Poseidon Nickel Limited

POS Details

Poseidon Nickel Limited (ASX: POS) is an exploration company with nickel sulfide projects. The company owns Mt Windarra Project, Black Swan Project, Gold Reprocessing Project, and Lake Johnston Project.

Q3FY22 Snapshot:

• The company is advancing metallurgical test work on various ore resources at its Silver Swan and Black Swan projects.
• Regrind test work on Black Swan Disseminated samples proved the possibility of achieving higher nickle grade resources.
• POS is progressing additional drilling at the Black Swan project. Due to work scope changes and industry-wide uncertainty, the bankable feasibility study has been postponed to September 2022.
• In the Lake Johnston Exploration update, POS is likely to commence RC drilling up to 15,000 meter in the June 2022 quarter.
• It had realized $407k cash receipts from customers in Q3FY22. And due to sizeable exploration related expenses, it had posted negative operating cash flows of $2.17 million.
• POS closed the period with a cash balance of $16.78 million as of March 31, 2022.
• As announced on April 27, 2022, updated mineral resources at Silver Swan showed indicated and inferred resources at $130kt @9.6% Ni for 12,400t Ni at a 4.5% Ni COG.

Key Investment Considerations (Analysis by Kalkine Group)

Key Risks: POS is yet to build scalability and reach the commercial scale of nickle production. Any delay in the restart plan at its Black Swan project may outrun cost estimates and drain existing liquidity.

Outlook: The second preliminary economic assessment of its Black Swan project is expected to be completed by June 2022. The company aims to reach a Final Investment Decision (FID) on its Black Swan project by September 2022.

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

Source: 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 POS has been corrected by ~28.06% in the past three months. The stock of POS is trading below the average of the 52-week high-low price of $0.160-0.062. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers, considering the supply chain disruptions and uncertainty clouding the metals and mining sector across the globe spanning from the ongoing Ukraine and Russia war crisis. For the purpose of valuation, peers such as Mineral Resources Ltd. (ASX: MIN), Nickel Mines Ltd. (ASX: NIC), Panoramic Resources Ltd. (ASX: PAN), and others have been considered. Considering the restart plan at its Black Swan project, mineral resources update at its Silver Swan project, decent cash balance, upside potential as indicated by the valuation, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of $0.071, down by ~7.79% as of May 06, 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

POS Daily Technical Chart, Data Source: REFINITIV  

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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