Stocks’ Details
 

Orocobre Limited

Recommencement of Operations at Olaroz:Orocobre Limited (ASX: ORE) is engaged in the exploration, development and production of lithium at its flagship facility, Olaroz Lithium. The market capitalisation of the company stood at $714.9 Mn as on 12^th June 2020. During the quarter ended March 2020, the Olaroz Lithium Facility had temporarily stopped production because of the COVID-19 quarantine restrictions imposed by the Argentine government. Cash cost of the sales of the company dropped by 3% on a QoQ basis despite lower plant availability. However, the company has recently recommenced limited activity for Olaroz Stage 2 Expansion following the approval from Argentine authorities, communities, unions as well as other stakeholders. For the March 2020 quarter, the company reported production of 2,732 tonnes, reflecting a fall of 11% over pcp because of the temporary plant shut down. Sales revenue for the period went down by 32% to US$12.1 million.

In the month of April 2020, the company wrapped up the acquisition of Advantage Lithium Corp. and the shareholders of Advantage received 0.142 shares of Orocobre per Advantage share. Following this acquisition, ORE has been benefited with an unparalleled land holding and resource position, which would be the base for future growth.


Key Metrics (Source: Company Reports).

Suspension of Guidance:Due to the high likelihood of continuing disruption in future demand in global markets, the company has suspended its full-year production guidance for FY20.

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

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation:Current ratio of the company stood at 2.60x in 1H FY20 as compared to the industry median of 1.81x. This indicates that the company is in a decent position to address its short-term obligations against the broader industry. We have valued the stock using the EV/Sales multiple based illustrative relative valuation method. For the purpose, we have taken peers such as Galaxy Resources Ltd (ASX: GXY), Pilbara Minerals Ltd (ASX: PLS) etc., and arrived at a target price with an upside of low double-digit (in percentage terms). Hence, considering the recommencement of operations at Olaroz, benefits from the acquisition of Advantage Lithium Corp and the reduced cash cost of sales despite the temporary shutdown of the plant, we give a “Buy” recommendation on the stock at the current market price of $2.440 per share, down by 5.426% on 12^th June 2020

Altura Mining Limited

Strategic Review of Earn-in Agreement:Altura Mining Limited (ASX: AJM) is involved in the commissioning, mining, processing and sale of lithium ore at the Altura Lithium Project in the Pilbara region of Western Australia. The market capitalisation of the company stood at $176.19 Mn as on 12^th June 2020. Recently, the company advised the market that it has wrapped up a strategic review of its Earn-in Agreement with lithium project developer Sayona Mining Limited. The company reached the Earn-in Agreement with Sayona last year, with a primary focus on jointly exploring its tenements. The company added that some of the tenements in the Earn-in Agreement are being relinquished by Sayona as a part of the strategic review. However, key terms of the Earn-in Agreement are unchanged.

During the March 2020 quarter, the company reported production of 42,282 wet metric tonnes of lithium concentrate. AJM’s focus on production capacity, quality and cost-reduction initiatives have reduced unit costs to US$345/wmt produced, against US$354/wmt in the December quarter. This reinforced Altura as one of the lowest-cost lithium concentrate producers globally, and the second lowest-cost Australian producer. AJM completed a milestone refinancing package of A$305 million during the quarter.


Mining and Process Quantities (Source: Company Reports)

Well-Placed for the Coming Months:The company stated that it experienced a major impact from disruptions and the fallout from COVID-19. However, the company seems to be well-placed for the coming months due to the completion of the milestone refinancing package and continued operational improvements.

Stock Recommendation:As on 31^st March 2020, cash and cash equivalents of the company stood at $9.6 million. Operating cash costs during the quarter decreased to US$345 wmt (FOB) against US$354 wmt in the December 2019 quarter. The stock of AJM is trading at a price to book value multiple of 1.8x as compared to the industry average (Basic Materials) of 3.4x on TTM basis. Thus, considering the decreased unit cost and operating cash cost, disruptions during March quarter, and current trading levels, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.055 per share down by 6.78% on 12^th June 2020.

Core Lithium Ltd

CXO Opened Share Purchase Plan (SPP):Core Lithium Ltd (ASX: CXO) is engaged in the exploration of lithium and base metals deposits in Northern Territory and South Australia. The market capitalisation of the company stood at $39.6 Mn as on 12^th June 2020. Recently, the company announced regarding the early close to its Share Purchase Plan on 11^th June 2020 after receiving applications in excess of $2.1 million. The company would use the proceeds from the SPP to (1) progress the Finniss Lithium Project towards production, (2) exploration and resource drilling on high priority pegmatite targets and lithium projects and (3) funding working capital requirements to support its current operations. The SPP follows the capital raising of $5.5 million through a placement to institutional and sophisticated investors.



