PYX Resources Ltd (LSE:PYX, NSX:PYX) has delivered excellent operational results amid continued improvement in financial performance, according to Hong Kong and China-based Cedrus Investments.
Cedrus rates PYX with an ‘overweight’ rating and a 185p (A$3.35) price target suggesting substantial upside to the current market price of 49.33p.
Analyst Dr Thomas Kenny noted that the excellent performance was driven by the management team’s execution and positive market dynamics;
“PYX Resources has the world’s second-largest JORC-compliant zircon resources among producers currently in production. It is also a leading and rapidly-growing premium zircon producer,” Dr Kenny said in a note to clients.
“During 1H 2022, PYX not only further diversified its sales geographically and into more industries, including the high-tech sector, but also recorded a 128% y-o-y increase in revenue growth to around US$10.6mln.
“Besides zircon, PYX started the production of titanium dioxide minerals (ilmenite and rutile) in 1H 2022, following the 33% processing capacity increase of its minerals separation plant. That action brought about a 163% y-o-y uplift in total mineral sands production (including zircon, rutile and ilmenite) with zircon output up 23% y-o-y," he added.
As well as diversifiying the company’s revenue stream the development had also enhanced the company’s valuation, the Cedrus analyst noted, driven by higher revenue per tonne of HMC, operating cash flow and profitability.
Looking at the broader market, meanwhile, he highlighted that the mineral sands industry in remains robust, as does that for zircon.
Dr Kenny said: “Mineral sands was among the few niches in the natural resources industry that were immune from the commodity price correction occurred in 2Q 2022. Indeed, zircon prices continued to go north during that period amid demand over-stripping supply. With such a favorable market condition on the backdrop, we believe 2022 will prove to be another banner year amid our projected multi-year up-cycle for mineral sands especially zircon.
“PYX is expected to be a major beneficiary, as its five-year plan includes the option of doubling its current production capacity to 48,000 tonnes per annum to capture more market share.”
The analysts said the broker's bullish valuation is based on “an extremely conservative” zircon price assumption, pitched at US$2,100 per tonne – a discount of around 24% on the average selling price achieved by PYX in H1 2022.
“This leaves our current target price with room for significant upside. Hence, we recommend long-term investors to take advantage of the opportunity presented to them,” the analyst concluded.