Encouraging Exploration Statistics Favoring Diversified Mining and Materials Sector

Expanding EV Fleet and Energy Storage Segment Magnifying Growth in Diversified Mining and Materials Sector

Increasing Exploration Expenditure and Favourable Trend in Select Metals and Minerals

Favourable Expectations in Lithium Export Value and Production

High Gold Exports to China and Increased Global Gold Supply

Index Performance

Key Risks and Challenges

Outlook

Investment theme and stocks under discussion (PLS, ILU, RRL)

After understanding the sector, let us now look at three companies listed on the ASX. The price potential of the companies under discussion has been analysed based on the ‘EV/Sales’ multiple method.

1. ASX: PLS (Pilbara Minerals Limited)

(Recommendation: Buy, Potential Upside: Low Double-Digit, Mcap: AUD 7.02bn)

PLS operates the Pilgangoora project in Western Australia and produces lithium and tantalite.

Valuation

The illustrative valuation model suggests that the stock has a potential upside of 18.18% on 14 July 2022. Moreover, the stock might trade at a slight premium compared to its peers, given decent prospects for the lithium market and increased production. For valuation, peers such as Mineral Resources Ltd (ASX: MIN), IGO Ltd (ASX: IGO), Allkem Ltd (ASX: AKE), and others have been considered. Given positive bottom-line, increased operating efficiency, favourable production, decent financial position, current trading levels, and upside indicated by valuation, a ‘Buy’ recommendation is given on the stock at the current market price of AUD 2.330, as of 14 July 2022 at 10:30 AM (GMT+10), Sydney, Eastern Australia. On the technical front, the stock has support levels of AUD 2.120 and AUD 1.930, and resistance levels of AUD 2.630 and AUD 2.820.

2. ASX: ILU (Iluka Resources Limited)

(Recommendation: Buy, Potential Upside: Low Double-Digit, Mcap: AUD 3.56bn)

ILU is an explorer, miner, and producer of critical minerals such as zircon and high-grade titanium dioxide feedstocks.

Valuation

The illustrative valuation model suggests that the stock has a potential upside of 17.84% on 14 July 2022. Moreover, the stock might trade at a slight premium compared to its peers, given substantial free cash flows and potential commercialisation of rare earth exploration activities. For valuation, peers such as Pilbara Minerals Ltd (ASX: PLS), Allkem Ltd (ASX: AKE), Mincor Resources NL (ASX: MCR), and others have been considered. Given the substantial increase in free cash flows, increased investment resources, progress in rare earth projects, current trading levels, and upside indicated by valuation, a ‘Buy’ recommendation is given on the stock at the current market price of AUD 8.500, as on 14 July 2022 at 11:07 AM (GMT+10), Sydney, Eastern Australia. In addition, the stock has delivered an annualised dividend yield of 2.85%. On the technical front, the stock has support levels of AUD 7.740 and AUD 7.050, and resistance levels of AUD 9.610 and AUD 10.290.

3. ASX: RRL (Regis Resources Limited)

(Recommendation: Buy, Potential Upside: Low Double-Digit, Mcap: AUD 1.14bn)

RRL is engaged in gold production with Western Australia and New South Wales projects.

Valuation

The illustrative valuation model suggests that the stock has a potential upside of 18.14% on 14 July 2022. Moreover, the stock might trade at a slight premium compared to its peers considering the record production level in FY22. For valuation, peers such as Perseus Mining Ltd (ASX: PRU), OceanaGold Corp (ASX: OGC), Ramelius Resources Ltd (ASX: RMS), and others have been considered. Given the decent financial standing, record production, growth of Tropicana, current trading levels, and upside indicated by valuation, a 'Buy' recommendation is given on the stock at the current market price of AUD 1.520, as of 14 July 2022 at 10:54 AM (GMT+10), Sydney, Eastern Australia. In addition, the stock has delivered an annualised dividend yield of 1.98%. On the technical front, the stock has support levels of AUD 1.380 and AUD 1.260, and resistance levels of AUD 1.720 and AUD 1.840.

Markets are trading in a highly volatile zone currently due to certain macroeconomic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note: All the recommendations and the calculations are based on the current market price of 14 July 2022. The financial information has been retrieved from the respective company’s website and REFINITIV.  

Note 1: The reference date for all price data, currency, technical indicators, support, and resistance levels is July 14, 2022. The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Disclaimer

Kalkine New Zealand Limited is authorised to provide general advice only. The information on this website does not take into account any of your investment objectives, financial situation or needs. Before you make a decision about whether to acquire a financial product, you should obtain the Product Disclosure Statement from the product issuer. You should consider the appropriateness of advice taking into account your own objectives, financial situation and needs and seek independent financial advice before making any financial decisions.