Top 5 ASX Mining Stocks to Buy

1. GENESIS MINERALS LIMITED

TEAM VEYE | 14 -Aug-2023 ASX – GMD

Genesis Minerals Limited is an Australian company focused on gold exploration and mine development. The company’s main activities involve processing operations at Mt Morgans, exploring its 100% owned tenement packages in Laverton and Leonora, and undertaking pre-development activities at the Ulysses Gold Project. Mt Morgans hosts a diverse range of open pit and underground Mineral Resources, along with a conventional carbon-in-leach processing plant capable of handling 2.9 million tons per annum (Mtpa). Additionally, the company holds promising exploration tenure in this area. The Leonora Gold Project is strategically situated approximately 30 kilometers south of Leonora and 200 kilometers north of Kalgoorlie, within the Eastern Goldfields region of Western Australia. Furthermore, the Barimaia Gold Project is positioned in the Murchison District of Western Australia, about 10 kilometers southeast of the Mt Magnet Gold Mine. Among its operations in the Leonora region, Genesis Minerals Limited manages the Gwalia underground mine, operates the 1.4Mtpa Leonora mill, and is actively involved in the Tower Hill project, Zoroastrian project, Aphrodite project, and Harbour Lights refractory projects.

Stock Performance Profile:

(Source: Trading View) Six-Month Performance of GMD compared with ASX-All Ordinaries Index (XAO) and Basic Materials Index (XMJ)

Synopsis:

Genesis Minerals Limited targets sustainable, high-quality earnings with capital-light production growth.

The company’s main focus is on the Gwalia mine, which offers higher-grade and consistent deposits.

To optimize resource allocation, Genesis de-prioritizes lower-grade northern extensions and peripheral mineralization.

By sharing fixed costs between the Ulysses and Gwalia projects, the company achieves lower group costs.

From the Company Reports:

Genesis Minerals Limited (Genesis) (ASX: GMD) on 3 July 2023 reported that is had completed the acquisition of the Leonora assets from St Barbara Limited (ASX: SBM). The strategic transaction is fully funded delivering distinctive synergies to the prolific Leonora District. The deal can have the potential to generate significant long-term shareholder value.

Simultaneous with the transaction, Genesis has been progressing the Leonora Gold Project (LGP). This project consists of the Ulysses, Admiral, Orient Well and Puzzle deposits. It is to confirm that the Genesis assets achieve the long-term targets set as part of the acquisition of St Barbara’s Leonora assets.

Genesis announced an initial LGP Ore Reserve of 9.8Mt @ 2.0g/t for 630koz. While Ulysses, Admiral, and Orient Well had done Feasibility level studies, a Pre-Feasibility level study was carried for Puzzle. The LGP Ore Reserves consists of two new development projects, Admiral open pit and Ulysses underground. These will be combined with the Gwalia mine to fill the Gwalia mill that has been under utilised.

In the future years, with the addition of Admiral initially, to be followed by Ulysses ore, the processing costs (better utilisation of high fixed cost mill) will be reduced. It will facilitate a lower cost “quality over quantity” mining strategy at Gwalia.

After significant preparatory work in FY23, which included intensive grade control drilling, Ulysses is now ready for underground development. This provides the ability to optimise the delivery of high-grade ore.

Competitive Advantage:

The St Barbara’s Leonora assets transaction has the potential to position Genesis as a gold industry leader with a dominant position in Western Australia’s world-class Leonora District. Most of the investors and industry players look for sensible regional consolidation. This transaction is spot on, targeting long-life production growth to 300,000 ounces per annum exclusively from Leonora. The company is keen to integrate the assets resulting in unlocking the significant synergies available in Leonora. Subsequently, Genesis’ close by Ulysses mine will render unique value at Gwalia, offering Gwalia with a new lease of life by enabling a focused ‘margin over ounces’ business plan. Ultimately, the investors will reap the long-term benefits of more production at lower cost and lower risk from this prolific mining district.

Business Catalyst:

Leonora acquisition has elevated Genesis to a leading Australian gold house Group. While its Ore Reserves increase to 3.9Moz, Group Mineral Resources of 15Moz paves the way for future growth in sustainable production and mine life.

Outlook:

Genesis Minerals Limited has a short-term vision supported by the successful production of approximately 120-130koz per annum at the Gwalia mine as a stand-alone operation. Looking ahead to medium-term growth, the company aims to achieve a long life, 300koz per annum base case plan with a focus on maximizing margins over ounces. Additionally, Genesis sees significant potential in new mine options for further expansion. The Ulysses project presents a unique opportunity for the company, offering the possibility to restore Leonora’s production to up to 200koz per annum with lower costs and reduced risks. Gwalia / Ulysses operated as one mine with deposits just 35km apart. Ulysses Reserves are imminent with first ore expected in FY24, having a haulage time less than that from underground heading to Leonora mill. Genesis has a strong balance sheet with A$156m cash at 1 July 2023 (excluding Dacian). It has no bank debt to adequately invest in Leonora and aims to deliver the long-term benefits of more production at lower cost and lower risk.

Technical Analysis:

GMD has been exhibiting a bullish trend in both monthly and weekly charts.

On the monthly chart:

The stock has consistently remained above the support level at $1.110 for the past three to four months.

The 50-day Exponential Moving Average (EMA) has been acting as a strong support for the stock.

The price pattern is trading above the 14-day EMA, and any downside movements have been rejected, indicating a potential for continued upside trajectory in the medium to long term.

On the weekly chart:

The 200-day EMA has acted as a solid base for the stock.

The current price is trading above the 14-day and 50-day EMA crossover, which suggests a bullish trend.

There is a resistance level at $1.475, and if breached, it could trigger further upward movement in the stock’s price.

The Relative Strength Index (RSI) is at 55, pointing to further upside potential, supporting the bullish trend.

Overall, the price pattern in different time frames, along with the indicators pointing towards the upside, indicate a bullish potential for the stock.

