A closer look at two mining companies – MLD, ORE

A closer look at two mining companies – MLD, ORE

Growth in topline of a company is crucial to the performance of the overall business, However, if the company is expanding its operations by way of acquisitions, mergers as well as roll out of new products, the topline can grow exponentially. Also, new contracts could also be taken as substantial element in the growth of topline. In the below article, we would be having a look at two companies (MACA Limited and Orocobre Limited) which have been recently awarded with new contracts.

MACA Limited

MACA Limited (ASX: MLD) is involved in three businesses as well as operates in two geographical segments. The company is into providing contract mining services, civil contracting services as well as mineral processing services across Australia, and contract mining services in Brazil and South America.

Cessation of Brazil Operations

  • The company recently announced that it would cease its Brazilian operations, which will come into effect from January 2020. This decision of the company follows early termination of the contract at Antas for a subsidiary of Oz Minerals Limited, AVB Mineracao Ltd.
  • It added that the contract was scheduled to conclude in 2020. Moreover, the decline in the Work in Hand position has been resulted by the early termination, which would be around $8 million.
  • The company would be retaining the ownership of most of the plant and equipment, which are currently being utilized at Antas. MLD would also dispose of assets which are not redeployed to other operations. The company anticipates a noncash impairment charge of around $2 million, which is related to the cessation of operations in Brazil.

Awarded with New Contract

The company recently via a release notified the market with contracts, which has been recently awarded:

  • A construction contract amounting to $9.5 million has been presented to the company’s Victorian-based civil and infrastructure business by VicRoads. The contract has been awarded for the Bacchus Marsh Road Stage 2A Safety Improvements. In addition, this project has been started and would take 6 months to wrap up.
  • Also, this business has been awarded additional minor works contracts with VicRoads and Local Victorian shires amounting to around $10 million.
  • The Mining division of MLD has received a letter of intent from a subsidiary of First Quantum Minerals Ltd, FQM Australia Nickel Pty Ltd for the works at the Tamarine Limestone Quarry for mining, crushing as well as screening of Limestone amounting to around $20 million over a span of three 3-year period. Work for this contract is anticipated to commence in February 2020 and would use current crushing equipment.

On the financial front, the company happens to be financially strong with a net debt position amounting to $82.8 million and cash on hand of $59.3 million as at 30th June 2019. The strong balance sheet of MLD has allowed the company to finance significant capital investment in existing as well as new projects. Also, the balance sheet has helped the company to maintain its dividends toward the higher end of its targeted dividend payout ratio in the range of 30 to 60% of annual after-tax profits.

At the close of trading day on 21st January 2020, the stock of MLD last traded at A$1.000 per share with a rise of 2.564% The stock delivered returns of 2.09% and 4.28% in the span of three months and six months, respectively.

Orocobre Limited

Orocobre Limited (ASX: ORE) is engaged in exploration of minerals. ORE is also a production company and has its focus on developing Lithium/Potash resources in Argentina.

Signing of Two- Contracts

  • ORE recently notified the market participants that it has inked two contracts for the supply of battery grade lithium carbonate to top tier Chinese cathode manufacturers such as B&M Science and Technology and XTC New Energy Materials.
  • Toyota Tsusho Corporation as joint sales and marketing agent has inked one contract for supply of a total 7,200 tonnes of battery grade lithium carbonate for production from the Olaroz Lithium Facility.
  • The second contract has been signed for the supply of a total 2,880 tonnes of micronised battery grade lithium carbonate.
  • The company added that two contracts would witness the total tonnages delivered over the span of 3 years with the first shipments is anticipated to begin in the March 2020 quarter. The following picture provides an idea of production in September 2019 quarter:

Financial year 2019 has proved to be another year of achievements for the company. The company stood in a strong financial position at the end of financial year 2019. In FY19, the company executed its strategy of managing brine quality, new pond preparation as well as tailoring production to seasonal conditions which delivered tangible results.

On the outlook front, for the December 2019 quarter, the indicative weighted average price of lithium carbonate sales is currently anticipated to be around US$5,400/tonne FOB, which is subject to achieving the planned shipping schedule. The company added that the market condition happens to be soft and it has decided to meet current pricing in order to ensure retention of market share.

As per the key management personnel, the company is in a fortunate position with a very strong balance sheet. The business continues to focus on decreasing the cost of production during the period of market weakness for maintaining its position as one of the low-cost producers of lithium chemicals.

It was also added that lithium chemical prices are well below incentive pricing for green-fields projects but are anticipated to recover in the medium term. While its price guidance for the December quarter has reduced, operational and cost improvements would limit the impact on its operating margin.

At the close of trading day on 21st January 2020, the stock of ORE last traded at A$3.590 per share with a fall of 3.495%. The stock has delivered returns of 56.96% and 30.99% in the span of three months and six months, respectively.

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