Stocks’ Details

Deterra Royalties Limited

Business Update: Deterra Royalties Limited (ASX: DRR) is a resources-focused royalties’ business. The market capitalisation of the company as on 13 January 2021 stood at ~$2.43 billion. As per a recent update, ASIC has granted relief to Deterra for reporting its first half-year from 15 June 2020 to 31 December 2020.

Successful Implementation of Demerger: The demerger of DRR and Iluka Resources Limited was implemented on 2 November 2020. Iluka issued shares of 422,769,681 as on 2 November 2020, and the number of Deterra shares on the issue was 528,462,101 as on the same date. The difference in the shares represents the 20% stake that Iluka will retain in Deterra, post de-merger.

The revenues of Deterra Royalties are primarily driven by MAC royalty and are linked to iron ore prices, sales volumes from the MAC Royalty area, and the exchange rate.

MAC Royalty pro-forma EBITDA Performance (Source: Company Reports)

Outlook: The ownership of MAC provides Deterra access to quality iron ore mine when measured by the scale, cost position and remaining asset life. The company expects MAC iron sales volumes to more than double by 2023 owing to BHP’s South Flank expansion.

Stock Recommendation: MAC Royalty is the prime asset of DRR, and it receives ongoing FOB revenue payments of 1.232% quarterly from the MAC Royalty Area.  As per ASX, the stock of DRR is trading below the average of its 52-week range of $3.900-$5.350. The stock of DRR gave a negative return of 3.78% in the past one week and a negative return of 4.78% in the last one month. On a technical analysis front, the stock of DRR has a support level of ~$4.525 and a resistance level of ~$4.727. Considering the aforesaid facts, volatile price movements and high debt to equity ratio, we are of the view that most of the positive factors have been discounted at the current trading level and give an ‘Expensive’ rating on the stock at the current market price of $4.58, down by 0.651% as on January 13, 2021.

Australian Strategic Materials Limited

Acquisition of Ziron Technology: Australian Strategic Materials Limited (ASX: ASM) is engaged in the mineral evaluation in its Dubbo Project and focuses on the production of speciality metals and oxides for advanced technologies. The market capitalisation of the company as on 13 January 2021 stood at ~$648.82 million. As per a recent update, ASM completed the acquisition of Ziron Technology Corporation on 3 November 2020 with a stake of 95% in the company. The acquisition will create synergy across ASM’s businesses and the company will own Ziron Tech’s patented low emission, high purity metal-refining technology and a pilot plant in Korea.

Q1FY21 Quarterly Update: During the quarter, the company had a successful demerger from Alkane Resources Limited. The cash position of the company at the end of the quarter stood at $16.5 million. ASM reported an operating cash outflow of $1.002 million in Q1FY21.

Q1FY21 Cash Flow from Operating Activities (Source: Company Reports)

Outlook: ASM plans to transition from the mine to the manufacturing phase, following the successful production of key metals at its pilot plant in Korea.

Stock Recommendation: The acquisition of Ziron Tech provides ASM ownership of all associated intellectual property including patented metal-refining technology. There was a decrease in the current ratio of the company to 0.16x in FY20 from 2.29x in FY19. As per ASX, the stock of ASM is currently trading above the average of its 52-week range of $0.840-$6.840. The stock of ASM gave a return of 50.69% in the past three months and a return of 7.29% in the last one month. On a technical analysis front, the stock of ASM has a support level of ~$4.722 and a resistance level of ~$6.106. Considering the steep price movement in the past months, decrease in liquidity of the company and aforesaid facts, we are of the view that most of the positive factors have been discounted at the current trading level and give an ‘Expensive’ rating on the stock at the current market price of $5.440, down by 0.184% as on 13 January 2021.

Salt Lake Potash Limited

Receipt of Debt Funds: Salt Lake Potash Limited (ASX: SO4) is engaged in the exploration and development of resource projects. The market capitalisation of the company as on 13 January 2021 stood at ~$277.29 million. As per a recent update, the company has announced that it has received debt funds from the initial tranche of US$105 million. This has enabled the company to make repayments of US$45 million Bridge Facility and further project construction.

Lake Way Project Update: The construction of the Lake Way project is on schedule and the company plans to commission the project on February 2021. The capital budget remains at $264 million as on December 2020. SO4 is planning to raise up to ~$57 million in equity capital at the price of $0.40c per share.

Pro-Forma Capital Structure (Source: Company Reports)

Outlook: The company is expected to produce high-quality SOP and sell at a 10% premium to standard grade SOP on a blende basis. It has entered into 224ktpa of binding offtakes across different countries.

Stock Recommendation:  The company reported a high debt to equity ratio of 1.17x in FY20. There was a reduction in a cash position to $7.03 million in FY20, from $19.30 million in FY19. The debt level stood at $63.84 million as on 30 June 2020. As per ASX, the stock of SO4 is trading below its average 52-weeks’ levels of $0.287-$0.732. The stock of SO4 gave a negative return of 32.20% in the past three months and a negative return of 4.76% in the last one month. On a technical analysis front, the stock of SO4 has a support level of ~$0.373 and a resistance level of ~$0.536. Considering the negative returns in the past months, high proportion of debt in the balance sheet, decrease in cash position and the absence of revenue visibility in the near term, we give an ‘Avoid’ rating on the stock at the current market price of $0.400, up by 2.564% as on January 13, 2021.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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