Bushveld Minerals Ltd – Encouraged by the production and revenue increase in FY20.

Bushveld Minerals Ltd (LON: BMN) is AIM quoted energy storage solution provider. It focuses on the African market and promoting the role of vanadium redox flow battery (VRFB) system in the energy market.

Investment Rationale – Hold at GBX 18.25

• From a technical standpoint, 100-day SMA (16.41) seems favourable and supporting the upside potential.
• Despite the challenging environment, production surged 24% year-on-year.
• Strong demand and sales momentum continued in Q1 FY21.
• Over the past three years (H1 FY17 to H1 FY20), the debt/equity ratio has remained significantly below the industry median. In H1 FY20, the debt/equity ratio of BMN was 0.29x.

Risk Assessments

• The Covid-19 pandemic can also jeopardise the supply chain and cause financial losses.
• Brexit, unfavourable foreign exchange movement, and IT system failures can impact the growth trajectory of the business.

Recent News

4 February 2021: BMN reported that there was no significant change in ore reserves in the past 12 months, and the Company has the potential for expansion to pursue growth targets with high-quality resources at Vametco.

Q4 and FY2020 Operational Update for the period ending 31 December 2020 (4 February 2021)

 (Source: Company Website)

• During FY20, The Group production surged 24% year-on-year due to the inclusion of Vanchem's production.
• Subsequently, sales were 78% higher year-on-year with sales of Vanchem.
• As at 31 December 2020, the Group cash and cash equivalent was nearly US$50.5 million against US$34.0 million on 31 December 2019.
• The Group also completed its investment in VRFB original equipment manufacturers, including Enerox and Energy Systems.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

The production guidance for FY21 is estimated to surge between 13% to 20% over FY20 production, while the production cash cost is also likely to increase by 9% to 16%. Moreover, the recent operation update reflected the safety of operations and the strengthening of the balance sheet. In a nutshell, the Group entered FY21 on a positive footing with secured funding, and it is encouraged by the rising vanadium price. Stock 52-week High and Low were GBX 24.50 and GBX 7.75, respectively.

Based on the strong distribution capability amid an uncertain outlook, and valuation methodology, we have given a “Hold” recommendation on Bushveld Minerals Ltd at the current market price of GBX 18.25 (as on 10 March 2021, before the market close at 8:25 AM GMT), while we look forward to reinvesting in due course once the Company unveils its strategies regarding new opportunities.  

Bacanora Lithium PLC - COVID-19 has adversely impacted the Company and its partners.

Bacanora Lithium PLC (LON: BCN) is FTSE AIM All-Share quoted Lithium Development Company.

Rationale for Valuation – Avoid at GBX 40.00

• From the technical standpoint, 20-day SMA (42.99) seems unfavourable and is not supporting the upside movement.
• BCN is not generating revenue and even net losses significantly increased in FY20.
• BCN is dependent upon external funding for operations and growth opportunities.
• The Covid-19 crisis continued to hamper the normal running of the business.

Key Risks

• The Covid-19 crisis imposing operational challenges.
• The challenging macroeconomic environment can impact the ability to raise funds.

Recent News

1 March 2021: Ganfeng exercised its option to increase its investment in Sonora Lithium Ltd. Ganfeng Lithium is a major shareholder and offtake partner of the BCN.

Financial Highlights for the twelve months ended 31 December 2020 (as on 8 March 2021)

(Source: Company Website)

• BCN completed equity placing on 8 February 2021 and raised US$65.0 million in gross proceedings by issuing 106,995,885 new shares at 45 pence.
• Bacanora and its subsidiaries reported robust liquidity position with cash balance of US$39.2 million as at 31 December 2020.
• BCN initiated its site activities in Q1 FY21, for the development of the Sonora Project.
• It has completed the sale of 50% stake in Deutsche Lithium GmbH.

One Year Share Price Chart

 (Source: Refinitiv, Thomson Reuters)

Conclusion

The Covid-19 pandemic certainly halted the production of mining and exploration in FY20, which resulted in massive losses. Although the long-term fundamental seems decent; however, the weak fundamentals, reduced cash balance and higher debt level reflects risky position to bet on the Company at the current position. The stock made a 52-week high and low of GBX 69.00 and GBX 14.50, respectively.

Based on the weak fundamentals and uncertain outlook, we have given an “Avoid” recommendation on Bacanora Lithium PLC at the current market price of GBX 40.00 (as on 10 March 2021, before the market close at 11.14 AM GMT), while we look forward to reviewing the recovery in demand.  

Europa Oil & Gas (Holdings) PLC – Overstretched lossmaking entity amid a volatile energy market.

Europa Oil & Gas (Holdings) PLC (LON: EOG) is an AIM All-Share listed Oil & Gas Exploration and Production Company, which holds an interest in the UK, Morocco, and Ireland based sites. It has a diversified portfolio of hydrocarbon assets.

Rationale for Valuation – Expensive at GBX 1.78

• From a technical standpoint, 14-day RSI is not supporting the upside movement.
• Volatile oil and gas prices are keeping the outlook gloomy.
• The Company reported significant losses in FY20, and hence, it is dependent upon external funding to manage operations and pursue growth opportunities.
• The Covid-19 pandemic lockdown can impact production at sites.

Key Risks

• The economic impacts of COVID-19 and the risk of a second wave outbreak with the likely additional impacts on the wider global economy and increased liquidity and solvency risks to the business.
• Any change in regulations and government policies could affect the overall business of the Company.
• The disruption caused by the pandemic can halt production.

Recent News

11 January 2021: EOG provided an update regarding Wressle Oil Field, wherein Europa holds a 30% working interest. Once the field starts production, the breakeven oil price is expected to be US$17.6 per barrel.

Final Results for the year to 31 July 2020 (as on 13 October 2020)

(Source: Company Website)

• During FY20, EOG produced 92boepd (barrels of oil equivalent per day) from three existing UK onshore fields, which was in line with FY19 performance.
• For Wressle, the Company has estimated breakeven oil price of US$17.6 per barrel, significantly below the prevailing oil prices.
• Acquired 100% stake in Frontier Exploration Licence.
• Revenue and cash balance declined during FY20, while the Company reported net loss.

One Year Share Price Chart

 (Source: Refinitiv, Thomson Reuters)

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

Conclusion

Despite the Covid-19 disruption, progress has been made across Europe’s asset base. Moreover, it is encouraged by the estimates at Wressle. It shall give a boost to revenue and cash flows. However, the current financial profile is not satisfactory to punt on an overstretched position, while the energy markets are volatile. Therefore, it is advisable to avoid taking fresh positions and wait for the dip. The stock made a 52-week high and low of GBX 2.10 and GBX 0.55, respectively.

Based on the weak financials amid an uncertain outlook and valuation methodology, we have given an “Expensive” recommendation on Europa Oil & Gas (Holdings) PLC at the current market price of GBX 1.78 (as on 10 March 2021, before the market close at 12:45 PM GMT), while we look forward to reviewing the oil production at Wressle.  

*All forecasted figures and Peer Information have been taken from Refinitiv, Thomson Reuters.

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