Stocks’ Details

Lynas Rare Earths Limited

Decent Production and Sales: Lynas Rare Earths Limited (ASX: LYC) is engaged in the production of Rare Earths concentrate at Mt Weld. The market capitalisation of the company stood at $4.35 billion as on 2^nd February 2021. During the quarter ended 31^st December 2020 (Q2 FY21), the company recorded NdPr production of 1367 tonnes, which was in-line with the guidance and the sales revenue for the quarter amounted to $119.4 million against $87.3 million in Q1 FY21, which proved as a record sale made by the company in its history. In addition, the company made decent progress on Kalgoorlie project by placing orders for key process equipment. For the year ended 30^th June 2020, the company recorded revenue amounting to $305,111 as compared to $363,541 in FY19. Loss for the year amounted to $19,395 against the profit of $83,079 in FY19.

Key Metrics (Source: Company Reports)

Outlook: The company is well-placed to take benefit from the future demand growth of Rare Earth materials. In addition, LYC is working closely to deliver a larger, more diverse business by 2025.

Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow 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 the quarter with a cash balance of $512.6 million as compared to $522.0 million in Q1 FY21. In the past three and six months, the stock of LYC has moved up by 65.98% and 101.12%, respectively. Considering this, we have valued the stock using the price to cash flow multiple based illustrative relative valuation method and arrived at a target price with correction of high single digit (in percentage terms). Thus, it seems that the stock is overvalued at the current trading level. On a technical analysis front, the stock has a support level of ~$3.604 and a resistance level of ~$5.417. Therefore, considering the aforesaid facts, valuation, and steep price movement in the past months, we are of the view that most of the positive factors have been discounted at the current trading level. Hence, we give an “Expensive” rating on the stock at the current market price of $4.940 per share, up by 2.277% on 2^nd February 2021. We further suggest investors to wait for a better entry-level.

Chalice Mining Limited

Completion of Capital Raising: Chalice Mining Limited (ASX: CHN) is engaged in the exploration of gold. The market capitalisation of the company stood at $1.31 billion as on 2^nd February 2021. During the December 2020 quarter, the company extended High-grade G1-G5 Zones and defined six new high-grade PGE +/- Ni-Cu-Co-Au zones. The company also commenced initial non-ground disturbing exploration activities on airborne EM anomalies immediately north of Gonneville. During the quarter, the company raised gross proceeds of $115 million through a share placement to sophisticated, professional and institutional investors and a Share Purchase Plan (“SPP”). In the month of November 2020, the company acquired a strategic 10% interest in Caspin Resources for $1.2 million. CHN recorded net cash outflow from operating activities of ~$9.0 million. During FY20, the company recorded a loss from continuing operations of $11,399,659 as compared to $6,768,853 in FY19.

Cash Flow (Source: Company Reports)

Outlook: Looking forward, the company is intending to pursue its approach of simultaneously exploring and evaluating the zones of high-grade PGENi-Cu-Co+/-Au mineralization.

Stock Recommendation: As on 29^th January 2021, the company is full financed with cash and cash equivalents of $132 million. In the past three and six months, the stock of CHN has moved up by 34.88% and 283.01%, respectively. Currently, the stock is trading above its 52-week low-high average pf $2.53. On a technical analysis front, the stock has a support level of ~$3.534 and a resistance level of ~$4.448 Therefore, considering the aforesaid facts, and steep price movement in the past months, we are of the view that most of the positive factors have been discounted at the current trading level and give an “Expensive” rating on the stock at the current market price of $4.080 per share, up by 5.974% on 2^nd February 2021.

Arafura Resources Limited

Rising NdPr Prices: Arafura Resources Limited (ASX: ARU) is involved in mineral exploration and development. The market capitalisation of the company stood at $268.59 million as on 2^nd February 2021. Recently, the company notified the market with the activities for December 2020 quarter, wherein, it stated that the Early Engineering Works, Execution Readiness and Project Update programs for the Nolans Neodymium- Praseodymium (NdPr) Project is proceeding in line with expectations. In addition, the company witnessed a rising trend in NdPr pricing and showcased an increase of 33% in Q4 CY20 against the gain of 20% in the previous quarter due to stockpiling prior to the Chinese New Year shutdowns amid the implementation of China’s Export Control Law. During FY20, the company reported loss amounting to $4,810,958 as compared to $5,854,157 in FY19. This improvement in losses was due to completion of most of the 7-phase pilot program in FY19.

Key Financials (Source: Company Reports)

Future Focus: The Company would continue its work on execution readiness activities and early engineering works to complete the Nolans project update and accelerating its progress on offtake and project funding opportunities.

Stock Recommendation: The company closed the quarter with a cash position of $16.4 million following the receipt of its R&D rebate for FY20. In the past one and three months, the stock of ARU has surged 84% and 139.58%, respectively. As a result, the stock is trading closer to its 52-week high level of $0.300. In addition, the stock is trading at a price to book value multiple of 2.1x against the industry median (Basic Materials) of 1.8x on TTM basis. On the technical analysis front, the stock has a support level of ~$0.09 and a resistance level of ~$0.265. Therefore, considering the aforesaid facts, valuation on TTM basis and current trading level, we are of the view that most of the positive factors have been discounted at the current trading level and give an “Expensive” rating on the stock at the current market price of $0.230 per share on 2^nd February 2021. We further suggest investors to wait for a better entry-level.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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