Why is this ASX listed critical materials producer’s share price up 200% in the last three months?

The mining industry is one of the most important pillars of the Australian economy. In the financial year 2020, the accumulated value added by the mining sector to the Australian economy amounted to a whopping AU$206.24 billion (approx.). The country’s mining industry includes the exploration and mining of gold, silver, coal reserves, iron ore, etc., among many other resources.

A small-cap ASX-listed producer of critical materials, Australia Strategic Materials (Holdings) Limited (ASX:ASM), has more than doubled its value in the last three months and has gone up 5 times over the last year. The ASX share price has been rallying for last one year and recently picked up pace, outperforming the Australian benchmark index, the ASX 200 and the ASX Materials index.

Image Source: Refinitiv

In the last three months, the ASM share price rallied 206%, beating the Materials index return of a mere 0.59%. Comparing the medium-term performance, the ASM share has rallied by over 415.3% in the last one year, beating the Materials index’s return of 14.6% hands down. 

Buying interest in the stock has been so high that on 13 August, the ASM share price clocked an unusually high volume on the ASX, which also led to a notice regarding the price and volume surge being sent to the company. 

What does the company do?

Australian Strategic Materials (Holdings) Limited is an AU$1.7-billion producer of critical materials and has an integrated materials business. ASM’s metals business is built upon a proprietary metallisation process, which helps to convert oxides into high-purity alloys, metals and powders with less energy consumption than conventional methods. The scalability of its metallisation process has been successfully proven by its pilot plant located in South Korea and as a result, it has produced a wide range of high-purity metals.

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The company’s flagship Dubbo Project (100%-owned) has a potential for long-term resource production of rare earths, niobium, zirconium and hafnium, which is situated in central western NSW, Australia.

In August, the company’s General Counsel, Julie Jones, was appointed as Joint Company Secretary. Ms Jones has a very strong background in the mining space with more than 18 years of strategic, legal, and corporate governance experience.

Financial performance for June 2021 Quarter

In the quarter ended June 2021, the company was able to finalise the successful AU$92-million capital raising, which would help the company to focus on advancing towards its key workstreams, including the FEED Study for the Dubbo Project and engineering and development of its South Korean Metals Plant while also supporting with working capital requirements and the funding of corporate costs.

At the end of the quarter, the company has a net cash position of AU$93.3 million. Other key highlights are:

  • In South Korea, the company progressed discussions with its potential partners to present the potential economic benefits of its “mine-to-metal” strategy.
  • The company also received conditional support from Export Finance Australia (EFA) worth a sum of AU$200 million of debt financing for its Dubbo Project in Central NSW.
  • It also commenced new upgrades to the Ochang site, which would accommodate the 5,200-tonne capacity commercial-scale metals plant.
  • For the South Korean metal plant, the company had been awarded contracts for key long-lead equipment. Its commercial-scale metals plant is on track to commence operations by mid-2022.
  • With a view to obtain binding and committed agreements, the company has progressed discussions with suppliers of key raw materials.

Key development regarding the Dubbo Project

In July, the company entered into a conditional agreement with a consortium of South Korean Investors to sell them a 20% equity interest in the Dubbo project for a subscription price of US$250 million (AU$340 million).

Under the agreement, the Investing partnership will require to deposit US$1 million into escrow within seven business days of signing the agreement. After the satisfaction of the first-stage conditions, the partnership would deposit the second tranche of US$9 million into escrow.

According to the Managing Director of ASM, David Woodall, this Agreement heralds an exciting new phase in ASM’s growth in opening a financing pathway for the Dubbo Project, and puts the company one step closer to initiate its ‘mine-to-metal’ strategy. This agreement represents a key contribution of financial assistance to the Dubbo Project.

Shareholding pattern of the company

The largest single shareholder of the company is Mr Ian Jeffrey Gandel, Chair of ASM, holding a massive stake of 22.64% of the outstanding shares of the company, amounting to a total value of approximately AU$31.58 million. This is followed by Chapelgreen Pty Limited, owning a 4.54% interest.

Source: Refinitiv

Investments of some of the most renowned global investment managers such as Fidelity International (3.02%) and The Vanguard Group Inc. (1.42%) also adds confidence to the future outlook of the business.

Global commodity rally has infused heavy dose of enthusiasm among the investing community. However, investors need to be cognizant of the growing risks associated with the rise in cases related to the Delta variant of COVID-19 across the globe. Prudent investing calls for factoring in safety over projecting the recent performance into future. The US FDA granting full approval to Pfizer’s COVID-19 has soothed the nerves of investors, but investors are also closely monitoring the actions taken by the Chinese authority as they fight the pollution issues which may cap the surge in commodity prices.

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