Western Areas Limited

WSA Details

Diggers & Dealers Presentation Highlights: Western Areas Limited (ASX: WSA) is a leading nickel producer in Australia that supplies high-grade nickel concentrates to the local and international smelter and refinery operators. On 2^nd August 2021, the company released a Diggers & Dealers presentation, wherein it notified that it is in discussion with offtake parties for future MREP production of high grade, premium nickel sulphide.

• WSA currently has several projects in the pipeline to drive nickel production well into the future.
• The company expects to witness small changes in traditional “smelter short term” to LOM contracts, with improved commercial terms and potential downstream benefits.
• WSA is witnessing significant inbound battery producer interest, targeting nickel offtake to feed production lines.
• From Flying Fox mine, WSA produced 5.7k Ni tonnes in FY21.
• From Spotted Quoll mine, WSA produced 11.1k Ni tonnes in FY21.

June Quarter Highlights:

• Rise in Forrestania Mine Production: Forrestania Mine Production rose 16% QoQ to 4,911 nickel tonnes in the June quarter, taking the total FY21 production to 16,812 tonnes.
• Decline in Unit Cash cost: Unit cash cost of nickel in concentrate stood at A$3.84/lb in June quarter, down by 6% on the previous quarter.
• Increase in Mill Production: During the June quarter, the company produced 4,622 nickel tonnes in concentrate, up 8% on the previous quarter.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Fluctuations in the Demand for Nickel: The company is exposed to the risks related to the fluctuations in demand for nickel, as it could impact the price of nickel in the market.
• Foreign Currency Risk: WSA is exposed to the risk related to the fluctuation in the exchange rates of foreign currencies.

Outlook: Looking ahead, the company expects its new projects like New Morning project to add additional nickel tonnage to the 10-year base case. For FY22, the company expects its Nickel production to be in the range of 16,000 to 17,000 tonnes. Forrestania Mine Development expenditure is expected to be between $5 million to $10 million. Elevated demand for stainless steel market and EV battery metals continues to support the outlook of Nickel market.

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

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: Over the last three months, the stock has provided a return of 9.78% and is trading slightly higher than the average 52-week price level band of $1.860 and $3.10. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price with an upside of high single-digit (in % terms). We believe that the company can trade at a slight premium that its peer average, considering decent June quarter performance, modest long-term production outlook, and also taking into account that the company has been trading at a premium in the past 3-years over its peer average. We have taken peers like Mineral Resources Ltd (ASX: MIN), Nickel Mines Ltd (ASX: NIC), and South32 Ltd (ASX: S32). Considering the company’s ongoing discussion with offtake parties for future MREP production, rise in June quarter production, supportive outlook for nickel market, and valuation, we give a “Hold” rating on the stock at the current market price of $2.580, down by ~1.527% as on 2 August 2020.

WSA Daily Technical Chart, Data Source: REFINITIV

Jupiter Mines Limited

JMS Details

AGM Highlights: Jupiter Mines Limited (ASX: JMS) is an Australian mining company with 49.9% beneficial interest in Tshipi é Ntle Manganese Mining Proprietary Limited, an independently operated manganese mining company that operates the Tshipi Borwa Manganese Mine. On 30 July 2021, the company held its Annual General Meeting (AGM), wherein the shareholders voted for six resolutions.

• AGM Results: Resolutions regarding the adoption of remuneration report and re-election of director - Mr Andrew Bell were not carried at the AGM. Rest all resolutions were carried.
• Unrest in South Africa: At the AGM, the management highlighted that Tshipi in the Northern Cape is witnessing rioting and looting; and the loading at Durban Port has been impacted.
• FY22 Focus: Amid the ongoing COVID environment, the company is focused on the production volume and costs. Further, the company is focused on the expansion of Tshipi mine to 4.5mtpa.

Key Takeaways from Q1FY22 Results:

• Rise in Mined Volume: For the quarter ended 31 May 2021 (Q1FY22), Tshipi reported a total mined volume of 3,954,451 BMC, up from 2,361,031 BMC reported in Q1FY21.
• Increase in Sales: Tshipi’s total sales for the quarter stood at 846,214 tonnes, up from 321,733 tonnes in Q1FY21.
• Increase In Marketing Fees: Marketing fee income of JMS for Q1FY22 stood at $1.8 million, up from $1.2 million in pcp.

Top and Bottom-Line Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Fluctuations in the Price of Manganese: As the company’s primary business is the production and export of manganese, JMS is exposed to the risks related to fluctuations in the price of manganese ore.
• Demand for steel: The company is exposed to the risk associated with a reduction in the global demand for steel.

