Excerpts from Hartleys' report
Analyst: Trent Barnett, Head of Research
|Offtake partner(s) and cash needed
Alita Resources Limited (A40) formerly (Alliance Mineral Assets Ltd) announced a corporate and operations update along with its June Quarterly.
The Company had a tough June Quarter mainly due to the lack of demand from its offtake partner Jiangxi Bao Jiang Lithium Industrial Limited (JBJLIL) with only 18.7kt of spodumene concentrate shipped in the quarter, no sales were completed in June or July.
The underlying reason behind the concentrate stockpile build is the slower than anticipated ramp-up of lithium refineries which has meant that demand for concentrate is currently low.
A40 has subsequentially shipped 10kt of concentrate (we estimate~A$10m in revenue).
The Company is currently in discussions with potentially new offtake partners, however, most of the interest is from smaller customers. Although one larger Company is interested in supply in the order of 20-40ktpa, if successful, would commence in late CY19 or early CY20.
Given the quality of the Bald Hill product (>6.0% Li2O + <0.5% Fe) there is potential for it to displace other lower quality concentrates.
Minimum cash balance of A$15m by October
The Company’s cash balance reduced from A$20.1m on the 30th of June toA$6.6m on the 25th of July. A40 completed a conditional placement to a subsidiary of JBJLIL for A$10m at 20cps, this brings their cash balance toA$16.6m.
We estimate that A40 will need to complete an additional 35Kt of shipments (excluding shipment already completed) in the SepQ, to ensure its cash does not fall below the newly adjusted A$15m minimum cash balance by 1st of October.
A40’s loan facility was altered by the lenders as a result of the changes to the mining plan, the Company is now required to have a minimum cash balance of A$15m (previously A$5m).
Fines circuit was a big value driver in our model
The fines circuit was a big value driver for our model as it increased production for very little incremental operating costs by increasing throughput and recoveries.
Now that the fines circuit has been deferred, we model its implementation at the start of CY21 and assume remaining capex spend of A$16m, we also lowered our production whilst maintaining our annual operating costs.
It shows the severe issues faced by the industry that positive NPV, partially constructed projects can’t be completed.
|Maintain Speculative Buy Recommendation
The slight increase in production was largely thanks to the rise in throughput to 405.9Kt at head grade of 0.90% Li2O (vs 397.1Kt at 0.89% MarQ), recoveries were steady at 67%.
Due to the construction of the fines circuit being halted pending a strategic review we have adjusted our recoveries to 68% until the start of CY21 when we assume the fines circuit is completed and recoveries increase to 72.5%.
We have a base NPV of 20cps (from 29cps) and a price target of 23cps (from 29cps). There has been a significant increase in the near-term risk surrounding offtake and short-term funding although if this is overcome there remains substantial upside for shareholders.