Vulcan Energy Resources Limited

VUL Details

VUL Enters Agreement with GGH: Vulcan Energy Resources Limited (ASX: VUL) is a producer, explorer, and miner of lithium chemicals in Europe. As on 16^th February 2021, the market capitalisation of the company stood at ~$816.72 million. On 15^th February 2021, the company signed a binding term sheet with the shareholders of Global Geothermal Holding UG (GGH) to purchase 100% of the shares in GGH. Currently, GGH holds the granted license -Taro in the Upper License Valley which has a 2.27 Mt of JORC resource estimation containing lithium carbonate equivalent (LCE). With the said acquisition, VUL management aims to consolidate ownership of the Taro and other exploration licences, ease financing, develop a key position in the Upper Rhine Valley and most importantly strategize to become a major supplier of its Zero Carbon Lithium® hydroxide to the battery electric vehicle market in Europe. As per the agreement, VUL will pay $90k fully paid ordinary shares in the company upon acquisition completion and a deferred sum of $720k for performance shares which will be converted to VUL shares on a 1 for 1 basis on satisfactory performance of any one of the listed milestones on any of the GGH license areas within 2.5 years of closure of the acquisition.

Received $120 Million Commitments: On 4^th February 2021, the company announced receipt of corporate commitments to raise $120 million through a placement at $6.50 per share to ESG-focussed investors. The proceeds from the placement will offer a runway to final investment decision on Zero Carbon Lithium® Project and foster project development, including delivery of a DFS targeted by Q2FY22. The company estimates upon settlement of the placement (before costs), it will have a cash balance of ~$125 million.

A Look at Q2FY21 Results: During the quarter, VUL announced an updated JORC Indicated (0.83 Mt contained LCE at a grade of 181 mg/l Li) and Inferred lithium-brine (Li-brine) Resource Estimation (1.44 Mt contained LCE at a grade of 181 mg/l Li) for its Taro License in the Vulcan Zero Carbon Lithium® Project area in the Upper Rhine Valley. During Q2FY21, the German Parliament has voted to favour geothermal electricity production by delaying the degression of the Feed-in Tariff (of €0.252/kWh) and European Commission has also proposed compulsory requirements on carbon footprint rules and manufacturers to use sustainable batteries from responsibly sourced materials in the EU. VUL believes both these regulations are relevant to company’s strategy to supply its Zero Carbon Lithium® products directly to the markets within Europe. The company has completed Pre-Feasibility Study (PFS) post the quarter and it reflects a positive post-tax NPV of €2.25 billion for full project and pre-tax IRR of 26% and post-tax IRR of 21% for the combined renewable energy lithium project. VUL generated $2.64 million cash from financing activities during Q2FY21 and held $5.83 cash and cash equivalents balance as on 31 December 2020.

Cash Flows from Financing Activities (Source: Company Reports)

Outlook: For its Norwegian projects, VUL is discovering to develop zero carbon cobalt, zero carbon copper projects for the newly granted license areas (designated Skuterud and Feøy) for the European battery metals market. The company is also reviewing by-spin-out or sale options to keep its Zero Carbon Lithium® Project in Germany in key focus.

Stock Recommendation: The stock of VUL gave a positive return of 211.29% in the past three months and 1,265.13% in the past six months. The stock is currently trading above the average of its 52-weeks’ price band of $0.150-$14.20. The stock of VUL has a support level of ~$6.84 and a resistance level of ~$8.4. Considering the aforesaid facts, stock’s significant rise in the last six months, and current trading levels, we are of the view that most of the positive factored are priced in at current juncture. Hence, we suggest investors to wait for better entry level and give an ‘Expensive’ rating to the stock at the current market price of $7.44, down by 2.106% on 16^th February 2021.

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

AVZ Minerals Limited

AVZ Details

Positive Drill Results Received: AVZ Minerals Limited (ASX: AVZ) is engaged in exploration, mining of minerals and development of Manono Project located in the south of the Democratic Republic of Congo (DRC) in Central Africa. As on 16^th February 2021, the market capitalisation of the company stood at ~$578.03 million. On 5^th February 2021, the company announced robust results received from drilling mineral resource of the Tin Project and Manono Lithium in the DRC. The company undertook drilling at Roche Dure which identified high-grade tin and lithium mineralisation directly beneath the historical pit floor.

Q2FY21 Results: During Q2FY21, the company signed an offtake agreement with GFL International Co. Limited (GFL), a Chinese lithium compound producer initially for a period of 5 years to supply 160k mtpa of spodumene concentrate (S6). It is also in negotiations with many other offtake partners for tin and lithium materials. The company is in ongoing discussions with the private equity investors for its requisite equity funding. At an operational level, AVZ is advancing on its permitting, licensing, and environmental approvals for the Manono Project. During Q2FY21, AVZ received $1,728k from the exercise of 29 million options and expired 3 million performance rights. The company reported net cash flows from financing activities to the tune of $1.72 million for Q2FY21. It held cash and cash equivalents of $8.25 million as on 31 December 2020.

Cash Flows from Financing Activities, Highlights (Source: Company Reports)

Outlook: AVZ is undertaking all the requisite engineering and technical work and targeting to finish it before the Board’s investment decision to mine by mid-2021. The company also looks forward to awarding agreements for the construction of process plants and hydro-electric power plant in Q2FY21 and has scheduled first shipment of S6 for Q4FY22.

Stock Recommendation: The stock of AVZ gave a positive return of 138.37% in the past three months and a positive return of 210.6% in the past six months. The stock is currently trading above the 52-weeks’ average price level of $0.043-$0.23. The stock of AVZ has a support level of ~$0.194 and a resistance level of ~$0.225. On a TTM basis, we have valued the stock using price to book value multiple of ~7x as compared to the industry median of ~3.1x. Considering the negative ROE, significant returns in the past 3 months and 6 months, negative profit margins, valuation on TTM basis, we give an ‘Expensive’ rating to the stock at the current market price of $0.205, up by 2.500% on 16^th February 2021.

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

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