Manganese Market Outlook: Manganese is considered cheaper and more abundant than both cobalt and nickel, making it a potential replacement for traditional cobalt and nickel as the cathode in a lithium-ion battery. Further, the research has shown that manganese-based cathode has the potential to store more energy than cobalt or nickel. The increasing use of manganese in batteries for electric vehicles and clean energy applications is a significant driver for future manganese consumption.

Company Outlook: Following the recent demerger of its iron ore assets, JMS is now well placed to progress the development of the Mount Mason DSO hematite project as its primary focus in the near term. Looking ahead, the company is focused on expanding Tshipi to a 4.5 Mtpa operation to leverage upon growth in the steel and EV battery markets and resource depletion at existing mines.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

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 JMS is currently trading lower than the average 52-weeks price level band of $0.255 -$0.375. We have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). We believe that the company can trade at a slight discount, considering reduced top and bottom line in FY21, the uncertainty surrounding the impact of COVID-19 pandemic, and also taking into account that the company has been trading at a discount in the past 3-years over its peer average. We have taken peers like Lynas Rare Earths Ltd (ASX: LYC), Nickel Mines Ltd (ASX: NIC), Alumina Ltd (ASX: AWC), etc. Considering the recent demerger of JMS iron ore assets, decent performance in May 2021 quarter, expected rise in demand for manganese ore, modest outlook, current trading level and valuation, we give a “Buy” rating on the stock at the current market price of $0.290, as on 2 august 2021, 2:30 PM (GMT+10), Sydney, Eastern Australia.

JMS Daily Technical Chart, Data Source: REFINITIV

Talga Group Ltd

TLG Details

New Appointments Announced: Talga Group Ltd (ASX: TLG) is a battery anode and graphene additives company that owns several high-grade Swedish graphite projects. On 2^nd August 2021, the company announced the appointment of senior executive Melissa Roberts as the Group’s Chief Financial Officer. The company also announced the appointment of the Chair of its Swedish Board of Directors.

June 2021 Quarter Highlights:

• Completed DFS for Vittangi Anode Project: During the quarter, the company completed a Detailed Feasibility Study (DFS) for its Vittangi Anode Project. DFS demonstrated robust economics for the project, confirming the Project’s exceptional potential to supply globally competitive green graphite anode.
• Construction of EVA Plant: TLG commenced the construction of fully funded and permitted Electric Vehicle Anode (EVA) plant in Luleå, Sweden, during the quarter to further expand the scale of Talnode® customer qualification sample.
• MOU with FREYR: During the quarter, the company signed a Memorandum of Understanding (MOU) with FREYR to supply Swedish active anode materials for FREYR’s battery cell production under development in Norway.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Change in the Demand of Graphite: The company is exposed to the risks related to the fluctuations in the demand of graphite as an anode product.
• COVID-19 Uncertainties: The COVID-19 pandemic and associated restrictions could impact the company’s operations and cost of doing business.

Outlook: Due to the favourable environmental footprint its rising applications, the demand for graphite as an anode product is expected to rise in the coming future. Lately, the company has witnessed an increased number of Tier 1 battery and automotive customers interested in its Talnode® products. Looking ahead, the company remains focused on exploring additional growth options for its northern Sweden anode operation.

Stock Recommendation: The stock of TLG has corrected by 9.67% in the last three months and is trading slightly higher than the average 52-week price level band of $0.480 and $2.150. Considering the rise in H1FY21 revenue, improved current ratio, robust economics of Vittangi Anode Project, expected rise in the demand for graphite, technical levels mentioned in the below para, and the key risks associated with the business, we give a “Speculative Buy” rating on the stock at the current market price of $1.375, as on 2 August 2021, 3:10 PM (GMT+10), Sydney, Eastern Australia. 

Technical Commentary:

TLG's prices recently broke a major resistance level of AUD 1.290 and trading above the breakout level, indicating an upward direction for the stock. Prices are sustaining above a downward sloping trend line breakout level, further supporting a positive stance. On the daily chart, the leading indicator RSI (14-period) is trading in positive territory at ~55.27 levels and indicating an upward movement. Now an immediate resistance level for the stock appears at AUD 1.600, while support is at AUD 1.250 level.

TLG Daily Technical Chart, Data Source: REFINITIV

Note: The purple color line in the chart depicts RSI (14-period) while the yellow color line represents the trend line.

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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