Orocobre Limited

Decent Statutory NPAT for FY19 at US$54.6 Mn:Orocobre Limited (ASX: ORE) is involved in the exploration, development and production of lithium at the company’s flagship Olaroz lithium facility and operation of Borax. The company recently updated that The Bank of New York Mellon Corporation ceased to be a substantial shareholder of the company.

Highlights for First Quarter of FY20: During the quarter ended 30 September 2019, the company reported an increase of 35% in production to 3,093 tonnes on pcp basis, for its Olaroz Lithium Facility. Quarterly sales revenue for the quarter stood at US$22.1 million, down by 21% QoQ with a realised average price of US$7,111 per tonne on FOB (free-onboard) basis. Product pricing for the quarter was lower in comparison to the June quarter, due to the current market softness. Sales volumes for the quarter stood at 3,108 tonnes, down 8% on QoQ basis. Cash costs for the quarter, excluding the export tax of US$420 per tonne, came in at US$4,885 per tonne, up 9% on QoQ basis.


Q1FY20 Highlights (Source: Company Reports)

What to Expect:FY20 production is expected to be at least 5% higher than FY19. The production forecast for Borax Argentina has been estimated to be between 45,000 - 50,000 tonnes for FY20. Cash corporate cost is expected to be between US$8.5 - 9.5 million. In addition, average sales price in the December quarter is expected to be approximately US$6,200 – US$6,500 per tonne.

Stock Recommendation:ORE’s share generated a negative YTD return of 28.39%. The stock is trading close to its 52-week low level of $2.180, with the 52-week trading range of $2.180 - $5.050. At the current market price of $2.300, the stock is available at a price to earnings multiple of 7.620x. The company reported the highest ever production for the September quarter in FY20, following a strategy of managing brine quality, new pond preparation and tailoring production to seasonal conditions. Its gross margin and net margin for FY19 stood at 45.2% and 67.3%, better than the industry median of 42% and 11%, respectively, which implies decent fundamentals for the company. Its ROE improved from 0.5% in FY18 to 9.6% in FY19. Its current ratio for FY19 stood at 3.27x, better than the industry median of 1.75x, which indicates a decent liquidity position of the company.Considering the above factors and current trading levels, we recommend a “Buy” rating on the stock at the current market price of $2.300, up 1.322% on 23 October 2019.
 

Galaxy Resources Limited

Decent H1FY19 Cash Position at US$176.3 Mn:Galaxy Resources Limited (ASX: GXY) is involved in the production of lithium concentrate; and exploration of minerals in Australia, Canada and Argentina. As per a recent announcement to the exchange, the company updated that the quarterly activities report for the period ended 30 September 2019 will be released on 24 October 2019. Recently, the company decreased its stake in Lepidico Ltd from 10.99% to 9.35%, effective from July 12, 2019.

Key Highlights of H1FY19 for the period ended June 30, 2019:Underlying net profit after tax, excluding one-off write down of inventory, impairment of property plant and equipment, and derecognition of deferred tax assets of US$176.8 Mn, was reported at US$4.9 Mn. However, after including the above, the group reported a net loss after tax at US$171.9 Mn. Revenue from operations for the period was reported at US$28 Mn, down from US$88.4 Mn in the previous corresponding period, mainly due to lower realised selling price. The average realised selling price for concentrate volumes was 38% lower than pcp. Revenue was impacted by lower sales volumes due to customer shipping schedules. Group’s EBITDA, before inventory write-down for the half-year period was reported at US$9.4 Mn as compared to US$42.4 Mn in the previous corresponding period. Cash position at the end of the period was reported at US$176.3 Mn, with no debt.


H1FY19 Key Metrics (Source: Company Reports)

What to Expect:As per the release, the company reaffirmed the guidance provided in the June’19 quarterly reports, wherein targeted lithium concentrate production for Q3FY19 has been estimated at 45,000 – 55,000 dmt, with full-year guidance for FY19 being maintained at 180,000 – 210,000 dmt. Target shipping volumes for Q3FY19 are expected to be in the range of 60,000 – 70,000 dmt.

Stock Recommendation:GXY’s share generated a negative YTD return of 58.22%. Its current ratio for H1FY19 stood at 4.97x, better than the industry median of 1.82x, which implies that the company has enough cash to address its short-term obligations. Its debt to equity for H1FY19 stood at 0.07x, lower than the industry median of 0.09x. Currently, the stock is trading close to the lower band of its 52-week trading range of $0.837-$2.850. Hence, considering the aforesaid facts and current trading levels, we recommend the investors to watch the stock and 'Hold' at the current market price of $0.850, down 7.104% on 23 October 2019, ahead of its quarterly activities report for the period ended 30 September 2019, which is to be released on 24 October 2019.

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 advice or recommendations.