Western Areas Limited 

WSA Details

Change in Director Interest: Western Areas Limited (ASX: WSA) engages in the processing, mining of nickel and other base metal in Australia. The market capitalisation of the company as on 19 May 2021 stood at $778.37 million. As per a recent announcement, the company has witnessed a change in Director Interest where Ian Macliver acquired 13,953 shares, Daniel Lougher-9,302 shares, Timothy Netscher- 7,771 shares and Dr Natalia Streltsova-8,870 shares.

Successful Completion of Share Purchase Plan:  WSA has recently completed a Share Purchase Plan of $15 million at a price of A$2.15 per share. It expects to issue approximately 6,976,718 new ordinary shares in the company.

Q3FY21 Financial Performance: During the period, the company has reported an improvement in the Forrestania mine production volume by 20% to 4,236 nickel tonnes, and Mill production of 4,267 nickel tonnes in concentrate, up by 21% compared to the previous quarter. The unit cost for nickel concentrate was lower by 13% at $4.07/lb for the quarter, compared to the previous period. The Cash balance of the company was $152.8 million at the end of the quarter.   

Production Performance (Source: Company Reports)

Outlook: WSA is well-funded to oversee the development of the Odysseus mine, and this might be a key growth project for the company in the future. The company is also actively exploring the first diamond drill hole at the Sahara prospect. The partnership with BHP Group Ltd and Jinchuan Group could stimulate production.  

Key Risk: Indonesian government policy banned nickel laterite exports, which make the Nickel prices volatile. The metal market has also been adversely affected due to the impact of the COVID-19 pandemic and its financial implications across the globe.

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.

Stock Recommendation: During the period, the company has reported an increased nickel sales receivable of $168.6 million, compared to $111.4 million in the previous quarter. The stock of WSA is trading below its average 52-weeks’ levels of $1.860-$3.100. The stock of WSA gave a positive return of ~13.87% in the past six months and a negative return of ~7.03% in the past one week. On a technical analysis front, the stock of WSA has a support level of ~$2.31 and a resistance level of ~$2.446. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe the company can trade at a slight premium to its peer average EV/Sales (NTM Trading multiple), considering improvement in volume and decent cash position. For the purpose, we have taken peers such as Mineral Resources Ltd (ASX: MIN), South32 Ltd (ASX: S32), to name a few. Considering the expected upside in valuation and current trading levels, no drawn debt and production growth, we recommend a ‘Hold’ rating on the stock at the current market price of $2.350, down by 2.893% as on May 19, 2021.  

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

Jupiter Mines Limited

JMS Details

Completion of Demerger of 'Juno': Jupiter Mines Limited (ASX: JMS) engages in manganese production and explores iron projects globally. The market capitalisation of the company as on 19 May 2021 stood at $587.69 million. As per a recent announcement, the company has implemented a demerger with Juno Minerals Limited (Juno), on 07 May 2021.

Declaration of Final Dividend: JMS had announced the final dividend of $0.02 for the financial year ended 2021, which will be paid on 21 May 2021.

Q4FY21 Financial Performance: During the period, the company has reported a revenue of $130.7 million in Q421, compared to $100.2 million in Q4FY20, from the Tshipi Borwa Manganese Mine. The company has an interest of 49.9% in Tshipi, which operates the mine in the southern part of the Kalahari manganese field. The cash position of the company was $88 million at the end of the quarter.  

Q4FY21 Financial Performance of Tshipi Borwa Manganese Mine (Source: Company Reports)

Outlook: The company successfully produced and exported 3.35 and 3.42 million tonnes in FY21 despite the impact of COVID-19. JMS is focused on expanding the Tshipi operations and expects an uplift in Manganese prices going forward.

Key Risk: The company’s operations might be impacted due to excessive rainfall that causes the flood at the bottom of the pit. The risk of the COVID-19 pandemic still lingers on and might impact the volumes produced in the near term. 

Valuation Methodology: P/E 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.

Stock Recommendation: The company added a railway transport channel to curb the fleet mobilisation delays and cost. The stock of JMS is trading below its average 52-weeks’ levels of $0.245-$0.375. The stock of JMS gave a positive return of ~7.37% in the past six months and a negative return of ~7.14% in the past one week. On a technical analysis front, the stock of JMS has a support level of ~$0.285 and a resistance level of ~$0.318. We have valued the stock using a P/E multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe the company can trade at some discount to its peer average P/E (NTM Trading multiple), considering the depression in the price of magnesium and the impact of the COVID-19 pandemic on the business. For the purpose, we have taken peers such as Mineral Resources Ltd (ASX: MIN), Champion Iron Ltd (ASX: CIA), to name a few. Considering the current trading levels and expected upside in valuation, completion of the target production, double-digit dividend yield, increase in dividend and decent cash position, we recommend a ‘Buy' rating on the stock at the current market price of $0.295, down by 1.667% as on 19 May 2021.  

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

Note: Investment decision should be made depending on the investors’ appetite on 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.

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