Australia resources sector has experienced a significant increase in M&A activity over the past two years which is attributed to the increased prices of commodity and diversion in the strategic directions. There is a lot of divestment of Australian projects to further their investment and diversify into materials and industries. Three stocks are discussed under the resources sector below:
AVZ MINERALS LIMITED (ASX: AVZ) – The company considers an option to explore potential capital raising and offtake arrangement of 20% for a total of between US$30 million to US$70 million. The revenue increased to $169,121 in 2018 from $20,432 in 2017. However, in 2018 the total comprehensive loss of the year was $3,237,829, which has increased from the prior corresponding period. At the end of the year June 30, 2018, the company had a cash and cash equivalents balance of $16.34 million with zero or no debt representing a healthy balance sheet. The earnings per share (EPS) of -0.003 AUD restrains the profitability of the company. As at October 24, 2018, the stock of AVZ Minerals traded at a market price of $0.075 which is very close to its 52-week low and expectations are of a rebound, it has seen a performance change of 0.54% since inception.
GALAXY RESOURCES LIMITED (ASX: GXY) – From the previous corresponding period, the company posted a healthy half-year financial performance with profit after tax almost growing multi-fold. Meanwhile, for the ongoing projects and optimization initiatives, the group has decent cash position to take care of the funding requirements, as at 30 June 2018, the group had cash and liquid assets of $ 68.0 Mn with zero debt. During the quarter, the Company commenced a ~30,000m drill program in support of exploration, resource and reserve development at Mt Cattlin. Also, a binding agreement signed for sale of northern tenements to POSCO for cash consideration of US$280 million. The P/E of the stock is at 36.870 and the EPS is at 0.061 which compares well among the peer basket. As at October 24, 2018, the stock of Galaxy Resources traded at $2.260 which is near its 52-week low, with a since inception change of change of 202.09%.
ARGOSY MINERALS LIMITED (ASX: AGY) – After the confirmation of successful production of initial ‘battery grade’ specification LCE product from the Stage 1 plant at its Rincon Lithium Project, located in Salta Province, Argentina, the company with a market capitalization of $193.9m, has achieved a significant milestone. However, the company posted a net loss of $ (1,668,972) hence no dividends have been declared, provided for or paid in respect of the half-year and also for 30 June 2017. The cash and cash equivalents at the end of the financial period was of $7,336,762 with no debt on the balance sheet reflecting healthy financial position. The earnings per share (EPS) is at -0.007 AUD which restrains the profit growth. As at October 24, 2018, the stock of Argosy Minerals traded at $0.220 which is near its 52-week low, with a since inception change of 478.51%.
|Serial Number||Company Description||Ticker||Potential increase in EPS as indicated for next FY (market consensus)|
|1||AVZ Minerals Limited||(ASX: AVZ)||--|
|2||Galaxy Resources Limited||(ASX: GXY)||ü|
|3||Argosy Minerals Limited||(ASX: AGY)||--|
Table: 3 Resources Stocks EPS valuation comparison
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