Neometals Limited

Decent Outlook: Neometals Limited (ASX: NMT) is into the operations involving industrial mineral and metals. It has advanced projects and has a key focus on Lithium and Titanium-Vanadium development businesses. Recently, the company has divested a stake of its 13.8% equity interest for $103.8 million in the Mt Marion Lithium Project to its co-shareholders, Ganfeng Lithium Co. Ltd and Mineral Resources Limited. This will strengthen the liquidity of the firm and support its strategic deployments in multiple advance projects. In Parallel with the sale agreement, the group has secured a binding life-of-mine annual offtake option for 57,000 tonnes per annum of 6% spodumene concentrate from the mine. The offtake Agreement provides potential feedstock for downstream processing into higher?margin lithium chemicals.

During the half year, the company showed steady progress on its recycling project of lithium-ion battery (“LiB”) and the company had broadened its focus initially from consumer electronics batteries cobalt recovery to a multi-chemistry flowsheet that can accommodate various types of lithium-ion batteries. The LiB recycling development follows significant market interaction.


Lithium Business Unit (Source: Company Reports)

Among the key financials, the net income after taxes declined by 73.7% during the half-yearly period ending 31-Dec-2018 to ~$1.20 million in HY18 as compared to ~$4.58 Mn in the prior corresponding period, primarily driven by increased operating expenses, and higher impairment expenses. It reported a lower RoE of 1.3% in 1HFY19 as compared to the industry median of 6.8%. However, the company enjoys a debt-free status with a current ratio of 21.68x which is higher than the industry median of 1.90x.

What to Expect From NMT: The company has a strategy of growing market capitalization from maximising returns from existing operations, increasing margins via higher value (downstream) products and developing growth options. It also aims to combine innovative cost advantages and strong partners to develop a portfolio of globally significant mineral resources into lower-risk, long-life, high-margin operations to optimize stakeholder returns. And, it will also maintain a defensive balance sheet strategy coupled with disciplined capital allocation.

Lithium carbonate and lithium hydroxide prices have seen historical highs during the year buoyed by strong demand growth from the lithium-ion battery industry. In Q1 2018 the price of lithium carbonate battery grade in China peaked at US$24,750/tonne.

Meanwhile, the share price of the company has fallen 11.54% in the past six months as at March 18, 2019 and is trading close to the 52-week lower level of $0.200, posing an attractive opportunity for accumulation at the current juncture. Hence considering the strong demand of lithium-ion products and looking at decent PE level of 7.4x, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.240 per share (up 4.348% on 19 March 2019).
 

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