Stocks’ Details

Pilbara Minerals Limited

Achievement of Low Unit Cash Operating Cost: Pilbara Minerals Limited (ASX: PLS) is engaged in the exploration of lithium and tantalum. The market capitalisation of the company stood at ~$1.14 billion as on 17^th November 2020. For the quarter ended 30^th September 2020, the company reported spodumene concentrate production of 62,404 dry metric tonnes (dmt) as compared to 34,484 dmt in June 2020 quarter. During the quarter, PLS shipped 43,630 dmt of spodumene concentrate. The company added that spodumene production has surpassed the sales volumes, which is resulting in a rise in spodumene concentrate inventory levels in preparation for deliveries into contracted customer sales for the early part of the December Quarter 2020. In addition, PLS recorded Tantalite concentrate sales of 25,222 lbs for the same quarter. Following a rise in processing plant run-time and a sustained higher lithia recovery, the company achieved a lower unit cash operating cost of US$355/dmt (CIF China) during the quarter.

Spodumene Concentrate Shipments (Source: Company Reports)

Proposed Acquisition of Altura Lithium Project: On 28^th October 2020, the company notified the market that it has entered an Implementation Deed with the senior secured loan noteholders of Altura for the acquisition of Altura Lithium Project via  the purchase of the shares in Altura Lithium Operations Pty Ltd (ALO)  for the consideration of around US$175 million. However, the transaction is subject to the completion of the receivership process. The company will pay an upfront cash payment of US$155 million and deferred consideration of around US$20 million for the shares in ALO on the successful completion of the transaction. The company would finance the upfront cash consideration via a future equity capital raising of a total A$240 million.

Outlook: For FY21, the company intends to continue to align production with customer demand with an objective of achieving annual production of ~330,000 dmt 6% spodumene concentrate. In addition, the company is expecting cash operating costs in the range of US$320- US$350 /dmt CFR 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: During the quarter, the company completed a low-cost US$110 million senior secured debt facility with BNP Paribas and the Clean Energy Finance Corporation. This allowed the company to repay the Nordic Bond. The company ended the quarter with a cash balance of $85.7 million. The 52-week low-high range for the stock stands at $0.135 - $0.605, respectively.  On a technical analysis front, the stock of PLS has a support level of ~$0.329 and a resistance level of ~$0.844. 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 low double-digit (in percentage terms). For the purpose, we have taken peers such as Galaxy Resources Ltd (ASX: GXY), Lynas Corporation Ltd (ASX: LYC) and Orocobre Ltd (ASX: ORE). Therefore, in light of the growth in production, proposed acquisition of lithium project, achievement of low operating cost and current trading level, we give a “Hold” recommendation on the stock at the current market price of $0.605 per share, up by 17.475% on 17^th November 2020, taking cues from the release of Annual General Meeting Presentation.

Galaxy Resources Limited

Signing of Offtake Agreement: Galaxy Resources Limited (ASX: GXY) is involved in the production of lithium concentrate and exploration for minerals in Australia, Canada and Argentina. The market capitalisation of the company stood at ~$679.73 million as on 17^th November 2020. Recently, the company inked a three-year agreement with Sichuan Chengtun Lithium Co., Ltd, which is a wholly-owned subsidiary of Chengxin Lithium Group Co.Ltd for the supply of 60,000 dmt per annum of spodumene concentrate from Mt Cattlin. The company added that the new arrangement with Sichuan Chengtun Lithium Co., Ltd compliments the company’s existing long term spodumene concentrate offtake agreements with Yahua International Investment and Development Co., Ltd and Meiwa Corporation. During Q3 FY20, the company recorded production of 30,067 dmt of lithium concentrate at a grade of 5.92% Li2O from Mt Cattlin. In addition, the company shipped 16,753 dmt of lithium concentrate.

Mt Cattlin Production (Source: Company Reports)

Guidance: For Q4 FY20, the company is anticipating lithium concentrate production in the range of 25,000 - 35,000 dmt. In addition, GXY expects to make further spot shipments in Q4 on the back of decent progress discussions with customers.

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: At the end of September 2020 quarter, the company had cash and financial assets of US$105 million with nil debt. In the past one and three months, the stock of GXY has provided returns of 37% and 41.46%, respectively. On a technical analysis front, the stock of GXY has a support level of ~$1.213 and a resistance level of ~$2.283. 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 low double-digit (in percentage terms). For the purpose, we have taken peers such as Pilbara Minerals Ltd (ASX: PLS), Altura Mining Ltd (ASX: AJM) and Orocobre Ltd (ASX: ORE), to name few. Thus, in light of the recent offtake agreement, decent production and shipment level, debt-free balance sheet and returns in the past months, we give a “Hold” recommendation on the stock at the current market price of $1.730 per share, up by 4.216% on 17^th November 2020.

Galan Lithium Limited

Increase in Resources at HMV: Galan Lithium Limited (ASX: GLN) is involved in the exploration and development of lithium projects with a market capitalisation of ~$25.98 million as on 17^th November 2020. Recently, the company announced the substantial resource increase of 65% with an additional 895 thousand tonnes (Kt) of contained lithium carbonate equivalent (LCE) @ 946mg/l Li (no cut off) at Hombre Muerto West lithium brine project (HMV). The increase was because of the strategic acquisition of Del Condor concession and an SRK Consulting (Australasia) review of average porosity data. As of now, the total HMW resource estimate stands at a world-class 2.3 million tonnes (Mt) LCE @ 946mg/l Li.

During Q1 FY21, the company was focused on the development of the HMW Project. In addition, the company stated that the completion of conceptual pond modelling at HMW Project reflects the extraordinary potential with a concentration grade over 50% higher than Candelas. The company recorded a net cash outflow from operating activities of $200k during the same quarter. During FY20, the company reported a net loss of $3,594,055 as compared to $3,554,529 in FY19.

Cash Flows (Source: Company Reports)

Outlook: The company stated that the PEA and scoping studies for HMW are on track with process design and pond layout being finalised. The company anticipates the final results for the study in Q4 2020.

Stock Recommendation: In October 2020, the company raised $3 million (before costs) through a placement to institutional and sophisticated investors. At the end of Q1 FY21, the cash balance of the company stood at $1 million.  The stock of GLN has corrected 6.66% and 12.49% in the past one and three months, respectively. As a result, the stock is trading towards its 52-week low levels of $0.110, offering decent opportunities for accumulation. On TTM basis, the stock is trading at a price to book value multiple of 1.3x as compared to the industry median of 3.2x. On a technical analysis front, the stock of GLN has a support level of ~$0.107 and a resistance level of ~$0.171.  Therefore, considering the increase in resources at HMV, capital raising, current trading levels and key risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.160 per share, up by 28% on 17^th November 2020 owing to release related to the increase in resources at HMW.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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