Latin Resources Limited 

LRS Details 

Marketable Parcel Facility Update: Latin Resources Limited (ASX: LRS) is a mineral exploration and development company. On 9 July 2021, LRS announced regarding the number of shares with shareholders less than Marketable Parcel Sale Facility. The company has a total of 5,133,274 shares, which are less than the marketable parcel facility. LRS will arrange for the sale of these shares at an average closing price. 

1QFY21 Highlights: During 1QFY21, the company has conducted drilling campaigns for 4,431 metres and 197 holes. The drilling samples affirmed a layer of white Kaolinite. Moreover, the presence of high-grade halloysite mineralization spanning the drilled area has been confirmed. In addition, the company has received an exploration license application (ELA6145) in the Lachlan Ford Belt (LFB).

FY20 Key Highlights:

• Incurred Losses – The company has incurred a loss in FY20 on the back of absence of operating income and higher other expenses in FY20.
• Increase in Cash Balance – The company has been witnessing a consistent increase in its cash balance YoY from last two years in FY19 and FY20.
• Nil Non-Current Borrowings – LRS has reported nil non-current borrowing in FY20.

Cash Balance (Source: Analysis by Kalkine Group)

Key Risks: 

• Exploration Risks: The company encounters exploration and mining-related risks for its projects.
• Foreign Headwinds: The company is exposed to foreign exchange risks. Any adverse change in foreign exchange prices may impact the business severely.
  

Outlook:  The company has planned to conduct 400m X 400m campaign at the Noombenberry Halloysite Project in 2Q 2021. LRS is undertaking a surface soil sampling to plan further on-ground exploration at the Yarara project. The company expects to start the fieldwork at Catamarca concessions in 1HFY21.

Stock Recommendation: The stock of LRS gave a return of ~-3.77% in the last one week and a return of ~-8.92% in the last one month. The current market capitalisation of LRS stands at ~$70.68mn as of 12 July 2021. The stock is currently trading below the average 52-weeks’ price level range of ~$0.006-~$0.100. Considering a nil non-current borrowing on the balance sheet as on 31 December 2020, consistent increase in cash balance in the same period, drilling and JORC resource completion planned at the Noombenberry project in 2021, current trading levels, and key risks associated with the buisness, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.051, as on July 12, 2021.

LRS Daily Technical Chart, Data Source: REFINITIV

Essential Metals Limited  

ESS Details

Business Updates:  Essential Metals Limited (ASX: ESS) is an exploration company in Australia. The company operates a portfolio of lithium, caesium, potassium, nickel, cobalt, and gold projects in mining regions in Western Australia, and a lithium asset in Canada. ESS has announced on 8 July 2021 regarding a drilling program at three prospects. The company has reported drilling program at Skanda, Maximus and AC75. The prospects confirm gold mineralisation and identifies prospective areas at all these three prospects. The Pioneer Dome Lithium project has identified two main deposits Cade and Davy along with multiple mineralised pegmatites. 

1HFY21 Key Financial Highlights: 

• Incurred Losses – The company has incurred a loss in 1HFY21 mainly due to completion of crushed pollucite ore sales in the previous financial year.
• Decline in Revenue: In 1HFY21, the ocmpany witnessed a decline in its revenues, due to absence of revenue through Sinclair Mine.
• Inconsistency in Segmental Revenue – The company has witnessed a radical change in its segmental revenue reported for 1HFY21. The company has reported nil revenue from Sinclair mine in 1HFY21 against $7.77mn in 1HFY20. In addition, the company has posted a revenue of $106k from its exploration segment in 1HFY21 against nil in 1HFY20.

Revenue trend (Source: Analysis by Kalkine Group)

Key Risks: 

• Forex Headwinds: The company deals with foreign currency. Therefore, any adverse foreign exchange prices may impact the financials.
• Regulatory Risks: The company requires regulatory approvals to operate its business efficiently. Therefore, any delay in regulatory approvals may impact the business of the company. 
  

Outlook:  The company is focused on low carbon emission by exploring essential metals. The company is likely to drill for lithium extensions and finding new mineralised pegmatites from July 2021 and onwards.

Stock Recommendation: The stock of ESS gave a return of ~13.63% in the last one month and a return of ~19.04% in the last three months. The current market capitalisation of ESS stands at ~$21.08mn as of 12 July 2021. The stock is currently trading slightly below the average 52-weeks’ price level range of ~$0.076-~$0.180. Considering a decline in revenue in 1HFY21, incurred a loss in 1HFY21, decent stock price movement in past few months, and associated key risks of exploration, we suggest investors to book profits and give a “Sell” rating on the stock at the current market price of $0.125, up by ~19.047% as on July 12, 2021. The stock price has seen a significant upside on the news of intersection of numerous new gold zones at Golden Ridge.

ESS Daily Technical Chart, Data Source: REFINITIV 

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

Note 2: 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.

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 uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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