VSA Morning Miner, 15/07/21
PYX Resources (ASX:PYX)
PYX Resources (ASX:PYX) has announced an interim operational update which shows a 25% YoY increase in zircon output to 3,501t of zircon which combined with the strong price increases previously announced should translate into stronger earnings for H1 2021. Although we had forecast a 10% YoY increase in average zircon prices for 2021F rising to over US$2,200/t by 2023F, these forecasts now look conservative particularly as Argus Media recently reported that some transactions have closed at higher prices still. With PYX expected to increase output in H2 2021 this means that average realised prices for the financial year are likely to be weighted towards the higher end which is positive for the earnings outlook, in our view.
The company has increased its own zircon prices by US$355/t to US$1,750/t through the year so far. Iluka announced a US$70/t increase in April this year, around the time of PYX initial increase, and is expected to raise prices further. Anecdotal reports suggest that prices in China have continued to increase with the market remaining tight, particularly as Q1 is a seasonally weaker period for demand due to Chinese New Year. With protests having disrupted Rio Tinto’s operation earlier this year we note the announcement two days ago that the project will remain closed due to the security situation in South Africa. This is going to keep strong upward pressure on prices which was already tight as supply decreased around 15% YoY to 1mnt in 2020.
Post period end PYX raised US$8.4m (A$11.2m) at a price of A$1.03/sh. via an issue of 10.9m shares. This will enable the company to commence its expansion plans at Tisma which the company acquired earlier in the year. The development is expected to be higher margin than the current operations at Mandiri and will kickstart the growth strategy which we believe will enable the company to capitalise on rising zircon prices and generate significant free cash flow.
We reiterate our Buy recommendation and target price of A$2.60/sh.
VSA Capital Limited, New Liverpool House, 15-17 Eldon Street, London EC2M 7LD | www.vsacapital.com
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