Veye’s Take:

Genesis Minerals Limited’s acquisition of the Leonora assets from St Barbara Limited for A$625m on a cash free, debt free basis, has created a leading Australian gold house, 100% focused on Leonora. It can lead to creation of a central player in the tier-one Leonora District, where the company has home ground advantage as Genesis management has previously operated ~1/2 the mines on the Leonora map. The company is getting ready to unlock the unique synergies made available by pairing the new, shallow Admiral and Ulysses mine development projects with the Gwalia mine. Genesis Minerals Limited has accelerated and resized the Admiral open pit project to meet the 1.4Mtpa Leonora mill’s needs for the next ~2 years..Genesis can have the opportunity to execute the long life, ‘margin over ounces’ Leonora business plan. Genesis Minerals will now have its focus on strategically reviewing Gwalia. By revamping the foundations, a new lease of life for this prolific gold asset can be ensured. Veye recommends a “Buy” on “Genesis Minerals Limited” at the closing price of $1.495 (As of 14 Aug 2023).

*All Data has been sourced from Company announcements and Refinitiv, Thomson Reuters.

2. BHP GROUP LIMITED

TEAM VEYE | 14-Aug-2023 ASX – BHP

BHP Group Limited is a leading Australian resources company focused on the production of commodities such as iron ore, copper, nickel, potash, and metallurgical coal. Its operations span across Australia, Europe, China, Japan, India, South Korea, and the Americas. BHP plays a significant role in supplying resources for industries including renewable energy, electric vehicles, sustainable farming, and steel production. The company’s diverse portfolio and global presence make it a key player in the resources sector.

Stock Performance Profile:

(Chart Source: Trading View) Five-Year Performance of BHP compared with the Australian All Ordinaries index (XAO) and Materials Index (XMJ)

From the Company Reports:

(Graphic Source: Company Reports)

On 2 May 2023, BHP announced the implementation of the scheme of arrangement for BHP Lonsdale Investments Pty Limited to acquire 100% of the shares in OZ Minerals Limited, and the completion of the OZ Minerals acquisition. To support the energy transition, in line with the strategy to meet the increasing demand for the critical minerals needed for EVs (electric vehicles), solar panels, and wind turbines, this acquisition strengthens BHP’s portfolio in nickel and copper. OZL shareholders received total cash consideration of $28.25 per OZL share.

On 21 April 2023, releasing its operational review, it announced that the 2023 financial year FY production guidance remained unchanged for energy coal, iron ore, and metallurgical coal. Production guidance at Escondida had been lowered to between 1,050 and 1,080 kt. Full-year total copper production guidance remains unchanged at between 1,635 and 1,825 kt, given the strong performance of the other copper assets. Full-year nickel production had been lowered to between 75 and 85 kt.

WAIO (Western Australia Iron Ore) achieved record production of 212.6 Mt for the nine-month period. From the half-year period ended 31 December 2022, full-year unit cost guidance remained unchanged. Escondida and WAIO were anticipated to be at the top of their respective ranges.

For the next phase of exploration drilling at Oak Dam, the South Australian government had granted environmental approval.

Financial Matrices with Commentary:

BHP Group, the Australian mining company, has shown impressive financial growth over the past five years. Gross profit margins have increased significantly from 47% in FY2018 to 58.5% in FY2022, indicating improved efficiency in generating profits from its operations. Similarly, EBITDA margins have also seen a similar pattern of growth and reached 61.5%.

The company’s net profit margins have shown substantial improvement, increasing by 1,110 basis points between FY18 and FY22. This indicates that BHP Group has been able to effectively manage its expenses and generate higher profitability.

While BHP Group experienced a temporary decline in earnings-per-share in 2020 due to the impact of the Covid-19 pandemic, the company has generally reported improved earnings-per-share every year.

BHP Group has also been focused on reducing its debt burden, successfully decreasing it by over 39% from US$27,048m in FY20 to US$16,428m in FY22. This reduction in debt enhances the company’s financial stability and presents a low-risk investment option.

(Source: Refinitiv, Thomson Reuters) (Graphic: Veye Research)

Furthermore, BHP Group’s free cash flow has shown a positive trend, increasing by 15% from FY21. This demonstrates the company’s ability to generate cash from its operations, which can be utilized for investments, dividends, or debt reduction.

The company’s profitability matrices, such as return on equity (ROE) of 42% (up by 80% from FY21) and return on invested capital (ROIC) of 44.1%, highlight BHP Group’s effective utilization of capital and ability to generate profits from its equity and invested capital, respectively.

Overall, BHP Group’s financial performance showcases its strong growth, improved profitability, debt reduction efforts, and effective capital utilization, making it an attractive investment option.

Dividend Profile:

(Source: Refinitiv, Thomson Reuters) (Graphic: Veye Research)

BHP Group has a long-standing history of rewarding its shareholders with regular dividends, which makes it an appealing choice for investors seeking reliable and low-risk investment opportunities. The company has demonstrated its commitment to shareholders by continuing to declare dividends even during the challenging period of the Covid-19 pandemic.

In FY22, BHP Group declared a final dividend of $2.5518 per share, fully franked.

On February 21, 2023, the Board of BHP Group announced the decision to pay an interim dividend of 90 US cents per share, which amounts to a total of US$4.6 billion. This dividend payment represents a payout ratio of 69%, indicating that 69% of the company’s earnings are being distributed to shareholders as dividends. The high payout ratio suggests that BHP Group is sharing a substantial portion of its profits with investors, which can be attractive to those seeking regular income from their investments.

By paying out a sizable interim dividend, BHP Group demonstrates its strong financial position and ability to generate cash flows. This not only indicates the company’s profitability but also its dedication to rewarding shareholders for their investment.

Investors who prioritize dividend income may find BHP Group’s interim dividend announcement appealing. The substantial payout ratio and the size of the dividend payment reflect the company’s commitment to providing attractive returns to its shareholders.

Peer Analysis:

(Source: Refinitiv, Thomson Reuters)

BHP presents a compelling investment opportunity supported by several strong financial indicators. Firstly, its price-to-earnings (P/E) multiple of 12.18x is favorable compared to its industry peers, suggesting an attractive valuation. This implies that investors are willing to pay a reasonable price for BHP’s earnings potential.

Additionally, BHP’s debt-to-equity ratio of 33.7% indicates a healthy balance between debt and equity. With a moderate level of debt, the company is better positioned to manage financial obligations and mitigate risk. This stability enhances the overall investment proposition for shareholders.

