Lotustpsll, who contributed this article to NextInsight, worked 32 years with a global banking group before he retired. He is vested in Tawana Resources.
The share price of Singapore listco Alliance Mineral Assets Limited (AMAL) dropped -- from 28.5 c to 25 c -- in the past week, probably due to reasons unrelated to the strong fundamentals of its business. These very same fundamentals have buoyed the share price -- unchanged at 23 c -- of its 50-50 JV partner in the Bald Hill project, Australia listco Tawana Resources. |
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Baldhill Project Comparative Analysis - TAWANA vs AMAL |
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TAW |
AMAL |
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Current Price |
AUD 23c |
SGD 25c |
| AUD/SGD 1.07 | AUD 23.4 c | |
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Issued Capital |
442 m |
481 m |
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Options (exercise price 35 – 30 AUD cts) |
32m |
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Institutional |
> 50% |
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Balance Sheet |
net cash |
net cash |
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Funding |
secured |
secured |
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Auditor |
Ernst & Young |
Ernst & Young |
Here are several key investing points:
♦ Crucial environmental permit obtained for Baldhill project
♦ Estimated Free Cash Flow (FCF) yield reflects a huge cash generative business model.
♦ Estimate reserve for Baldhill > 10 years
♦ Expect solid dividend pay-outs from both companies.
For AMAL, FCF may flow straight through (leading to high dividend payouts) as Bald Hill is the only project in its business.
 "Based on projected EBITDA and FCF, the investing case for both AMAL and Tawana (at current prices) is strong."-- Lotustpsll (photo) |
A portion of the FCF, however, may be retained at TAWANA for capex purposes for its other projects.
TAWANA also owns 100% of the Cowan project, hence it has a longer reserve life for its lithium deposits.
When the Bald Hill project takes off, there will be keen interest in the Cowan project which is sited close by.
The operating cost for the Cowan project could be low (land adjoining Baldhill) – given its access to Bald Hill’s plants.
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TAW |
AMAL |
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EBITDA per share |
0.1013 |
0.0998 |
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Price/EBITDA |
2.27 |
2.34 |
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FCF per share |
0.0918 |
0.09 |
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FCF Yield |
39.9 % |
38.5 % |
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# EBITDA per share |
0.0709 |
0.0698 |
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# Price/EBITDA |
3.24 |
3.35 |
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# FCF Yield |
27.9% |
26.9 % |
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Notes: Projections (in AUD) report by Canaccord Genuity on 26 July 2017: Annual EBITDA AUD 96m, FCF AUD 87m.
# Sensitivity Analysis – assume 70% estimate compliance. The numbers still provide a credible investing thesis for both AMAL and Tawana. For Tawana, assume full conversion of share options.
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Significant institutional holding > 50% for TAW. Directors hold about 6%.
TAW recently did a share placement at AUD 25 c. Its share price will re-rate as more significant milestones are reached.
The first production shipment for Bald Hill project is expected in 1Q18. Volume of output should be comparable to Galaxy Resources’ Mt Cattlin project.
Risk to projections – projection errors, failure of Burwill to honour off-take contract, downturn in the market price of lithium, etc.
Lithium industry – Strengthening tailwinds with more countries joining in to reduce carbon footprint.
Conclusion – Based on projected EBITDA and FCF, the investing case for both AMAL and Tawana (at current prices) is strong.
Comments
The speculative froth is long gone and the fundamentals of AMA have grown stronger -- look at the offtake agreement achieved with very high selling price, and the Pre-Feasibility Studies showing potential for tremendous cashflow from the mine.
When the brokers come to their senses (they are losing lots of commissions from the low trading volume ) and lift their curbs, the stock price should reflate to a higher (and fairer) value.