Nickel Value Optimisation Opportunities For Players like IGO, ILU, OZL and SAR

  • Oct 26, 2019 AEDT
  • Team Kalkine
Nickel Value Optimisation Opportunities For Players like IGO, ILU, OZL and SAR

Mining is one of the primary activities in Australia contributing to the Australian economy by providing export income, royalty payments and employment. Firms in nickel ore mining have had faced challenging conditions due to fall in the prices but has recovered in the past few years. Industry profit margins soared, and revenue and volumes are projected to increase in the coming years. It is a capital-intensive industry as large portion of its revenue is required for capital inputs like plant, machinery, vehicles, trucks and other capital equipment.

Some of the nickel related stocks are as follows:

Independence Group NL (ASX: IGO)

Independence Group NL (ASX: IGO) is engaged in the mining of nickel, copper and cobalt and processing at nova operation, non-operator gold mining from the company’s 30% interest in the Tropicana operation and ongoing mineral exploration in Australia and overseas.

Lake Mackay JV Update- New Gold Prospect Identified: Prodigy Gold NL provided an update on exploration activities recently completed at the Lake Mackay Project where the RC drilling propagated the best results from 12m @ 3.5g/t Au from 112m from Arcee Prospect, which is an 800m long gold soil anomaly. A total of 73 RC holes for 15,528m were drilled and an additional copper sulphide mineralisation intersected at the Phreaker Prospect, the follow up of which is planned in 1H20.

Louisa Nickel Project Attracts Strong Partner: Apollo Consolidated Limited (ASX:AOP) announced that Louisa Project has attracted Independence Group NL as a farm-in and joint venture partner where a subsidiary of Independence has agreed to spend a minimum of $350,000 on the Project within 24 months, may also spend an additional $3M within four years to earn a 75% interest in the Project.

BUX: West Kimberley JV Restructure: Buxton Resources Limited (ASX: BUX) has entered into three commercial binding agreements with Independence Newsearch Pty Ltd and is to receive $1,275,000 consideration from IGO for the Quick Shears Tenements, Fissure Tenement and Buxton’s Kimberley-based field equipment. Buxton’s remaining West Kimberley tenure is now to be vested into the West Kimberley Joint Venture.

1Q20 Financial Highlights

  • During the 1Q20 period, revenue went up by 29% on previous quarter to $263 million majorly due to rise in prices of nickel, gold and cobalt. It declared and paid a dividend of 8 cents per share.
  • Underlying EBITDA of company soared by 64% on the previous quarter to $154 million and opportunities in nickel value optimisation were well progressed.
  • The company repaid its debt of $28.6 million and reduced its total debt position by 33%.

Financial Performance (Source: Company’s Report)

Stock Performance: The stock witnessed a rise in performance by 35.46% in the past 6 months. It last traded at $6.230, up by 1.301 percent from its previous close, on 25 October 2019, which is close to its 52-week high of $6.640.

Iluka Resources Limited (ASX: ILU)

Iluka Resources Limited (ASX: ILU) is involved with the work related to exploration, project development, mining operations, processing and marketing of mineral sands.

Dividend/Distribution – ILU: The company paid a dividend of 5 cents per share on ILU – (ordinary fully paid) on October 2, 2019.

Key Highlights 1H19

  • During the 1H19, underlying group EBITDA of the company went down by 2% from $278 million in H1 2018 to $274 million.
  • During the half-year, NPAT soared by 9% from $126 million in H1 2018 to $137 million, which was mainly driven by higher prices largely offset by lower sale volumes, lower US$ exchange rate positively impacting the sales receipts and higher unit cost of goods sold.
  • Net debt of the company went up to $141.5 million in H1 2019 mainly due to final 2018 tax instalment payment of $127 million, capital expenditure to deliver on projects and strategic partnership with IFC in Sierra Leone. This further resulted in the gearing ratio of 10.7%

Outlook: The business projected sales volumes to be at the lower end of hopes, with second half sales volumes similar to the first half. Iluka continues to assist customers through its rebating system and adaptable product offering, which will include more Standard Zircon product. As a result, the company envisages a lower average realised price in the later half. ILU projected that there would be an increase in the depreciation and amortisation expense and would range around $155 million due to increased depreciation costs subsequent to capital improvement works at Sierra Rutile.