BHP’s return on equity (ROE) of 44.3% is noteworthy, indicating that the company efficiently utilizes shareholders’ equity to generate profits. This high ROE signifies management’s ability to generate substantial returns for investors, further bolstering the investment case.

Furthermore, BHP’s dividend yield of 8.9% is considerably higher than that of its peers. This implies that shareholders can expect a significant return on their investment through dividend payments. The attractive dividend yield makes BHP an appealing choice, particularly for income-seeking investors.

In conclusion, BHP’s favorable P/E multiple, healthy debt-to-equity ratio, impressive ROE, and attractive dividend yield collectively indicate a promising investment opportunity.

Industry Analysis

(Source: Refinitiv, Thomson Reuters)

BHP Group extracts and produces commodities; it has a global presence and operates across Australia, the United States, Chile, Peru, and Brazil. It is a major player in the resources industry and competes with other mining and resources companies like Rio Tinto, Vale, South 32, Pilbara Minerals, and more. The company’s size and scale give it a competitive advantage in terms of access to resources, operational capabilities, and economies of scale. Its portfolio includes Iron ore, Copper, Coal, Petroleum, and Nickel among other minerals. BHP Group has made commitments to sustainable practices and reducing its environmental footprint. Australia is well known for its mining industry on a global platform and recognized for its strong and growing mining industry. The next few years are likely to be transformative years with mining and metal companies resorting to fast new advances in technology and exploration. Efficiency gains and productivity improvements help BHP maintain its competitiveness in the industry.

Market Risk:

While China’s demand for iron ore is expected to be lower with the crude steel production stabilising and an increasing scrap to steel ratio, volatile prices of some commodities have always been the challenging issue.

Copper, though appearing to be in demand over a long term, recently experienced fall in prices during second half of previous year.

Both Nickle and Potash prices have declined significantly as these commodities witnessed a decrease in affordability.

Effect of Weather: Inclement weather in the coal assets has impacted the production and unit costs.

Safety at the workplace and Labor shortage issue remain other potential risks.

Outlook:

BHP’s long-term success depends on factors like maintaining cost discipline, adapting to market dynamics, and managing social and environmental risks. It is likely to continue investing in technology and innovation to maintain its competitive position. BHP has strong fundamentals as global commodity demand is underpinned by population growth, rising living standards, and urbanization. The global economy is projected to increase 2.5x times by the year 2050 while the global population and urbanization to become 1.5x times by the year 2050 and per IMF and UN estimates. In addition, a decarbonizing world intensifies the need for mining and substantial additional investment required to meet growing demand, large cumulative demand increases across commodities, and more specifically, Copper potentially needs around US$250 billion by 2030. As Copper supply challenges increase, BHP is in a good position as currently, Goldman Sachs and others expect copper prices to soar. Immediate opportunities available and increasing productivity should drive potential volume growth supported with Jansen’s and WAIO projects advancing.

Technical Analysis:

On a monthly chart, the stock price is forming a “Bullish Piercing” pattern after trading in negative territory. This pattern suggests upside momentum in the medium to long term. Additionally, there is a minor resistance at $44.5, and once breached, it could trigger further upward movement in the stock. The current price pattern is also trading above the 14-day EMA, which is a positive indication. On the weekly chart, the stock price has closed the previous week with a “Hammer” pattern, indicating downside rejection and a potential trend reversal. This pattern suggests that buyers are stepping in to support the stock which could lead to upward movement. There is a resistance level at $44.73, and if this level is broken, it could trigger the stock to trade higher.

Veye’s Take:

The company has a track record as a reliable operator and project developer. It is aspiring to deliver growth with stable operational performance, project execution, and social values. Along with attractive returns and operational excellence, Company maintains a strong capital allocation discipline. As supply chain conditions improve, positive near-term indicators from China and the rest of the world provide BHP with a source of stability. In the Miami-Globe copper district in Arizona, United States, the Company, has identified a new copper porphyry mineralized system, Ocelot. BHP shareholders will benefit with the company’s increased exposure to commodities future demand, attractive potential synergies, and a pipeline of exponential growth opportunities. Veye recommends a “Buy” on “BHP Group Limited” at the closing price of $44.750 (As of 14 Aug 2023).

*All Data has been sourced from Company announcements and Refinitiv, Thomson Reuters.

3. South32 Limited

TEAM VEYE | 14-Aug-2023 ASX – S32

South32 Limited is a mining and metals company with a diverse range of operations across multiple segments. These segments include Worsley Alumina, Brazil Alumina, Brazil Aluminium, Hillside Aluminium, Mozal Aluminium, Sierra Gorda, Cannington, Hermosa, Cerro Matoso, Illawarra Metallurgical Coal, Australia Manganese, and South Africa Manganese. The company’s activities span various regions, including Australia, Brazil, South Africa, Mozambique, Chile, the United States, and Colombia. South32 is involved in bauxite mining, alumina refining, aluminum smelting, copper mining, silver, lead, and zinc mining, base metals exploration and development, nickel production, metallurgical coal mining, and manganese mining. With its extensive portfolio of operations, South32 plays a significant role in the mining and metals industry, contributing to the global supply of key commodities.

Stock Performance Profile:

(Source: Trading View) One-Month Performance of S32 compared with Australian-All Ordinaries Index (XAO) and Basic Materials Index (XMJ)

From the Company Reports:

On 8 May, 2023, South32 Limited (ASX / LSE / JSE: S32; ADR: SOUHY) (South32) delivered a confirmatory statement, reporting that the 100% owned Hermosa project, situated in Arizona, United States, has been confirmed by the US Federal Permitting Improvement Steering Council, which is an independent federal agency body, as the first project to be added to the FAST-41 process and scored well in recognition of the project’s potential to supply critical minerals in the local provinces of the US.

Later, to qualify for the FAST-41 process, the project must undergo several tests to justify its worth to the nation, while the Premier Hermosa project currently has enough strength to accommodate two critical minerals: zinc and manganese.

Updates from the quarterly report of March 31, 2023

Copper equivalent production surged by 7%, following the investment made in achieving strong growth and additionally comprising an increasing share of low-carbon aluminum in the portfolio.