SPP Timetable (Source: Company Reports)

Signing of Term-Sheet with European Offtake Partner:  The company has recently inked a non-binding offtake term sheet with Transamine Trading (European offtake partner) for the supply of 50,000 tonnes per annum spodumene concentrate from its wholly owned Finniss Lithium Project. The term sheet comprises

 an initial supply period of five years, with the option to extend in anticipation of the longer life of mine in the forthcoming revised Feasibility Study on the Finniss Project. This offtake term sheet strengthens CXO’s confidence in the Finniss Project and the long-term demand fundamentals of lithium beyond current COVID-19 challenge.

Stock Recommendation:During the March quarter, CXO was focused on numerous initiatives aimed at further improving the value and potential of its Finniss Lithium Project. By the end of March 2020 quarter, the company experienced a minimal impact from COVID-19. The stock of CXO is trading at a price to book value multiple of 1.4x against the industry average (Metals & Mining) of 3.5x on TTM basis. The stock of CXO has provided returns of 38.71% and 34.37% within the span of three months and six months, respectively. Thus, considering the recent capital raising, focus on several initiatives for improving the value and potential of its Finniss Lithium Project, signing of Term-Sheet with European offtake partner and minimal impact from COVID-19, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.045 per share, up by 4.651% on 12^th June 2020.

Lithium Australia NL

Formation of Strategic Alliance:Lithium Australia NL (ASX: LIT) is involved in the exploration of lithium and other minerals. The market capitalisation of the company stood at $31.74 Mn as on 12^th June 2020. Recently, the company announced that its revolutionary extraction technology for recovering lithium from fine and variable-grade spodumene moves towards patent grant. It has received positive feedback on the patentability of the second-generation LieNA® technology, following an international preliminary examination of its patent. This allows the company to progress its application for the second-generation LieNA® technology to the ‘National Phase’ of selected jurisdictions. In another update, the company announced that its 90% owned subsidiary, Envirostream Australia Pty Ltd, is currently assessing the use of zinc and manganese derived from recycled alkaline batteries as micronutrients in blended fertilizer.

The company recently announced that a strategic alliance has been formed by LIT,  Australian Vanadium Ltd (ASX: AVL) and Mercator Metals Pty Ltd in order to undertake exploration activities targeting nickel-copper-platinum group elements mineralisation at the Coates Mafic Intrusive Complex.In addition, a letter of understanding signed by all the three parties envisages attracting a senior partner for the project by way of a joint-venture development or combined sale. During the March 2020 quarter, the company completed the acquisition of 90% shares of Envirostream Australia Pty Ltd. In addition, LIT’s wholly owned nanotechnology subsidiary, VSPC Ltd and Beijing Saideli Technology Incorporated Company Ltd have inked a memorandum of understanding to foster the commercialisation of VSPC cathode material. Net cash outflow from operating activities stood at $1.964 million.


Cash Flows (Source: Company Reports)

Objective:The objective of the company is to provide avenues for direct investment in one, some or all of the business units as standalone entities while continuing to provide stakeholders with exposure to a circular economy for battery materials via investment in the Company.

Stock Recommendation:The company is navigating its way through the COVID-19 situation, which is affecting all its business units. LIT is well-funded for this calendar year and will continue to implement cost-cutting measures for each business unit. Current ratio of the company stood at 2.61x in 1H FY20 as compared to the industry median of 1.81x. This reflects that LIT is in a decent position to pay its short-term obligations. Debt to equity ratio of the company stood at 0.01x in 1H FY20 against the industry median of 0.21x. The stock of LIT is trading at a price to book value multiple of 1.2x against the industry average (Metals & Mining) of 3.5x on TTM basis. Hence, considering thepositive feedback on the patentability of the second-generation LieNA® technology, strategic alliance, and deleveraged balance sheet, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.053 on 12^th June 2020.

 
Comparative Price Chart (Refinitiv, Thomson Reuters)

Note: Lithium Australia Ltd (Company) is a client of Kalkine Media Pty Ltd (Kalkine Media), an affiliate of Kalkine. However, under no circumstances have Kalkine or its related entities been, directly or indirectly influenced in making any related insights concerning Company as contained in this report, and no form of compensation is or will be received by Kalkine, Kalkine Media or Kalkine’s other related entities for the publication of this report.

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