Stock Performance: The performance of the stock went up by 11.46% in the past 30 days and last traded at a P/E multiple of 11.710x. The stock has earned an annual dividend yield of 2.74% and last traded at $8.730, slipping by 0.229% from its prior close on 25 October 2019.

OZ Minerals Limited (ASX: OZL)

OZ Minerals Limited (ASX: OZL) is an Australian based modern mining company with a focus on copper and has a growth strategy focused on creating value for all stakeholders.

Dividend/Distribution – OZL: The company declared a dividend of 8 cents per share on OZL – (ordinary fully paid) which was paid on 17 September 2019.

OZ Minerals Testwork Co-operation Agreement: Cobalt Blue Holdings Limited (ASX:COB) has entered into a testwork co-operation agreement with OZ Minerals Limited to evaluate the application of COB technology to retrieve cobalt, copper and gold from a pyrite concentrate where OZL will offer COB with a 10–15 kg sample of pyrite concentrate.

Completion of Maslins' Geophysical Field Program: Investigator Resources Limited (ASX: IVR) entered into an agreement with OZ Minerals on the Maslins IOCG Project to further define the 6km long Maslins’ anomaly over the southern extent of the target. The company is targeting that the drilling to schedule in early 2020.

2019 Third Quarter Report

  • During the third quarter in 2019, the company reported a cash balance of $195 million and an inventory decrease of $74 million followed by the deferral of shipments into Q3 to align with customer requirements.
  • The company also reported a decrease in net working capital by $120 million resulting from decreased concentrate inventory, decreased trade receivables of $13 million and decreased ore inventory of $30 million.

Future Prospects

  • The company is expecting the total copper production in the range of 103,000-115,500 tonnes and the gold production of 123,400-136,800 ounces in 2019.
  • OZL is also expecting that there would be a decline in Site Sustaining Capital Expenditure and Growth Capital Expenditure and would lie in between $18 million to $23 million and $575 million $615 million respectively.

Stock Performance: The stock of the company, last traded at $10.080, moving up by 0.299 percent from its last close, on 25 October 2019. Its performance went up by 5.13% in the past 30 days, earning an annual dividend yield of 2.29%.

Saracen Mineral Holdings Limited (ASX: SAR)

Saracen Mineral Holdings Limited (ASX: SAR) is engaged in exploration, evaluation and development of gold and mineral projects.

Completion of Divestment of Sinclair Nickel Project: Talisman Mining Ltd (ASX:TLM) has concluded the divestment of the Sinclair Nickel Project to Saracen Nickel Pty Ltd. It has obtained $10 million cash payment along with 2 percent of Net Smelter Return royalty for any future metal production from the Sinclair tenements and any upcoming non-precious metal production from SAR’s Waterloo Nickel Project.

Record quarterly production: The company had a record quarterly production of gold of - 96,324oz at AISC A$964/oz. During the quarter ended, free cash flow of the company went down from $82 million to $24 million due to additional discretionary spending on growth capital of $28 million, future proofing the business, lower gold prices and early payment of invoices.

Recovered Gold (Source: Company’s Presentation)

FY20 Financial Guidance: Saracen has beaten the guidance of FY18 and FY19, which was upwardly updated twice. The company has an outstanding platform for growth- people, assets, balance sheet. The company anticipated that it will produce 350-370koz at AISC of $1,025 - 1,075/oz and has a channel of further growth opportunities including significant exploration upside.

Stock Performance: The stock of the company last traded at $3.640, falling by 3.191 percent from its previous closing price, on 25 October 2019. Its performance has gone up by 46.87% in the past 6 months. In terms of valuation, the stock last traded at a P/E multiple of 33.270x, the market cap of which stands at $3.13 billion.


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