The resurgence in commodity prices drove materializing price realization benefit Q-O-Q for the hard coking coal and manganese products in the given market demand; Manganese ore production has risen by 6% Y-O-Y, with Australia achieving its highest ever manganese production.

Aluminum production ramped up by 15% from the combined realization benefit received by ownership in ‘Mozal Aluminium’ and ‘Brazil Aluminium’ mainly contributed to a 6% production hike.

Financial Matrices with Commentary:

(Source: Company Reports)

During the first half of the financial year 2023 (H1 FY23), S32 faced a challenging business environment, witnessing a decline in revenue to US$3,696 million, which represented an 8% decrease compared to the previous corresponding period (PCP). The company’s profitability was significantly impacted, as evidenced by a notable 34% decrease in profit after tax, resulting in a total of US$685 million.

Despite the difficulties, S32 was able to maintain a commendable group operating margin of 31.5%. The company reported underlying EBITDA figures of US$1,364 million. Furthermore, the underlying earnings amounted to US$560

In terms of cash flow, S32 generated US$127 million in free cash flow during H1 FY23. However, the company also had a net debt of US$298 million as of 31 December 2022, indicating its existing financial obligations.

Despite the challenges faced, S32 prioritized its shareholders’ interests, as evidenced by returning US$927 million to them during the first half of the financial year 2023. This return suggests the company’s commitment to rewarding its investors amid the uncertain market conditions.

Dividend Profile:

(Data Source: asx.com) (Graphic: Veye Research)

The Company has exhibited a positive dividend performance over the past five years, indicating a commitment to returning value to its shareholders. In the fiscal year FY22, the company declared a final dividend of 257 US cents per share, fully franked. This dividend payout represents ~54% of the underlying net profit after tax (NPAT), highlighting the company’s profitability and ability to distribute earnings to shareholders. With a full-year dividend yield surpassing 8%, South32 Limited demonstrates its dedication to delivering attractive returns to shareholders while also maintaining a strong balance sheet.

Forecasted Matrices:

(Source: Refinitiv, Thomson Reuters)

S32 foresees a decline in EV/Revenue from 1.5x in FY24 to 1.48x by FY25, while EV/EBITDA is projected to decrease from 4.8x in FY24 to 4.26x in FY25. The company expects an improvement in its PE multiple from 10.46x in FY24 to 8.38x by FY25. Additionally, S32 aims to increase its FCF yield from 10.66% in FY24 to 12.5% by FY25. Furthermore, the company plans to enhance its profitability metrics, with ROA anticipated to rise from 9.12% in FY24 to 10.33% and ROIC from 12.2% in FY24 to 13.5% by FY25. These projections demonstrate the company’s positive outlook and potential for growth in the specified fiscal years.

Peer Analysis:

(Source: Refinitiv, Thomson Reuters)

S32 stands out among its peers with a significantly lower PE ratio of 5.46x compared to PLS at 9.14x, MIN at 19.24x, and IGO at 14.72x. This suggests that S32’s stock is relatively undervalued compared to its industry counterparts, potentially making it an attractive investment option. Moreover, S32 exhibits a conservative Debt to Equity ratio of 17.6%, which is lower than MIN’s high ratio of 88.9% but slightly higher than PLS at 12.6% and IGO at 18.8%. This indicates S32’s relatively lower reliance on debt to finance its operations compared to MIN but also implies it has a slightly higher debt burden compared to PLS and IGO.

Furthermore, S32’s dividend yield is notably higher at 8.21% in comparison to its peers, with PLS offering a dividend yield of 2.16%, MIN at 3.03%, and IGO at 1.17%. S32’s generous dividend yield suggests a commitment to returning value to its shareholders and may attract income-oriented investors seeking higher dividend payouts.

Overall, when considering its low PE ratio, moderate Debt to Equity ratio, and generous dividend yield, S32 appears to be an appealing investment option with favorable valuation metrics and attractive returns for potential investors compared to its industry peers PLS, MIN, and IGO.

Industry Analysis:

South32 operates in the metal and mining industry; it produces commodities and develops natural resources. These critical minerals and metals are important for EV (Electric Vehicle) market’s growing demand. The global shift towards renewable energy and EVs affects the demand for South32’s coal and other fossil fuel-related products. It operates in a highly competitive market, competing with companies like RIO Tinto, Latin Resources, BHP, Glencore, Anglo-American, and Vale globally. It has diversified itself in North and South America, Australia, and South Africa and has partnerships with junior explorers around the world.

Australia is a leading global player in the metals and mining industry. The country is abundant in natural resources and metals and mining is a significant contributor to its economy generating export based revenues. Value added by the metal ore mining industry is $151.59 Billion and the total income of the metal ore mining industry is $222 Billion. The growth rate expected of the Mining and Metals industry in Australia is 3.7% till year 2025. The metals and mining industry faces increased scrutiny and regulatory challenges related to environmental sustainability, carbon emissions, and mining practices.

Risk Analysis:

Geopolitical events directly impact mining and metals companies as prices are impacted by such events. High inflationary pressures, changing global demand, environmental concerns, and rising commodity prices are some of the other risks South32 faces. This industry is highly sensitive to a shortage of labor or skilled workforce since it is a labor-intensive industry. Supply chain disruptions in recent years, though peaked but still pose a risk to the highly dependent segment. The higher capital required for exploration and development is a going concern for metals and mining companies.

Outlook:

The South32 is well poised, portraying a better outlook as the capital allocation is headed for the next generation of mines with over 25 more exploration opportunities ahead. The next phase of growth is expected to materialise from the development options available in North America.

The Hermosa project is the most advanced one and has the immense potential to produce two different critical minerals with differentiated development options: one is the Taylor zinc-lead-silver deposit with an objective of 20 years plus resource life in the first quartile of the cost curve. The feasibility study and FID are expected to commence in 2HCY23, and the other is the Clark battery-grade manganese zinc-silver deposit, where Pilot plant production commenced, started decline construction in 2H CY23, and is under discussion with potential customers to supply battery-grade manganese in North American markets.

