Stocks’ Details

Pilbara Minerals Limited

Executed New Financing Facility: Pilbara Minerals Limited (ASX: PLS) is engaged in the exploration of lithium and tantalum. The market capitalisation of the company stood at ~$701.54 million as on 29^th September 2020. On 15^th September 2020, the company announced that it has implemented formal agreements for the senior secured US$110 million Finance Facility with BNP Paribas, and the Clean Energy Finance Corporation.  The company has decided to use the proceeds from the facility for redeeming the outstanding balance owing under its current US$100 million Nordic Bond.

Improvement in Cash Gross Margin: For the year ended 30^th June 2020, the company recorded spodumene concentrate production of 90,768 dry metric tonnes. In the same time span, the company shipped 116,256 dmt of spodumene concentrate. The production and shipment supported sales revenue growth of 96.7% to $84.1 million. During 2H FY20, the company managed to deliver an improved cash gross margin of $13.7 million, underpinned by moderated production strategy implemented after September 2019 quarter in order to preserve cash and working capital.

FY19 Results (Source: Company Reports)

Outlook: Looking forward, the company is focused on the expansion and diversification strategy in order to become one of the biggest and lowest-cost lithium producers, as well as a fully integrated lithium raw materials and chemicals supplier. The company is scheduled to conduct its 2020 Annual General Meeting on 17^th November 2020.

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: During FY20, the company finished equity raising of $111.5 million to cement its balance sheet. As on 30^th June 2020, the cash balance of the company stood at $86.3 million. On the technical analysis front, the stock of PLS has a support level of ~$0.288 and a resistance level of ~$0.430. 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 lower double-digit (in percentage terms). For the purpose, we have taken peers such as Orocobre Ltd (ASX: ORE), Galaxy Resources Ltd (ASX: GXY) and Lynas Corporation Ltd (ASX: LYC). Therefore, considering the sales revenue growth, improvement in cash gross margin, equity raising and key risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.315 per share on 29 September 2020.

Galaxy Resources Limited

Production Volumes Surpassed Guidance Range: Galaxy Resources Limited (ASX: GXY) is mainly involved in the production of lithium concentrate. The market capitalisation of the company stood at $456.57 million as on 29^th September 2020. For the half-year ended 30^th June 2020, the company reported lithium concentrate production of 45,248 dmt at a 6.0 % Li2O final product grade. In addition, the production volumes surpassed the guidance range of 40,000 – 45,000, and final product grade reflects a marginal increase over pcp. This is strengthening the company’s ability to become a reliable producer of high-quality lithium concentrate. In the same time span, GXY shipped 58,541 dmt of lithium concentrate. The company reported revenue amounting to US$23.3 million against US$28.0 million in 1H FY19.

Key Financials (Source: Company Reports)

Guidance: The company is expecting to report lithium concentrate production in the ambit of 26,000 – 31,000 dmt during Q3 FY20.

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 ended the half-year 2020 with a strong balance sheet comprising Cash and financial assets of US$108.6M and nil debt. On the technical analysis front, the stock of GXY has a support level of ~$0.830 and a resistance level of ~$1.618. 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 lower double-digit (in percentage terms). For the purpose, we have taken peers such as Orocobre Ltd (ASX: ORE), Pilbara Minerals Ltd (ASX: PLS), Altura Mining Ltd (ASX: AJM), etc. Thus, in light of the decent liquidity position, strong balance sheet, current trading levels and key risks, we give a “Speculative Buy” recommendation on the stock at the current market price of $1.105 per share, down by 0.897% on 29^th September 2020.

Piedmont Lithium Ltd

Binding Agreement with Tesla: Piedmont Lithium Ltd (ASX: PLL) is engaged in the exploration and development of resource projects. The market capitalisation of the company stood at ~$317.71 million as on 29^th September 2020. Recently, the company has inked a binding five-year agreement with Tesla, Inc. Under the agreement, the company would supply Spodumene concentrate (SC6) from its North Carolina deposit. In addition, the agreement has an option of extension for further five-year. The company added that sales of SC6 are likely to drive revenue in the range of 10-20% of the company’s total revenue.

A Look at June 2020 Quarter: During June 2020 quarter, the company finished a pre-feasibility study for its proposed lithium hydroxide chemical plant and also wrapped up scoping study for its integrated mine-to hydroxide project. The results of both studies indicated the economic benefit of establishing a lithium chemical business in North Carolina. In the same quarter, the company concluded a US Public offering by issuing 2,065,000 American Depository Receipts. In addition, the company also received a commitment from non-US institutional and sophisticated shareholders and directors for private placement and is expecting to raise A$10.8 million. PLL finished the quarter with a cash balance of US$18.9 million.

Cash Flows (Source: Company Reports)

Outlook: For the next 12 months, the company is focused on achieving numerous milestones, which mainly include drilling to expand mineral resources, rollout of definitive feasibility study and arrangement of funds for its projects.

Stock Recommendation: The stock was reinstated to the official quotation on 28 September 2020, following the release of the response to ASX query. In the past one and three months, the stock has moved up by 219.77% and 235.37%, respectively. The stock of PLL has made a new 52-week high level of $0.460 on 29th September 2020. On the technical analysis front, the stock of PLL has a support level of ~$0.083 and a resistance level of ~$0.460. Hence, considering the past movement in the stock, current trading levels, loss making business, we advise investors to avoid the stock at the current market price of $0.380 per share, up by 38.182% on 29^th September 2020. However, we will keep a close eye on the company’s future financial and operational performances on the face of recent deal with Tesla.

Comparative Price Chart (Refinitiv, Thomson Reuters)

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