Galaxy Resources Limited

Pleasing Results Despite Difficult Market Conditions: Galaxy Resources Limited (ASX: GXY) is primarily engaged in the production of lithium concentrate and exploration of minerals in Australia, Canada and Argentina.

1H19 Results: During the six months ended 30 June 2019, total lithium concentrate production stood at 98,334 dry metric tonnes. Sales volume for the period stood at 44,630 dmt. Underlying net profit after tax was reported at US$4.9 million. Net loss after tax for the period stood at US$171.9 million. As at 30 June 2019, the company had cash amounting to US$176.3 million. Total recoverable injury frequency rate of the 12 months period was reported at 14.31. Revenue from operations was reported at US$28.0 million, as compared to US$88.4 million in the prior corresponding period. Revenue for the current period was lower due to lower realised selling price and sales volumes due to customer shipping schedules as compared to pcp.

Performance Summary (Source: Company Reports)

Acquisition of Loan Facility: The company recently executed an agreement with a consortium of lenders, led by funds managed by Tribeca Investment Partners Pty Ltd. The agreement involves the acquisition of senior secured loan facility with a principal value of US$28.8 million, provided to Alita Resources Limited.

Guidance: The company expects lithium concentrate production volume for Q3 FY19 in the range of 45,000 – 55,000 dry metric tonnes. Full-year production is expected in the range of 180,000 – 210,000 dmt. Shipping volumes for the third quarter are targeted in the range of 60,000 – 70,000 dmt.

Stock Recommendation: The stock of the company generated negative returns of 8.75% and 27.00% over a period of 1 month and 3 months, respectively. The operational performance in the first half was decent amidst difficult market conditions. The company reported decent production volumes, reduced operating costs, and improved product quality in comparison to 2H18. The company is continuously focused on safety, productivity, capital and operational cost efficiency, reinforcing its current market position as a low-cost producer of lithium concentrate. Currently, the stock is priced at a 52-week low level of $1.060. Hence, considering the above-stated factors and current trading levels, we give a “Speculative Buy” recommendation on the stock at the current market price of $1.060, down 3.196% on 04 September 2019.
 

Pilbara Minerals Limited

Recent Capital Infusion to Strengthen Balance Sheet: Pilbara Minerals Limited (ASX: PLS) is engaged in the exploration and development of mineral resources, primarily the Pilgangoora Project.

Equity Raising: The company has recently executed a Share Subscription Agreement with CATL, China’s largest EV battery manufacturer. Following the completion of A$55.0 million strategic placement, CATL will come up with an 8.5% stake in Pilbara Minerals. CATL has strong relationships with leading global EV manufacturers, including BMW, Honda, Volkswagen and Toyota. The equity raising also involves a A$36.5 million underwritten institutional placement for a total of A$91.5 million. In addition, it will also be offering a Share Purchase Plan to eligible shareholders to raise an additional estimated amount of A$20.0 million.

Use of Proceeds: The company will utilise the capital raised to add to its general working capital for strengthening the balance sheet. The funds will also assist in making payment of an initial 21% equity interest in the proposed POSCO Downstream JV. The proceeds will also support the Pilgangoora Project Stage 1 Process Plant works and RevisedStage 2 expansion studies.

Joint Venture with POSCO: The company recently finalised a binding term sheet with POSCO for the formation of an incorporated Joint Venture in South Korea. The purpose of the JV is to develop and operate a 40ktpa lithium hydroxide and carbonate chemical conversion facility.


Equity Raising timetable (Source: Company Reports)

Financial Highlights for FY19: During the year ended 30 June 2019, the company completed the first shipment of spodumene concentrate to customers in October 2018. It completed the commissioning and ramp up of the Stage 1 Pilgangoora Project. Total spodumene concentrate production for the year was 174,952dmt. 128,373 dmt of spodumene concentrate was shipped to customers at an average selling price of US$674/dmt CIF.

Spodumene Concentrate Production – Monthly Ramp Up (Source: Company Reports)

Suspension from Official Quotation on ASX: On the company’s request, its securities have been suspended from quotation, pursuant to the release of capital raising announcement.

Stock Recommendation: The stock of the company generated negative returns of 24.73% in 1 month. The recent capital raising will enable the company to strengthen its balance sheet and enhance the financial flexibility to support its Pilgangoora Project as at ramps up to Stage 1 of spodumene concentrate nameplate capacity. The formation of a joint venture with POSCO has further diversified the company’s global customer base and provides it with exposure to the rapidly growing South Korean lithium market. Some of its objectives for FY20 and beyond involve a total recoverable injury frequency rate of less than 4.0, diversification into downstream lithium chemical processing, achieve nameplate production capacity in operation of Pilgangoora Stage 1 and development of Pilgangoora Stage 2, aimed at an approximate production of 800,000 – 850,000 mt of 6.0% spodumene concentrate per annum.

The stock was in trading halt from 28 August 2019 at the request of the company, pending the release of an announcement related to capital raising.  The company updated the market with its capital raising program on 04 September 2019, and with this, the suspension will be lifted on 05 September 2019. The stock traded at a market price of $0.350, as at 28 August 2019.

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