The regional resource growth potential: highly prospective regional land package availability with copper and base metal targets

Guidance FY-2023

The production was downgraded in the March 2023 quarter because of adverse weather conditions and other temporary obstacles. The company is on track to achieve FY23 production guidance at the majority of their operations, FY2023 Operating unit cost guidance to remain as it is, and Capital expenditure guidance is unchanged. The company has been well directed to provide efficiencies to reduce cost pressures.

Mozal Aluminium reduced output; for FY 2023, the production guidance is revised to lower output by 8%.

Sierra Gorda resulted in strong volume growth in copper and affirmed that it was on track to achieve FY23 production guidance.

Cerro Matoso nickel production is unchanged, with FY23 production guidance lowered by 7%.

Cannington’s FY23 production guidance was revised down by 6%.

Australia Manganese produced 6% more year-to-date in volumes, underpinning a 3% increase under the FY23 production guidance.

South Africa’s manganese production level has increased by 5% year to date and is on track to achieve FY23 guidance.

Illawarra Metallurgical Coal’s: Downsizing by 7% in FY23 production guidance.

Technical Analysis:

The stock is exhibiting several bullish signals and showing signs of potential upward momentum. Here is a summary of the observations from each time frame:

Monthly Chart:

The stock had been trading in a negative zone since April 2023, but it has now shown signs of reversal.

It has completely rejected further lows and engulfed the previous month’s candle. The stock is trading near its high, indicating strength in the upward movement.

The indicators are turning upside, further supporting the bullish momentum.

Weekly Chart:

The stock has recovered from the lower Bollinger band, a potential sign of a bounce-back.

Support has been maintained at the 200-day Exponential Moving Average (EMA), indicating a strong underlying support level.

The stock is currently trading at the 14-day EMA, which can act as a dynamic support level.

The indicators are positioning upside, signaling a continuation of the bullish trend.

Daily Chart:

The stock is trading above the 14-day and 50-day EMAs, suggesting strength and positive momentum.

The indicators are well-supported, further bolstering the bullish potential.

Overall, the price movement in all time frames is rejecting the downside, and the indicators are supportive of a bullish scenario.

Veye’s Take:

The South32 augurs well for the higher production volumes anticipated to be accomplished in FY 2023, with operation costs and capital expenditure guidance largely remaining stable. A significant milestone has been achieved as the advanced Hermosa project contains immense potential to develop and supply two critical minerals in the local provinces of the US to benefit the nation. Currently, the company is pursuing an integrated permitting strategy for our Taylor and Clark deposits, which are both placed locally. The requisite need at the current juncture is only for the final approval, which is still awaiting state and federal approval. So far; the company has secured all required permits to finish the critical path dewatering activity, which will give access to both the Taylor and Clark deposits, and the second water treatment plant. The company demonstrated strong fundamentals through its buyback strategy to justify adequate cash on hand on the balance sheet. The company is committed to reorienting its portfolio towards commodities critical to a low-carbon future. Veye recommends a” Buy” on “South32 Limited” at the closing price of $3.810 (As of 14 Aug 2023).

*All Data has been sourced from Company announcements and Refinitiv, Thomson Reuters

4. AUSTRALIAN STRATEGIC MATERIALS LIMITED

TEAM VEYE | 14-AUG-2023 ASX – ASM

Australian Strategic Materials Limited is a company focused on producing critical metals for advanced and clean technologies. They are involved in the extraction, refining, and manufacturing of high-purity metals, alloys, and powders. Their products are supplied directly to global manufacturers in industries such as clean energy, electric vehicles, aerospace, electronics, and communications. The company operates through three segments: Korea, Dubbo, and Corporate. The Korea segment includes the construction and commissioning of the Korean Metals Plant, while the Dubbo segment involves the evaluation and feasibility of the Dubbo Project. The Dubbo Project is situated near Toongi, 25 kilometers south of Dubbo in central-western New South Wales, Australia. On the other hand, the Korean Metals Plant is situated in the Ochang Foreign Investment Zone, approximately 115 kilometers south of Seoul, Korea. The products offered by Australian Strategic Materials include neodymium, praseodymium, terbium, dysprosium, zirconium, niobium, and hafnium, which are crucial components in various advanced and clean technologies.

Stock Performance Profile:

(Source: Trading View) Three-Month Performance of ASM compared with ASX-All Ordinaries Index (XAO) and Basic Materials Index (XMJ)

Synopsis:

Australian Strategic Materials Limited (ASX: ASM) is building a global rare earths and critical minerals business.

Its Dubbo project is construction ready and delivers strong financials.

20-year life of mine and further 50 years of resource.

Grant support received from Federal Government.

From the Company Reports:

On 3 August 2023, Australian Strategic Materials Limited (ASX: ASM) (ASM or the Company) announced that its wholly owned subsidiary, ASM Korea Co., Ltd, had signed a five-year binding agreement with USA Rare Earth, LLC. The sales and tolling framework agreement is for the supply of neodymium iron boron, NdFeB alloy, which is expected to commence in 2024. The tolling clause provides USA Rare Earth the option to have an agreed percentage of the total indicative quantity to be supplied as tolled product using USA Rare Earth supplied feedstock.

The Framework Agreement builds up ASM’s growing customer portfolio and reinforces the Company’s strategic supply relationships with the US magnet production industry, through its Korean Metals Plant (KMP).

USARE’s production ramp-up of high-performance rare earth magnets will be boosted by NdFeB alloy supplied from KMP.

Australian Strategic Materials Limited on 26 July 2023 announced entering into a non-binding Memorandum of Understanding with ASX-listed nickel producer Blackstone Minerals Limited (ASX: BSX), and rare earth element refiners, Vietnam Rare Earth Company.

The agreement between three companies having identified synergies and shared objectives, provides a framework to collaborate in several areas.

This could be handy in identifying, assessing, and securing REE mining opportunities in Vietnam, which can be used as feed stock for VTRE’s REE refinery, strengthen the parties’ capability to obtain REE mining concessions and in securing long-term offtake of REE oxides.

On 24 July 2023, Australian Strategic Materials, provided its Quarterly Activities Report, to 30 June 2023.

