Mount Cattlin going well on a part-time basis: The broad production and sales numbers were released early in July. Mt Cattlin processed 324,503t to produce 30,942dmt of 5.9% concentrate at a cost of US$412/t. Guidance on annual concentrate production is unchanged at 90,000-105,000t. The cash cost decline of 30% was a surprise as we had expected some penalties from running the operations on a campaign basis. The cost improvement reflects lower mining costs and cost savings through optimised work practices. The company noted that the ore sorters to process the lower grade stockpiles are working well and that treating low grade stockpiles and tailings will enable the operations to minimise mining costs in the second half.
Spodumene prices lower than our expectations: The company does not provide sales price information on shipments but did give an indication of the market expectations. We had expected that prices would be in the low US$400/t CFR range; however, this was too optimistic, and prices have slipped further into the high US$300/t range. The CEO did note that the stockpile overhang is still present and has not moved from the 3-4 months range due to disruption in the conversion and battery manufacturing industries. Although, GXY did indicate it would sell more tonnes than it produces in the second half. The decline in prices has seen us lower our 2020 NPAT by US$4.5m to an NLAT of US$20.5m. Ongoing high spodumene stock levels have led us to delay a recovery in prices, and we are lowering our FY21 estimates from a profit of US$10.3m to an NLAT of US$9.8m. The decline in prices will also lead to GXY booking a non-cash impairment of US$20-30m through the write-down of Mt Cattlin stockpiles at the half-year result. Our valuation has decreased 5% to A$1.46ps.
Investment view: We increase our price target from $0.88 to $1.05 having reduced the discount we had been applying to our valuations of Mt Cattlin and Sal de Vida. Based on the June quarter, Mt Cattlin’s operating performance is turning around, while the recent announcements on progress on the Sal de Vida pilot plant and engineering work gives us much more confidence in it proceeding through to development. We maintain our HOLD rating. Click here to read full report