PYX Resources#: Dual Listed
LSE Listing Complete
PYX Resources (Pyx Resources Limited (LSE:PYX, NSX:PYX)) has now been admitted to trading on the LSE and completed its first day of dealings yesterday closing at 99.6p/sh. This is a major milestone for the company which is now dual listed on the National Stock Exchange of Australia and on the standard list of the LSE Main Market.
Zircon Prices Increase Further
The company has increased prices by US$910/t YTD to US$2,305/t while Bloomberg indicates that Indonesian prices exceeded US$2,400/t in October, with a wider premium over other key benchmarks, implying a higher starting point for 2022F than we previously forecast. We have modestly increased our forecasts to reflect this. The key market fundamentals that created a strong backdrop for higher prices remain; strong demand post COVID-19 led to inventory drawdowns as major mineral sands producers reduced output in 2020 in response to lockdowns and initial perceptions that China’s recovery would be slow. This tight market was highly vulnerable therefore to the closure of Richards Bay in South Africa, a major source of zircon. While this operation has now resumed, the ramp up is uncertain with force majeure still in place and the market remains undersupplied. Prices have continued to rise into Q4 despite it seasonally being a weaker period, highlighting the market tightness.
Ramp Up & Mining Transition Progress Update
The company reported H1 2021 production of 3.5kt, up 25% YoY, however, with the addition of a Mining Field Unit, which is currently undergoing testing, the company expects to have capacity of 24ktpa by year end. Having raised US$8.4m earlier this year, the company is well-positioned for the low capital modular growth programme. This combined with the transition to low-cost, in-house mining will enable PYX to capitalise on the strong market fundamentals and the large scale Mandiri and Tisma resources which have world-leading zircon grades that give PYX the potential for industry leading margins.
Target Price and Recommendation
Our risked DCF valuation continues to show upside potential based on strong zircon market fundamentals and the execution of PYX’ growth programme.
We reiterate our Buy recommendation and increase our target price to A$2.90/sh and £1.60/sh.
Oliver O'Donnell, CFA, Natural Resources Analyst | T: +44 (0)20 3617 5180 | E: oodonnell@vsacapital.com
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