The company began a strategic partnership with US-based rare earth magnet manufacturer Noveon Magnetics Inc., by sale of an initial 100 tonnes of NdFeB alloy from ASM’s Korean Metals Plant. It also secured the supply of rare earth oxides with a binding agreement with Vietnam Rare Earth Company, to ensure the continued ramp-up of production at the KMP.

Competitive Advantage:

Australian Strategic Materials gets a perfect customer and partner in USA Rare Earth, with its magnet manufacturing capability and approach to market. ASM continues to increase its metal production output from its Korean Metals Plant, while this longterm supply agreement demonstrates the growing demand and positive trajectory of the US rare earth magnet market. Both ASM and USARE are currently focused on scaling up their respective operations and developing an alternative rare earths and critical minerals supply chain to support forecast growth in these and other sectors. Because of the Framework Agreement, USARE will secure the majority of its metal and alloy requirements for magnet production and depend upon ASM til it begins using materials from its Round Top reserve in Sierra Blanca, Texas.

Business Catalyst:

It is anticipated that the global demand for NdFeB magnets will increase at a compound annual growth rate (CAGR) of 7.5% from 2023 through 2040. The growth in the electric vehicle and wind power sectors will translate to a comparable demand growth for the critical rare earth elements (e.g., neodymium, dysprosium, and terbium) which these magnets contain. ASM sourcing the required oxides from Vietnam, simultaneously building its relationship with VTRE, is also ensuring greater oversight of its supply chain. Thus supporting its sustainability and governance commitments its our customers as well as shareholders.

Outlook:

ASM had entered into a binding agreement with VTRE in April 2023 to buy rare earth oxides from Vietnam, to be used as feedstock at ASM’s Korean Metals Plant. It had been intending to progress this to a further long-term supply agreement. This three-party MOU with VTRE and Blackstone is an extension of ASM’s current relationship with VTRE. It validates the commitment of both companies to continue to explore long-term supply agreements and manufacturing opportunities. It also has the potential to drive a more collaborative approach within the rare earth elements and critical minerals sector and deliver positive outcomes for all parties involved.

Technical Analysis:

The monthly chart shows a solid base formation at $1.090 and subsequent stock recovery, indicating a strong presence of bullish investors with potential for continued upward trajectory. On the weekly chart, the stock exhibits “Higher Highs,” trades above the 14-day EMA, and is positioned at the upper Bollinger Band with RSI indicating further upside momentum. This convergence of bullish indicators in both time frames suggests a strong bullish trend for the stock.

Veye’s Take:

ASM had already established a strong relationship with the VTRE and it was encouraging to witness the progress they were making to increase their oxide production capacity. The three way partnership they are looking to build with Blackstone has the potential to benefit ASM’s existing supply of rare earth oxides for processing at the KMP. It could become a great opportunity to develop the full value chain for rare earths in Vietnam. It is rare to find a potential partnership in which the strategic advantages and core competencies of each party are so complementary. Blackstone’s potential move into Rare Earths in Vietnam aligns with ASM’s Technology Mineral strategy and is synergistic to its Ta Khoa Project and its existing relationships in the EV industry. ASM, can seize upon this opportunity to extend its relationship with VTRE and to progress their vision of full vertical integration in critical minerals. This agreement leverages Australia’s world-leading regulatory frameworks for mining and resources, and Vietnam’s abundant labour supply and strong manufacturing base. ASM, along with MOU partners will now progress discussions with a view of potentially establishing a world leading fully integrated rare earths business. Veye recommends a “Buy” on “Australian Strategic Materials Limited” at the closing price of $1.560 (As of 14 August 2023).

*All Data has been sourced from Company announcements and Refinitiv, Thomson Reuters.

5. PILBARA MINERALS LTD

TEAM VEYE | 14-Aug-2023 ASX – PLS

Pilbara Minerals Limited is an Australian lithium company that specializes in mineral exploration, development, and mining. The company’s primary asset is the Pilgangoora hard-rock lithium operation, located in the Pilbara region of Western Australia. This flagship operation is fully owned by Pilbara Minerals and is situated around 120 kilometers from Port Hedland. The Pilgangoora operation consists of two processing plants: the Pilgan Plant, which produces spodumene and tantalite concentrates, and the Ngungaju Plant, which focuses on spodumene concentrate production. In addition to the Pilgangoora Project, Pilbara Minerals holds a 70% stake in the Mt Francisco project. This project is positioned 50 kilometers southwest of the Pilgangoora Project and is known for its significant outcropping pegmatites, located in close proximity to Port Hedland. Furthermore, Pilbara Minerals is actively pursuing a proposed joint venture for a downstream project in South Korea. The aim of this venture is to establish a lithium chemical conversion facility with a capacity of approximately 43,000 tons per annum of lithium carbonate equivalent (LCE). The facility will be dedicated to converting lithium concentrates into higher-value lithium chemical products.

Stock Performance Profile:

(Source: Trading View) One-Year Performance of PLS compared with ASX-300 Index (XKO) and Basic Materials Index (XMJ)

From the Company Reports:

Pilbara Minerals Limited (ASX: PLS) and environmental technology company Calix Limited (ASX: CXL) have made significant progress in the development of their joint venture’s mid-stream demonstration plant. The detailed front-end engineering and design (FEED) work is nearing completion, with a final investment decision (FID) expected by the end of July. The project, supported by a $20 million grant from the Australian Government, has the potential for future commercial-scale operations and licensing of the technology to the global spodumene processing industry.

Quarter Highlights:

During the quarter ending on March 31, 2023, Pilbara Minerals achieved several notable milestones.

(Source: Company Reports) Quarterly spodumene concentrate production and shipments (dmt)

The total material mined across the Pilgangoora Project increased to 7,798,250 wet metric tonnes, including 6,572,687 wet metric tonnes of waste material. Ore mining also saw a positive trend, with 1,225,563 wet metric tonnes mined at an average grade of 1.39% Li2O. However, there was a slight decrease in the total production of spodumene concentrate, which amounted to 148,131 dry metric tonnes, down 9% from the previous quarter. Shipments of spodumene concentrate also experienced a decline of 3%, reaching 144,312 dry metric tonnes. Despite the decrease in production and shipments, Pilbara Minerals achieved strong sales performance, resulting in a significant increase in the cash balance. The cash balance grew by $457 million to reach $2.683 billion, reflecting a substantial 21% increase compared to the previous quarter. Moreover, the company announced its inaugural fully franked interim dividend payment of 11 cents per share. These results highlight Pilbara Minerals’ positive performance and financial strength during the quarter.

