Nickel Mines Limited

NIC Details

Director’s Interest: Nickel Mines Limited (ASX: NIC) is engaged in mining of nickel ore and nickel pig iron production in Australia. On 8 October 2021, the company has updated that its Director, Justin Werner has undergone a change of shareholding in the company and has acquired 555,555 fully paid ordinary shares for a total consideration of $499,999.50.

Acquired 80% Interest in Angel Nickel Project: On 1 October 2021, NIC acquired 80% interest in the Angel Nickel project for US$210 million. Angel Capital Private Limited (‘Angel Nickel’) is the 100% owner of the project, which is under construction. NIC now owns 80% interest across the RKEF operations comprising Ranger Nickel, Angel Nickel, and Hengjaya Nickel.

Raised US$150 Million Capital: On 9 September 2021, NIC raised US$150 million via the issuance of senior unsecured notes (at 6.50% interest) maturing on 1 April 2024 for general corporate & working capital needs.

1HFY21 Results:

• The company witnessed growth in sales revenue to US$288.7 million in 1HFY21, up by 27% YoY supported by robust RKEF production, higher realised Nickel Pig Iron (NPI) prices, and material profit contribution from the Hengjaya Mine.
• The bottom-line grew up by 82% YoY to US$83.0 million, and the NPAT attributable to the shareholders increased by 168% YoY to $65.3 million in 1HFY21.
• During 1HFY21, NIC paid US$45 million under the Ranger Debt facility. The company held US$190 million cash and US$175 million debt as of 30 June 2021.

Sales Revenue & Net Income from 1HFY20-1HFY21; (Analysis by Kalkine Group)

Key Risks: The company faces volatility in the price, demand, and nickel production, COVID-19 disruptions, ore, and reserve estimation.

Outlook:

• The company expects to witness a significantly robust 2HFY21 given the trend of NPI prices and its strengthened EBITDA margins.
• NIC is advancing well with the construction at the Angel Nickel project and is on track to commission in the 2HFY22. NIC plans to provide a detailed project update in the upcoming quarterly report.
• With the production from the Angel Nickel project, NIC plans to more than double the yearly nameplate production capacity from 30K nickel tonnes to 66K tonnes.
• NIC plans to increase the saprolite production levels from the Hengjaya Mine from 2Mtpa to 3Mtpa and further and explore limonite sales potential in FY22.

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

Source: 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 stock of NIC gave a negative return of ~14.61% in the past three months and a negative return of ~24.29% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.743 - $1.535. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight premium than its peers’ average EV/Sales multiple, considering its decent financial results in 1HFY21, recently signed MOU to acquire the Siduarsi Nickel-Cobalt project in Indonesia, strong NPI price momentum expected in 2HFY21. For this purpose of valuation, few peers like Mineral Commodities Limited (ASX: MRC), Mincor Resources NL (ASX: MCR), Panoramic Resources Limited (ASX: PAN), and others have been considered. Considering the current trading levels, decent financial performance in 1HFY21, valuation upside, and plans to ramp up production capacity on the newly acquired Angel nickel project, we give a ‘Buy’ rating on the stock at the current market price of $0.935, down by ~2.605%, as on 12 October 2021.

NIC Daily Technical Chart, Data Source: REFINITIV  

NRW Holdings Limited

NWH Details

AGM Announced: NRW Holdings Limited (ASX: NWH) provides diversified contract services through its Civil, Mining, and Minerals, Energy & Technologies segments to the infrastructure and the resources sector in Australia. On 30 September 2021, NRW declared to cancel the Extraordinary General Meeting (EGM) and hold the AGM (Annual General Meeting) on 25 November 2021. NWH will now put forward Resolution 1 – an approval for financial assistance in the upcoming AGM.

Primero Wins Contract: NWH recently obtained the contract for the Finniss Lithium Process Plant for Core Lithium. Primero Group Ltd., a newly acquired WOS (wholly owned subsidiary), has received the Engineering, Procurement and Construction (EPC) contract.

NWH plans to begin the site works in March 2022 and commission the facility in October 2022.

FY21 Highlights:

• Final Dividend Declared: The board announced a fully franked final dividend of five cents per share, payable on 13 October 2021. The total dividend for FY21 stands at nine cents per share.
• Acquired Primero: During FY21, NWH acquired Primero Group Limited (Primero), an engineering, procurement, and construction (EPC) services provider, for $99.9 million.
• Pro-Forma Net Debt Reduced: NWH sold Boggabri assets in July 2021, reducing the Pro-Forma net debt to $88.7 million as of 30 June 2021 versus $139.7 million as of 30 June 2020.
• Increase in Receipts: NWH recorded $2,363.45 million cash receipts from customers in FY21 versus $2,120.57 million in FY20.
• New Project Wins: NWH secured new projects such as Bunbury Outer Ring Road and Karara Mining and received an LOI (Letter of Intent) from Coronado Curragh Pty Limited during FY21.

