Mineral Resources Limited

MIN Details

Decent Growth in FY20 Results: 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 ~$7.44 billion as on 12^th January 2021.  As per the recent quarterly rebalance of the S&P/ASX Indices, the company has been added to S&P/ASX 100 Index, which became effective on 21^st December 2020. During the quarter ended 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, which was in line with guidance.

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.

Key Financials (Source: Company Reports)

Outlook: MIN entered FY21 with a healthy balance sheet and positive momentum in its operations. The company expects mining services volumes for FY21 to increase in the range of 20 to 25%.

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 surged 68.77% and 141.06% in the last six and nine months, respectively. Currently, the stock is trading towards its 52-week high of $41.190.  Considering this, we have valued the stock using the price to earnings multiple based illustrative relative valuation and arrived at a target price with correction of high single-digit (in percentage terms).  In addition, we have considered 14-day RSI, and it was observed that the stock is currently in the overbought zone and may witness some correction, going forward. On a technical analysis front, the stock has a support level of ~$24.108 and a resistance level of ~$41.233. Hence, considering the returns on stocks, higher valuation, RSI levels, and current trading levels, we advise investors to book profit and give a “Sell” rating on the stock at the current market price of $38.900 per share, down by 1.519% on 12^th January 2021.

MIN Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

OZ Minerals Limited

OZL Details

Decent Results from Drilling Program: OZ Minerals Limited (ASX: OZL) is a mining company with a major focus on copper. The market capitalisation of the company stood at $6.96 Bn as on 12^th January 2021. On 16^th November 2020, the company finished a drilling program at prominent Hill Mineral Resource. The highlights of the results can be seen in the following picture:

Drilling Results (Source: Company Reports)

During Q3FY20, the company achieved a record underground ore movement of 1mt at Prominent Hill. The company recorded total gold and copper production of 66,746 ounces and 23,873 tonnes, respectively. During 1H FY20, the company reported net profit after tax (NPAT) amounting to $80 million, reflecting a rise of 82% due to higher gold volumes and strong gold prices. EBITDA for the period stood at $251 million at a robust operating margin of 44%.  OZL witnessed a rise of $49.5 million in operating cash flows to $150.7 million because of higher customer receipts with higher gold volumes and prices, as well as lower payments for exploration and corporate development activities.

Production Guidance: For FY20, the company expects gold production in the range of 242,000-259,000 ounces and copper production between 88,000-105,000 tonnes.

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 Q3 FY20 with net cash position of $18 million after Carrapateena one-off deferred consideration payment and growth investments. The stock of OZL has moved up by 68.79% and 139.91% in the last six and nine months, respectively. As a result, the stock is trading towards its 52-week high of $21.230. Considering this, we have valued the stock using the price to earnings multiple based illustrative relative valuation and arrived at a target price with correction of high single-digit (in percentage terms).  For the purpose, we have taken peers such as South32 Ltd (ASX: S32), Mineral Resources Ltd (ASX: MIN), Iluka Resources Ltd (ASX: ILU), to name few. In addition, we have considered 14-day RSI, and it was observed that the stock is currently in the overbought zone and may witness some correction, going forward. On a technical analysis front, the stock has a support level of ~$14.321 and a resistance level of ~$21.195. Hence, considering the returns on stocks, higher valuation, RSI levels, and current trading levels, we advise investors to book profit and give a “Sell” rating on the stock at the current market price of $20.220 per share, down by 3.852% on 12^th January 2021.

OZL Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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