Ferro Alloy Resources#: Full Year Results 2019
2019 Weak as Anticipated; Recovery Expected
Ferro-Alloy Resources Group (LON:FAR) has reported full year results for 2019. With COVID-19 restrictions being lifted in Kazakhstan, we believe this will enable FAR to recover from an exceptional 2019 where revenue of US$1.8m was down 57% YoY despite a 22% increase in V2O5 output to 152t. COGS of US$3.2m were up 88% YoY, largely due to the higher cost of purchased raw materials. SG&A was inflated due to listing costs taking the group to a net loss of US$3.3m versus a profit of US$3m in the prior year. FAR finished the year with cash of US$0.65m although has subsequently raised around US$0.6m through debt and equity.
Wider Development Remains the Major Value Driver
FAR is poised to develop its large scale vanadium shale deposit which has projected initial capex of US$101m, annual output of 5.6ktpa V2O5 rising to 23.5ktpa, cash costs of US$2.30/lb excluding by-products and negative US$-1.2/lb on an inclusive basis resulting in an NPV11 of US$1.4bn. Progress on the upgraded Feasibility Study has been hampered by travel restrictions but work is now resuming, supported by recent funding activity, and we believe will be completed in H2 2020.
Vanadium Price Recovery Steady
With Chinese industrial activity normalising follow the earlier shutdown the vanadium price is up c15% YTD to US$6.9-7.0/lb in China although with Europe behind the curve the price is lower with a wider spread at between US$5.1-5.5/lb. We highlight both prices as, FAR has the optionality to sell into both markets due to its location although the Asian benchmark is of primary importance currently.
Recommendation and Target Price
Our risked DCF valuation continues to indicate significant upside potential which is realisable, in our view, given a plan to execute development of the main asset and existing operations expansion. We reiterate our BUY recommendation and target price of £1.71/sh.
Oliver O'Donnell, CFA, Natural Resources Analyst | T: +44 (0)20 3617 5180 | E: oodonnell@vsacapital.com
VSA Capital Limited, New Liverpool House, 15-17 Eldon Street, London EC2M 7LD | www.vsacapital.com
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