Syrah Resources Limited

Sales volume expected to exceed production volume: Syrah Resources Limited (ASX: SYR) has recently announced its interim updates for Q1 2019. As per the releases, the group continues to increase the Balama Graphite Operation in Mozambique and provides an update on its expected Q1 2019 graphite pricing, production and cash position.

The production of the company is on track in Q1 2019 for approximately 45kt in line with the lower end of guidance range of 45kt - 50kt. The production optimisation and cost management actions are continuing. The company expects that the sales volumes would exceed its production volumes, between 45kt - 50kt dependent on shipping completions in March. The pricing for Q1 2019 is close to completion, however, subject to the final shipping schedules.


Cash Flow from Operations (Source: Company Reports)

What to Expect From SYR: The net cash outflow of the group is expected to be lower in Q2 2019 versus Q1 2019, as Balama forecast to be operating cash positive and BAM capital spend is lower. The sustaining capital expenditure in 2019 is forecasted to be around US$10-US$15 million, including preparatory works for construction of Tailing Storage Facility (TSF) Cell 2.

The company will release 2018 Annual Report on 29 March 2019 and Q1 2019 Quarterly Activities Report and Appendix 5B to be released on 29 April 2019. The company’s stock is quite volatile as, in the past three months, it delivered the return of -41.44% and, in the previous one month, it delivered -22.63%. Hence, the stock seems to be trading at attractive prices. By considering aforesaid facts and current trading level, we give a “Speculative Buy” rating on the stock at the current market price of A$1.150 per share (up 8.491% on 14 March 2019).

Independence Group NL

Cash increased by 306% on half-yearly basis: Independence Group NL (ASX: IGO) is into mining and exploration. The company strategically focuses on high-quality assets of scale and longevity coupled with a strategy to align the business to the structural shift to energy storage.

The company recently updated the market that major work programs are about to commence at several highly prospective Ni-Cu-Co sulphide exploration projects in Western Australia. Buxton’s strategic alliance with Independence Group NL will allow for significant exploration to occur at all projects which would be maximising the chance of exploration success.


1H FY19 Financial Results (Source: Company Reports)

Revenue and other income stood at A$356.4 million compared to A$354.8 million in 1H18, a marginal increase by 0.4% and it posted underlying EBITDA of ~A$131 million in 1H19 compared to A$133.4 million in 1H18. The company stated that Nickel demand would be driven by robust battery demand and evolution of battery chemistry.

Key Focus Area for FY 2019: The company would continue to work for strong operational performance at Nova and Tropicana. Also, it plans to generate strong free cash flow and build the balance sheet. The company plans to execute an extensive exploration program to test multiple high priority targets.  

Meanwhile, the share price of the company has risen 21.97% in the past three months and is trading at a higher PE level of 56.23x. However, considering the significant increase in underlying free cash flow in 1H FY 2019 on YoY basis and the company’s focus on to strengthened balance sheet, we reiterate our “Hold” recommendation on the stock at current price of A$4.900 per share (up 1.449% on 14 March 2019).  
 

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