European Metals Holdings Ltd (LON: EMH)

European Metals Holdings Limited is an FTSE AIM All-Share index listed Australia-based mineral exploration and development company. Moreover, EMH is primarily engaged in developing a lithium and tin project in the Czech Republic. The deposit previously had approximately 400,000 tons of ore mined as a trial sub-level open stope underground mining operation.

Industry Trends

According to the leading industry expert, the global lithium-ion battery market size is estimated to grow at a CAGR of 12.3%, from USD 41.1 billion in 2021 to USD 116.6 billion by 2030. Moreover, the overall lithium-ion battery demand would be significantly driven by the automotive industry. Electric vehicles require high power, which can be obtained from the lithium-ion battery. These batteries are most often used in electric vehicle models such as Nissan Leaf, Chevy Volt, and BMW.

Growth Prospects

• Mineral Resource Upgrade: The Company had produced encouraging drilling results and an upgraded mineral resource estimate for the lithium and tin resources in the Cinovec Lithium-Tin deposit in the Czech Republic.
• Lithium Hydroxide Production: The Cinovec Project had an option to produce either a battery-grade lithium carbonate product or a battery grade lithium hydroxide. Moreover, the battery-grade lithium carbonate can be easily converted into lithium hydroxide monohydrate with a commonly utilised liming plant process.
• Appointment of Operations Manager: The Company had appointed Mr. Walter Mädel in the role of Operations Manager. Furthermore, Walter had rich experience regarding the successful delivery of lithium ore processing plants for Altura's Pilgangoora mine and Firefinch's Goulamina hard rock lithium DFS over the last five years.
• Strong Liquidity Profile: The Company’s current ratio of 15.16x remained significantly ahead of the industry median of 1.71x during FY21. Moreover, the Company remained debt-free during FY21

Key Risks

• Volatile Commodity Price: The high volatility in commodity price could have an adverse impact on the top-line revenue of the Company.
• Failure to Discover Substantial Reserves: The failure in discovering substantial reserves could adversely affect the EMH’s future performance as exploration and development are capital-intensive activities.
• Environmental Compliance: The failure to adopt or apply ethical standards and environmental compliance may affect the reputation of EMH.
• Operational Risk: The growth trajectory can be impacted by various factors, such as increasing freight rates and operational risk regarding production stoppages or equipment failures.
• Climate Risk: The Company operates in zones prone to adverse weather events. Thus, it remains exposed to the risk of failures of mining or processing equipment, loss of containment, mining infrastructure failures.

Now, we will analyze the Key Fundamental Statistics & Shareholding Pattern of European Metals Holdings Ltd.  

Cadence Minerals PLC is the most significant shareholder as it holds nearly 17.46 million shares as of 30 September 2021. 

FY21 Financial & Operational Highlights (for the year ended 30 June 2021, as of 30 September 2021)

 (Source: Company result)

• Significant Increase in Net Assets: EMH’s net assets increased from AUD 18.07 million during FY20 to AUD 25.28 million at the end of FY21.
• Robust Top-line Business: The Company had shown robust growth in service revenue from AUD 0.18 million during FY20 to AUD 1.10 million for FY21 from Cinovec project development.
• Decent Cash Balance: The Company had a decent cash balance of AUD 7.88 million as of 30 June 2021.

Share Price Performance Analysis

 (Source: REFINITIV; Analysis done by Kalkine Group)

On 20 October 2021, at 09:06 AM GMT+1, EMH’s shares were trading at GBX 72.00, down by around 1.91% from the previous day closing price. Stock 52-week High and Low were GBX 110.00 and GBX 20.60, respectively.

From a technical perspective, the MACD line remained above the signal line, reflecting an upside momentum in the stock price.

Over the last one year, EMH’s stock price had delivered a positive return of around 229.66%, while the FTSE AIM All-Share index (benchmark index) had produced a return of about 27.44%, and FTSE All-Share Industrial Metals & Mining (benchmark sector) had generated a return of approximately 75.53%.

Valuation Methodology: Price/Sales Approach (NTM) (Illustrative)

Business Outlook

The Company had made significant progress regarding the development of the Cinovec lithium and tin project in the Czech Republic. Moreover, the bullish outlook on Electric Vehicles would brighten the lithium prospects. Furthermore, the appointment of Operations Manager by Geomet brings a wealth of mineral processing experience. Considering the penny nature of the stock, EMH may witness adverse volatile movements amid rising bond yields, increasing inflation rates, and the Evergrande fiasco. Thus, it would depend on the risk appetite of the clients to take a reasonable position on this Company having decent operational parameters.

Considering the strong liquidity profile, robust revenue jump during FY21, impressive results from the Cinovec Project, well-positioned balance sheet, bright industry outlook, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on European Metals Holdings Ltd at the current price of GBX 72.00 (as on 20 October 2021 at 09:06 AM GMT+1), with lower-double digit upside potential based on 94.47x Price/NTM sales per share (approx.) on FY22E sales per share (approx.).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peers/ Industry information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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