During the quarter, Pilbara Minerals secured multiple debt facilities to support its projects. They executed a KRW600 billion (US$460 million) loan agreement with POSCO Pilbara Lithium Solution Co Ltd for the construction of a Lithium Hydroxide Monohydrate Chemical Facility in South Korea. They also obtained a $250 million debt facility from the Australian Government and a $113 million secured debt facility with BNP Paribas, Societe Generale, HSBC Bank Australia Limited, and National Australia Bank. These debt facilities provide financial support for Pilbara Minerals’ ongoing projects and expansion initiatives.

Fully-Year (FY22) results with commentary:

(Data Source: Refinitiv, Thomson Reuters) (Graphic: Veye Research)

Pilbara Minerals has witnessed a remarkable surge in sales revenue, soaring to $2.18 billion in FY22, a substantial 647% growth compared to the previous financial year’s first half (1H FY22). This robust increase in sales revenue has paved the way for a remarkable rise in gross margin, reaching $1.85 billion, a significant improvement from $174.3 million in 1H FY22, reflecting a surge of 959%. Moreover, the company’s earnings before interest, taxes, depreciation, and amortization (EBITDA) have soared to $1.81 billion, excluding depreciation and amortization costs of $47.7 million, a tax expense of $533.0 million, and net financing income of $11.0 million. This represents a substantial increase of 1091% from 1H FY22 when the EBITDA was $152.1 million.

Pilbara Minerals has also achieved a significant rise in its statutory net profit after tax, reaching $1.24 billion, compared to a statutory profit of $114.0 million in 1H FY22, showcasing an impressive increase of 989% from the previous year. The company has also witnessed significant growth in earnings per share (EPS), which rose from 3.87 cents per share to 41.59 cents per share, representing a substantial growth of 975%.

In terms of the company’s financial position, Pilbara Minerals has experienced a significant improvement in its cash balance, which currently stands at $2.23 billion, marking a $1.63 billion increase compared to the cash balance of $591.7 million as of June 30, 2022. Additionally, the net cash position as of December 31, 2022, was $2.08 billion after considering secured debt of $147.8 million, reflecting a substantial improvement since June 2022 with a notable increase of $1.63 billion.

Furthermore, the company has witnessed improvements in key profitability ratios. The return on equity (ROE) has increased from 60.2% as of June 30, 2022, to 99.2%, indicating enhanced profitability generated from shareholders’ equity. The return on assets (ROA) has also shown improvement, rising to 67.5% from 38.3% in the previous corresponding period (pcp). Moreover, the return on invested capital (ROIC) stands at 86.2%, showcasing the efficiency of capital utilization by the company. Additionally, Pilbara Minerals has experienced an increase in free cash flow (FCF) yield, reaching 18.3% compared to 7.2% in the pcp, demonstrating the company’s ability to generate cash flow from its operations. These improved profitability metrics, including significant growth in EPS, net profit after tax (NPAT), and various return ratios, highlight the strong growth and enhanced financial performance of Pilbara Minerals in FY22.

Peers Analysis:

(Source: Refinitiv, Thomson Reuters)

Pilbara Minerals (PLS) stands out in terms of valuation compared to its industry peers, with a lower price-to-earnings (PE) multiple, except for S32. This suggests that PLS may offer good value. Furthermore, PLS demonstrates a relatively low debt-to-equity (D/E) ratio, indicating stronger financial stability and lower risk compared to its peers. Additionally, PLS boasts a significantly higher return on equity (ROE) than its industry counterparts, indicating superior profitability and efficient capital utilization. Considering these factors, PLS appears to present favorable valuation, financial stability, and profitability when compared to its peers.

Industry Analysis:

The future of the Australian lithium sector looks promising due to the projected surge in global demand driven by the goals of the Paris Agreement and the growing adoption of electric vehicles (EVs) and energy storage systems. The International Energy Agency predicts a more than 40-fold increase in lithium demand by 2040, with China leading the way as the largest EV market and an estimated lithium consumption of 180,000 metric tons by 2030. However, other regions like Asia, Europe, North America, and India are also expected to witness significant growth in lithium demand as battery supply chains develop.

Australia currently holds the position of the largest producer of hard-rock lithium, with the Greenbushes mine contributing 40% of the global supply. The Australian lithium industry is poised for further expansion, including the production of lithium chemicals. Western Australia and the Northern Territory are witnessing the growth of hard-rock lithium operations, which will contribute to increased lithium output. In 2023, Australia’s projected global lithium carbonate production is expected to reach 915,000 tonnes, representing a 3% increase from the previous year.

Australia also has the potential to add value to its lithium resources before export. By 2024, Australia is projected to account for 10% of global lithium hydroxide monohydrate (LHM) production. This presents a strategic opportunity for Australia to process and refine lithium within the country before exporting it. Currently, China dominates the processing of LHM, much of which comes from Australian lithium spodumene mines.

The Australian lithium sector is experiencing a notable investment boom, with the top five ASX-listed lithium firms collectively having a market capitalization exceeding $50 billion. This reflects the growing interest and potential in the Australian lithium industry.

Overall, with the increasing global demand, Australia’s position as a major producer, and the opportunity for value-addition within the country, the future of the Australian lithium sector appears promising.

Risk Analysis:

Pilbara Minerals faces several risks that can impact its operations and financial performance, including:

Commodity Price Volatility: Fluctuations in lithium prices and other commodities can significantly affect revenue and profitability.

Foreign Exchange Risk: Changes in exchange rates can impact financial results due to global market operations.

Production and Operating Costs: Factors like labor costs, energy prices, and equipment availability can affect the company’s cost structure and profitability.

Climate Change and Regulatory Changes: New regulations related to climate change and sustainability can increase compliance costs and impact operations.

Ore Reserve Depletion: Changes in ore reserves can impact production capacity and future growth prospects.