Revenue Highlights; (Analysis by Kalkine Group)

Key Risks: The company faces delays in projects, logistical, and sourcing issues due to COVID-19. NWH must comply with the regulations periodically and use expertise & innovation to protect its IP.

Outlook:

• The company expects revenue of $2.4 - $2.5 billion and Earnings (Operating EBIT) between $145 - $155 million in FY22.
• As of 30 June 2021, NWH had an order book of $3.4 billion versus $3.0 billion as of 30 June 2020. The order book is estimated to grow to at least ~$4.4 billion after the announcement of LOI for the extension of mining services at Curragh.
• NWH has a robust opportunity pipeline of $14.5 billion from all business segments.

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

Source: 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 stock of NWH gave a negative return of ~4.39% in the past three months and a negative return of ~12.56% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $ 1.360 - $3.190. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ median EV/Sales multiple, considering its lower NPAT and net cash inflows from operations in FY21, COVID-19 risks of project delays, increased labour costs, & availability. For this purpose of valuation, few peers like Perenti Global Limited (ASX: PRN), Monadelphous Group Limited (ASX: MND), Macmahon Holdings Limited (ASX: MAH), and others have been considered. Considering the current trading levels, increase in top-line, order book and estimated pipeline for FY22, new project awards in FY21, valuation, we give a ‘Buy’ rating on the stock at the current market price of $1.735, as on 12 October 2021, 10:30 AM, Sydney, Eastern Australia.

NWH Daily Technical Chart, Data Source: REFINITIV 

Mineral Resources Limited

MIN Details

Update on JV Operations: Mineral Resources Limited (ASX: MIN) provides mining services across lithium and iron ore projects in Western Australia. Recently, Norwest Energy NL (Norwest) updated its JV operations on the Exploration Permit EP368 held along with Energy Resources Limited, a 100% subsidiary of MIN.

The JV conducted petrophysical analysis at the top of the Kingia Sandstone and reported net gas pay of 20.2 metres (TVD) and net gas pay zone of supreme quality. In addition, the company estimates 600-800 metre gas column and expects to exceed the discovery of Norwest's pre-drill high case prospective resource.

FY21 Results:

• Higher Top-Line: MIN reported $3.7 billion in revenue, up by 76% YoY due to Mining Services’ production volumes, commodities shipments, and robust iron ore pricing in FY21.
• Record Commodity Exports: The company exported 17.3 million wet metric tonnes (wmt) of iron ore, up by 17.3% YoY due to the growth of Yilgarn Hub. MIN exported 485,000 dry metric tonnes (dmt) of spodumene in FY21.
• Increase in NPAT: The Statutory NPAT rose to $1,268 million, depicting a rise of 26% on pcp.
• Liquidity Position: MIN held $1.54 billion cash and cash equivalents as of 30 June 2021.

Operating Cash Flows Highlights from FY17-FY21; (Analysis by Kalkine Group)

Key Risks: The company faces changes in the price, production, and demand of iron ore and nickel. MIN faces COVID-impact on the transportation of iron ore due to the shortage of road train drivers restrict the movement of materials.

Outlook:

• MIN expects the Mining Services’ volumes to increase by 15-20% YoY. The company forecasts a capex of $650 million in FY22.
• The company expects to export 10.5 to 11 Mt iron ore from the Yilgarn Hub, 10.5 to 11 Mt iron ore from its Utah Point Hub, and 450 to 475Kt of Spodumene from Mt Marion in FY22.
• MIN will hold its Annual General Meeting (AGM) on 18 November 2021.
• MIN plans to develop two new iron ore hubs - Ashburton and South-West Creek in the next three years.

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

Source: 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 stock of MIN gave a positive return of ~13.95% in the past nine months and a positive return of ~75.98% in the past year. The stock is currently trading slightly lower than the 52-weeks’ average price level band of $24.095 - $65.380. The stock of MIN has a support level of ~$42.10 and a resistance level of ~$48.50. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of high single-digit upside (in % terms). The company might trade at a slight premium than its peers’ average EV/Sales multiple, considering its decent record increase in tonnes, earnings, and dividends and expected growth of Mining Services volume in FY22. For this purpose of valuation, few peers like BHP Group Limited (ASX: BHP), OZ Minerals Limited (ASX: OZL), Rio Tinto Limited (ASX: RIO), and others have been considered. Considering the current trading levels, decent financial performance in FY21, valuation upside, and expected increase in the mining services volume in FY22 and export guidance, we give a ‘Hold’ rating on the stock at the current market price of $44.330, down by ~1.094% as on 12 October 2021.

MIN 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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