Stocks’ Details

Mineral Resources Limited

Decent Growth in Production and Shipments: Mineral Resources Limited (ASX: MIN) is an integrated mining services provider, with a focus on the iron ore and hard-rock lithium sectors in Western Australia. The market capitalisation of the company stood at ~$6.67 billion as on 5^th February 2021. During the quarter ended December 2020 (Q2 FY21), the company recorded a total iron ore production of 5.1 million wet metric tonnes (wmt), reflecting a rise of 22% against Q1 FY21. Iron ore shipments for the quarter increased by 23% to 4.4 million wmt against Q1 FY21. During the quarter, the company earned an average iron ore revenue of US$138 per dry metric tonne (dmt), indicating a rise of 42% against the previous quarter. This was aided by strong iron ore prices. During September 2020 (Q1 FY21), the company’s total iron ore production was steady at 4.2 million (m) wet metric tonnes (wmt). In addition, mining services volumes witnessed a rise of 24% over Q1 FY20.

During FY20, the company has not experienced any material impact on its financial performance from COVID-19. During the year, the company reported record statutory EBITDA amounting to $2.01 billion, which included a gain of $1.30 billion on the sale of a 60% interest in the Wodgina Lithium Project. Statutory Net Profit After Tax (NPAT) for the period stood at $1.002 billion, and underlying NPAT amounted to $334 million, reflecting a rise of 63% on pcp.  With respect to the recent update in relation to the outbreak of COVID-19 in Perth, Western Australia, the company stated that it has executed the Western Australian State Government Stay at Home and Closure directions. However, all sites are operating as normal, and the movement of workers would be minimized.

Key Metrics (Source: Company Reports)

Outlook: For FY21, the company expects mining services production volumes to be at the upper end of the guidance range of 20% to 25%. In addition, the company expects the shipment to be at the lower end of the guidance range of 20.5m wmt to 23.2m wmt.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The company closed FY20 with a net cash position of $231 million. The stock of MIN has corrected 9.24% in the last one months, respectively. We have valued the stock using the price to earnings multiple based illustrative relative valuation and arrived at a target price with low double-digit upside (in percentage terms). On a technical analysis front, the stock has a support level of ~$23.999 and a resistance level of ~$38.92. Hence, considering the rising production, guidance, and current trading level, we give a “Buy” recommendation on the stock at the current market price of $34.970 per share, down by 1.187% on 5^th February 2021. 

Pilbara Minerals Limited

Decent Growth in Production: Pilbara Minerals Limited (ASX: PLS) is involved in the exploration of lithium and tantalum. The market capitalisation of the company stood at $2.94 billion as on 5^th February 2021. During the quarter ended 31^st December 2020, the company witnessed a rise of 62% in sales from the prior quarter, which delivered record quarterly spodumene concentrate shipments of 70,609 dry metric tonnes. The company reported spodumene concentrate production of 63,712 dmt against 62,404 dmt in September 2020 quarter. In addition, sales for tantalite concentrate stood at 18,541 lbs as compared to 25,222 lbs in September 2020 quarter.  On 14^th January 2021, the company finished capital raising of around $60.6 million through underwritten Retail Entitlement Offer. As a result of this, total capital raised from the Entitlement Offer stood at $121.3 million. The company would deploy these funds to finance the acquisition of the shares in Altura Lithium Operations Pty Ltd for which the company inked a Share Sale Agreement with Altura Mining Limited.

Quarterly Spodumene Concentrate Shipments (Source: Company Reports)

Outlook: The company is focused on achieving annual production of ~330,000 dmt 6% spodumene concentrate in FY21. In addition, the company would also be focused on achieving progress on incremental expansion.

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

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company closed December 2020 quarter with a cash balance of $248.0 million. In the past three and six months, the stock of PLS has surged 141.52% and 159.19%, respectively. As a result, the stock is trading towards its 52-week high level of $1.467. Considering this, we have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price with correction of mid-single digit (in percentage terms). For the purpose, we have taken peers such as Galaxy Resources Ltd (ASX: GXY), Nickel Mines Ltd (ASX: NIC) and Orocobre Ltd (ASX: ORE), to name few. On a technical analysis front, the stock has a support level of ~$0.694 and a resistance level of ~$1.225. Hence, considering the valuation, steep price movement in the past months, and current trading level, we are of the view that most of the positive factors have been discounted at current trading levels and give an “Expensive” recommendation on the stock at the current market price of $0.985 per share, down by 2.956% on 5^th February 2021.

Galaxy Resources Limited

A Look at December 2020 Quarter: Galaxy Resources Limited (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 $1.39 billion as on 5^th February 2021. During Q4 FY20, the company recorded lithium concentrate production of 33,344 dmt from Mt Cattlin, Australia and achieved full-year guidance and FY20 production stood at 108,658 dmt at 5.95% Li₂O. The company shipped 75,336 dry metric tonnes of lithium concentrate. In addition, the company successfully wrapped up A$160.7 million Equity Financing package, which is to be deployed at Sal de Vida Stage 1 and James Bay.

Key Metrics (Source: Company Reports)

Guidance: With respect to Sal de Vida, Argentina, the company is expecting completion of the FEED packages and an update of the feasibility study in late Q1 2021.  For 2021, the company is expecting total material mined in the range of 2.3 – 2.6 million bcm.

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

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: At the end of December 2020 quarter, the company was debt-free with cash and financial assets of US$215.1 million. In the past three months, the stock of GXY has provided a return of 86.69%. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price, which is offering an upside of low double-digit (in percentage terms). For the purpose, we have taken peers such as Pilbara Minerals Ltd (ASX: PLS), Altura Mining Ltd (ASX: AJM) and Orocobre Ltd (ASX: ORE), to name few. On a technical analysis front, the stock has a support level of ~$2.54 and a resistance level of ~$3.296.  Thus, in light of the decent production and shipment level, debt-free balance sheet and returns in the past months, we give a “Hold” recommendation on the stock at the current market price of $2.660 per share, down by 3.972% on 5^th February 2021.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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