Geopolitical Uncertainty: Political instability and government policy changes can disrupt operations.

Dependency on the Chinese Market: Shifts in Chinese government policies or domestic demand can significantly impact sales volumes and pricing.

Licenses, Permits, and Approvals: Delays or difficulties in obtaining necessary permits can disrupt operations and delay project development.

These risks are inherent in the industry and require appropriate risk management strategies to mitigate potential impacts.

Outlook:

(Source: Company Reports)

Pilbara Minerals is progressing according to plan for its P680 Project, with the Primary Rejection facility targeted for commissioning in the September Quarter 2023 and full capacity expected by the December Quarter 2023. The company’s Crushing and Ore Sorting facility is set to commence commissioning in the December Quarter 2023, followed by ramp-up in the March Quarter 2024. The approval of capital investment for the P1000 Expansion Project demonstrates Pilbara Minerals’ commitment to increasing spodumene concentrate production capacity. This self-managed project aims to add approximately 320,000 tpa, ultimately achieving an annual production run rate of 1,000,000 dmt by September 2025. The funding for the project will be sourced from the company’s robust balance sheet and existing operations, aligning with Pilbara Minerals’ long-term growth strategy and leveraging previous investments in primary rejection and crushing/ore sorting capacity.

Progress is being made in the construction of the Lithium Hydroxide Monohydrate Chemical Facility in South Korea, a joint venture between Pilbara Minerals and POSCO. Pilbara Minerals holds an 18% interest in the project, which is on track for commissioning. The first train is expected to commence operations in late CY2023, followed by the second train in the March Quarter of 2024. These milestones indicate the company’s advancement toward achieving its operational targets.

Furthermore, Pilbara Minerals and Calix Limited have achieved significant progress in the development of their joint venture’s mid-stream demonstration plant. The detailed front-end engineering and design work is nearing completion, and a final investment decision is anticipated by the end of July. These developments highlight the company’s dedication to exploring new opportunities and driving innovation in the lithium sector.

Guidance FY23:

Due to recent cost increases, the FY2023 guidance for unit operating costs has been revised. The new guidance range is set at $600-$640 per dry metric ton (FOB Port Hedland, excluding royalties), compared to the previous guidance range of $580-$610 per dry metric ton (FOB Port Hedland, excluding royalties). This adjustment reflects the updated cost outlook for the fiscal year.

Key Catalyst: The main catalyst for Pilbara Minerals’ growth lies in the surging global demand for lithium, primarily driven by the electrification of transportation and the growing need for energy storage solutions. As countries strive to reduce carbon emissions and transition to sustainable energy sources, the demand for lithium-ion batteries is expected to skyrocket. Pilbara Minerals, being a prominent lithium producer, is well-positioned to capitalize on this demand and leverage its existing resources and expertise to meet the market needs. The company’s expansion projects, such as the P680 and P1000, will significantly enhance its production capacity, allowing it to capture a larger share of the growing market and generate substantial revenues. Furthermore, Pilbara Minerals’ strategic partnerships and joint ventures enable it to access new markets, enhance its technological capabilities, and strengthen its position in the lithium industry. By effectively executing its growth strategies and successfully navigating market dynamics, Pilbara Minerals has the potential to experience remarkable growth and deliver substantial value to its shareholders.

Technical Analysis:

The stock of Pilbara Minerals is exhibiting a bullish trend both on the monthly and weekly charts.

The formation of “Higher Highs” on the monthly chart, along with the price consistently trading above the 14-day EMA, indicates upward momentum in the stock. The rejection of downside moves and the positioning of indicators further support the bullish sentiment.

On the weekly chart, although there has been some minor selling pressure, the stock has managed to maintain support at the 14-day EMA and is trading at higher levels. If the stock breaks through resistance levels at $5.04 and $5.43, it could trigger further upward movement.

The consistent position of the price pattern above the EMA in both the monthly and weekly time frames, along with support from various indicators, suggests that the bullish momentum is likely to continue.

Veye’s Take:

Pilbara Minerals presents a compelling investment proposition in the thriving lithium sector. The company’s strategic projects, such as the P680 and P1000 expansions, are progressing well and set to significantly increase spodumene concentrate production. This positions Pilbara Minerals to meet the growing demand for lithium products. Additionally, its joint venture with Calix in the mid-stream demonstration plant showcases promising progress and highlights the company’s commitment to capitalizing on the rising global demand for lithium. With a strong balance sheet, ongoing cash flow, and a focus on operational efficiency, Pilbara Minerals is well-positioned to navigate the dynamic lithium industry and deliver long-term value to investors. Veye recommends a “Buy” on “ Pilbara Minerals Limited “ at the closing price of $4.990 (As of 14 Aug 2023).

*All Data has been sourced from Company announcements and Refinitiv, Thomson Reuters.

 Disclaimer

Veye Pty Ltd(ABN 58 623 120 865), holds (AFSL No. 523157 ). All information provided by Veye Pty Ltd through its website, reports, and newsletters is general financial product advice only and should not be considered a personal recommendation to buy or sell any asset or security. Before acting on the advice, you should consider whether it’s appropriate to you, in light of your objectives, financial situation, or needs. You should look at the Product Disclosure Statement or other offer document associated with the security or product before making a decision on acquiring the security or product. You can refer to our Terms & Conditions and Financial Services Guide for more information. Any recommendation contained herein may not be suitable for all investors as it does not take into account your personal financial needs or investment objectives. Although Veye takes the utmost care to ensure accuracy of the content and that the information is gathered and processed from reliable resources, we strongly recommend that you seek professional advice from your financial advisor or stockbroker before making any investment decision based on any of our recommendations. All the information we share represents our views on the date of publishing as stocks are subject to real time changes and therefore may change without notice. Please remember that investments can go up and down and past performance is not necessarily indicative of future returns. We request our readers not to interpret our reports as direct recommendations. To the extent permitted by law, Veye Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss, or data corruption) (as mentioned on the website www.veye.com.au), and confirms that the employees and/or associates of Veye Pty Ltd do not hold positions in any of the financial products covered on the website on the date of publishing this report. Veye Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services.

ACN 623 120 865 | ABN 58 623 120 865
Copyrights© 2018 veye