Galaxy Resource Company

GXY Details

GXY Reveals James Bay Development Plan: Galaxy Resource Company (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 ~$1.13 billion as on 9 March 2021. Recently, the company informed the market regarding the publication of the Preliminary Economic Assessment (“PEA”) results for James Bay Lithium Mine Project (“James Bay” or the “Project”). The results reveal that the Project is feasible to meet the requirement of emerging electric vehicle value chains in Europe & North America. With this accomplishment, GXY will now progress the development immediately into the basic engineering stage. The project has approximately 18 year of mine life, with an average annual production of 330ktpa of spodumene concentrate. 

FY20 Key Highlights: During FY20, the company’s annual production stood at 108,658 dmt at 5.95% Li2O. The company also shipped 74,336 dry metric tonnes of lithium concentrate in the December 2020 quarter. In FY20, the average realised selling price stood at US$352/dmt FOB. The company recorded FY20 revenue from operations of US$55.3 million, down 20% year over year. Net loss in FY20 came in at US$31.3 million. Moreover, the company strengthened its balance sheet as it wrapped up A$160.7 million equity financing in FY20. It exited the period with a cash balance of US$ 215 million.

FY20 Key Highlights (Source: Company Reports)

What to Expect: The company expects James Bay project construction to be completed by the end of 2021. In doing so, the company has started the next phase of its engineering process. The company’s implementation plan for FY21 involves finalisation of designs, configurations of equipment, and plant, and implementation of further decreases in capital and operating costs.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, 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. 

** 1 USD = ~1.31 AUD

Stock Recommendation: Over the last three months, the stock went up by ~5.1% and went down 14.7% in the past one month. The stock made a 52-week low and high of A$0.678 and A$3.29, respectively. On the technical analysis front, the stock has a support level of ~$2.08 and a resistance level of ~$2.81. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price of an upside of high single-digit (in percentage terms). We believe that the company might trade at a slight premium to its peer median, considering its robust cash position, the development plan of James Bay project and healthy production level. We have taken peers like Pilbara Minerals Ltd (ASX: PLS), Orocobre Ltd (ASX: ORE), to name a few. Considering the decent production and shipment level, strengthened balance sheet position, and positive long-term outlook, we give a “Hold” recommendation on the stock at the current market price of A$2.290, up by 2.232% on 9 March 2021.  

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

Orocobre Limited

ORE Details

A Look at ORE’s 1HFY21 Key Highlights: Orocobre Limited (ASX: ORE, TSX: ORL) is an Argentinian-based (substantially) minerals and industrial chemicals player with portfolio operations in potash, lithium and boron projects and facilities in Argentina. As on 9 March 2021, the market capitalisation of the company stood at ~$1.42 billion. During 1HFY21, the company produced 6,079 tonnes of lithium, down by 9% on pcp, due to COVID-19 induced operational limits and lower market demand. For 1HFY21, the company reported revenues of US$27 million on sales of 7,738 tonnes of lithium carbonate, which increased 21% on a year over year basis. Group EBITDAIX loss in 1HFY21 stood at US$6.3 million. The company remained on track to implement a cost reduction program. In doing so, it witnessed a reduction of 28% in quarterly cash cost of sales. Group net loss for the period stood at US$29.1 million in H1FY21. The company held cash of US$262.3 million as on 31 December 2020, after successfully raising capital of US$119.4 million.

Key Highlights (Source: Company Reports)

Risks: The company is exposed to the risks related to the fluctuations in the price of materials. Further, the company is exposed to risks of uncertainties caused by COVID-19 pandemic and its associated impact. The company is also exposed to risks arising from its financial instruments, such as market risks, liquidity risk, credit risk and interest rate risks.

Outlook: The company is reviewing and planning Stage 2 expansion of the Olaroz Lithium Facility and Naraha Lithium Hydroxide Plant. The company expects a recovery in lithium volumes & prices. Apart from this, it expects its average sales price in 2HFY21 to grow more than 50% to ~US$5,500/tonne (FOB approx.).

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, 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. 

** 1 USD = ~1.31 AUD

Stock Recommendation: Over the last three months, the stock went up by ~3.9% and went down 10.9% in the past one month. The stock made a 52-week low and high of A$1.825 and A$6.06, respectively. On the technical analysis front, the stock has a support level of ~$4.005 and a resistance level of ~$5.249. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price of an upside of low double-digit (in percentage terms). We believe that the company might trade at a slight premium to its peer average, considering its debt liquidity position, pipeline of projects, and increase in production and sales volume. We have taken peers like Pilbara Minerals Ltd (ASX: PLS), Galaxy Resources Ltd (ASX: GXY), to name a few. Considering the strengthened balance sheet position, reduction in cash cost of sales, progress in Borax and Lithium operations, decent outlook for lithium prices, and valuation, we give a “Buy” recommendation on the stock at the current market price of A$4.350, up by 4.819% on 9 March 2021.  

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

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