Iluka Resources Limited (ASX: ILU)

Incorporated in 1954, ILU is a mineral sands company with segments including Sierra Rutile, Jacinth-Ambrosia/Mid-West, Cataby/Southwest, Mining Area C and United States/Murray Basin. Its market capitalization as of 14^th December 2021 stood at AUD 4.19 billion.

Financial & Operational Updates – In December 2021, The Vanguard Group ceased to be a substantial shareholder. On the other hand, Challenger Limited and Alphinity Investment Management Pty Ltd became substantial shareholders with the voting power of 5.03% individually. On 30^th November 2021, it updated its estimates in two of its Wimmera heavy mineral (HM) deposits i.e., WIM100 and WIM50. As per the 3QFY21 update, YTD sales of Z/R/SR lead to 676kt: zircon contributed to 266kt owing to steady ceramic production levels in China, and Rutile sales contributed to 142kt because of strong demand for high-grade feedstocks. As per its half-yearly updates, the net cash increased from ~AUD 50.2 million in 1HFY20 to ~AUD 220.1 million in 1HFY21. Its total Z/R/SR production rose by ~4% Y-o-Y where the sales increased by ~89% Y-o-Y. Mineral sands revenues clocked at AUD 735.6 million of revenue for 1HFY21. The EBITDA was also up by ~69% Y-o-Y from ~AUD 177.1 million in 1HFY20 to ~AUD 299.2 million in 1HFY21.

Technical Analysis: ILU's prices broke a downward sloping trend line by an upside, indicating the possibility of further upside movement in the stock. On a weekly chart, the leading indicator RSI (14-period) is trading in positive territory at ~61.817, indicating an uptrend. The trend-following indicators 21-period SMA and 50-period SMA are sustaining above the CMP, further supporting a positive bias. Now an immediate support level for the stock appears is at AUD 8.95, while resistance is at AUD 11.00 level.

Valuation Methodology: P/S Multiple Based Relative Valuation (Illustrative)

*% 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.

Stock Recommendation: EHL has provided ~45.64% of return in past nine months and is trading above the average 52-week price level band of AUD 5.67 and AUD 10.78. The stock has been valued using P/S multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). For the purpose of valuation, peers like South32 Ltd (ASX: S32), Rio Tinto Ltd (ASX: RIO), Alkem Ltd (ASX: AKE), and others have been considered. The company can trade at a slight discount to its peers, considering the inherit risks of mining such as price risk, funding availability, geological risks, etc. After considering its 3QFY21 performance, upside potential as indicated by the valuation and technical analysis, the investors with a high-risk appetite can consider it as a ‘Speculative Buy’ along with incorporating the support and resistance as one of the tools while analysing the investment opportunity. The stock was analysed as per the closing price of AUD 10.02 per share, up by ~1.008%, as of 14^th December 2021. However, the risk levels are extremely high in view of the future findings and its saleability.

Weekly Technical Chart – ILU

Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest. 

The Green colour line reflects the 21-period moving average. SMA helps to identify existing price trend. If the prices are trading above the 21-period, then it shows prices are currently trading in a bullish trend, (Vice – Versa).

The Blue colour line reflects the 50-period moving average. SMA helps to identify existing price trend. If the prices are trading above the 50-period, then it shows prices are currently trading in a bullish trend, (Vice – Versa).

The Yellow colour line represents the Trendline.

The Purple colour line in the chart’s lower segment reflects the Relative Strength Index (14-Period) which indicates price momentum and signals momentum in trend. A reading of 70 or above suggests overbought status while a reading of 30 or below suggests an oversold status.

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