets, acquisition risk, forex headwinds, and shortage of labour due to the COVID-19 situation.
Outlook:
Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)
Source: Analysis by Kalkine Group
*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
Stock Recommendation: The stock of SFR gave a negative return of ~14.09% in the past three months and a negative return of ~8.61% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $4.908 - $7.495. The stock has been valued using the Price to Earnings-multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ average P/E multiple, considering the acquisition risk, phasing out of the Degrussa operations in Q1FY23, and expansion risk. For this purpose of valuation, a few peers like OZ Minerals Ltd (ASX: OZL), IGO Ltd (ASX: IGO), Regis Resources Ltd (ASX: RRL), and others have been considered. Considering the current trading levels, growth in top line, bottom line, copper sales, robust commodity demand and price outlook for copper, expanded production profile with the MATSA acquisition, an indicative upside in valuation, we give a ‘Speculative Buy’ rating on the stock at the current market price of $5.335, as of 18 March 2022, 2:37 PM (GMT+10), Sydney, Eastern Australia. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.
SFR Daily Technical Chart, Data Source: REFINITIV
Altech Chemicals Limited
ATC Details
Exercise of Options: Altech Chemicals Limited (ASX: ATC) is a miner, explorer, and producer of high purity alumina (HPA) (Aluminum oxide (Al2O3)) with a 100%-owned kaolin deposit in Western Australia. On 14 March 2022, ATC issued ~224,782 shares at ~$0.08 per share due to the exercise of ~224,782 listed options (ASX: ATCOB).
1HFY22 Results (Ended 31 DECEMBER 2021):
- ATC significantly advanced on the development of its high purity alumina (HPA) battery materials coating technology and pilot plant in Germany in 1HFY22. It has completed a preliminary design for the HPA battery materials coating pilot plant to exhibit its proprietary alumina battery materials coating technology.
- In January 2022, ATC declared the registration of the product name Silumina Anodes™ for the proposed production of the alumina coated composite silicon/graphite battery anode material.
Comparative Debt & Cash Position, Highlights; (Analysis by Kalkine Group)
Key Risks: The company faces the risk of exploration, full scale production, and commercialisation at the flagship HPA project. It faces regulatory delays, demand risk, and adequate funding to run seamless testing and development.
Outlook:
- Based on the completion of the test work of the proposed Silumina Anodes™ product, ATC will go ahead with the production of lithium-ion battery anodes. It plans to construct the pilot plant at the Schwarze Pumpe Industrial Park in Germany to produce up to ~36,680 kgs of anode grade alumina coated battery material per annum.
- ATC is also progressing in discussions with multiple interested parties to secure overall project financing for its HPA plant site in Johor, Malaysia including a potential equity raising, ~US$144 million targeted via green bond offer.
Stock Recommendation: The stock of ATC gave a negative return of ~10.47% in the past three months and a positive return of ~30.55% in the past six months. The stock is currently trading slightly lower than the 52-weeks’ average price level band of $0.041 - $0.150. On a TTM basis, the stock of ATC is trading at a price to book value multiple of ~1.4x lower than the industry (Basic Materials) median of ~2.3x, thus seems undervalued. Considering the current trading levels, progress on the development of HPA project, green status award, ongoing talks for funding commitments and a potential green bond offering, a burgeoning lithium-ion battery market in Europe, valuation on a TTM basis, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.090, as of 18 March 2022, 10:55 AM (GMT+10), Sydney, Eastern Australia. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.
ATC Daily Technical Chart, Data Source: REFINITIV
Note 1: The reference data in this report has been partly sourced from REFINITIV.
Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.
Technical Indicators Defined: -
Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.
Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.
Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.
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