Altura Mining – 16% share price gain in week one fiscal 2018 40% discount to consensus 12 month share price target
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Altura Mining (ASX: AJM) is another lithium revival story, and one that could continue to run on the back of developments at its world-class Pilgangoora lithium project. Once again, the difference between it and many other early stage hopefuls is that it has a clear path to near term production and profitability with offtake agreements providing income predictability.
As can be seen from the above chart, the company’s share price has continued to run post the first week of fiscal 2018 when it increased from 12.5 cents to 14.5 cents. Wednesday’s closing price of 16 cents implies a share price gain of nearly 30% relative to the June 30 closing price.
AJM’s fortunes received a further boost at the start of the week when it announced that leading Chinese battery manufacturer J&R Optimum Energy (AJM’s largest shareholder) would receive a minimum of 100,000 tonnes of 6% grade spodumene concentrate on an annual basis.
AJM also noted that an updated offtake agreement with Lionergy would also account for annual supply of 100,000 tonnes. Also of significance is the fact that the company has agreed on both floor and ceiling prices which will guarantee strong positive financial returns from the Pilgangoora lithium project.
Management confirmed that development remained on track for commissioning in the first quarter of 2018 and that its plans for funding stage II of the project which would ramp up annual production to 450,000 tonnes were proceeding as expected.
The entrance of another offtake partner which sees the best part of early stage production now covered should provide AJM with a sound platform to negotiate funding.
Analysts at Beer & Co Equity Research anticipate funding will be completed by August, and the broker is of the view that meeting this milestone will create positive share price momentum.
Beer & Co is forecasting AJM to deliver a maiden net profit of $10 million in fiscal 2018, increasing to $75 million in fiscal 2019. This currently represents earnings per share (EPS) of 5.1 cents, however there is likely to be some EPS dilution if the company issues new shares as part of its funding arrangement.
It is worth noting though that even if the issue of new shares diluted earnings per share by circa 20%, the company would be trading on a conservative forward PE multiple of approximately four relative to its current trading range.
Consequently, the consensus 12-month price target of 23 cents appears to be within AJM’s reach, particularly once funding is ratified and there is better clarity around the group’s earnings outlook.
AJM Price at posting:
16.0¢ Sentiment: Buy Disclosure: Held
