Ferro-Alloy Resources Limited (LON: FAR) 

Ferro-Alloy Resources Ltd is a Guernsey-based holding company focused on mining, processing, and sale of vanadium-containing ores by-products. Moreover, FAR is also engaged in producing vanadium in the form of ammonium metavanadate (AMV) and other vanadium-containing materials.

 Growth Prospects

• Low-Cost Revenue Stream: The Company had started the production of Ferro molybdenum and vanadium pentoxide. Moreover, this low cost, revenue-generating step completes the current product line-up and enabling the extraction of maximum vanadium and molybdenum from the raw materials. 
• Receival of Patents: FAR had received the patents for the efficient technology which it has developed to produce electrolytes for vanadium flow batteries.
• Increase in Vanadium Pentoxide Price: FAR would benefit from a Vanadium pentoxide price increase of 63% from USD 5.2/lb in January 2021 to USD 8.5/lb at the end of H1 FY21.
• Rising Market of Electric Vehicles: Vanadium can be used in the strengthening of steel and an alloy with titanium. It is also used in the emerging field of lithium-ion batteries (LIBs) for electric vehicles (EVs).

Key Risks

• Financial Risk: FAR is also exposed to financial risk associated with foreign exchange rates and interest rates movements. Also, there is a significant risk of changes in the fair value of the financial assets and liabilities with the economic downturn.
• Other Significant Risks: FAR is also exposed to climate change, legislative, fiscal, and regulatory developments, economic and financial market conditions, and risks associated with the impact of the pandemic.
• Worldwide Shortage of Containers: The Company’s production of vanadium pentoxide (V2O5) witnessed a drop of around 9% to 88.2 tonnes during H1 FY21 because of the global containers shortage.

Now, we will analyse the Key Fundamental Statistics & Shareholding Pattern of Ferro-Alloy Resources Limited.

Kuznetsov (Andrey) is the most significant shareholder as it holds nearly 68.52 million shares as of 30 September 2021.        

H1 FY21 Financial & Operational Highlights (for the six months ended 30 June 2021, as of 11 August 2021)

 

(Source: Company result)

• Decent Revenue Growth: FAR produced total revenues of USD 1.5 million during H1 FY21 as compared to USD 1.1 million for the first six months of 2020, reflecting the higher market prices.
• Reduced Cost of Sales: The lower cost of concentrates had reduced the cost of sales from USD 1.90 million during H1 FY20 to USD 1.50 million for H1 FY21.
• Increase in Cash Balance: FAR had reinforced the financial position with the increase in the cash balance from USD 0.7 million as of 30 June 2020 to USD 8.20 million as of 30 June 2021, supporting the new Balasausqandiq vanadium project development.

Financial Ratios (H1 FY21)

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 13 October 2021, at 10:23 AM GMT+1, FAR’s shares were trading at GBX 27.00, down by around 0.92% from the previous day closing price. Stock 52-week High and Low were GBX 47.00 and GBX 8.03, respectively.

From a technical standpoint, FAR is hovering between the lower Bollinger band and the middle Bollinger band, indicating an upside potential in the stock price. Moreover, the 14-days RSI of ~36.44 supports an upside momentum in the stock price.

Over the last one year, FAR’s stock price has delivered a positive return of ~208.86%, and it has outperformed the FTSE All-Share Industrial Metals & Mining index (benchmark sector) with a return of around 89.67%.

Valuation Methodology: EV/Sales Approach (NTM) (Illustrative)

Business Outlook

The sale of new products such as ferro-molybdenum, vanadium pentoxide, nickel concentrate and possibly ferro-vanadium would contribute towards revenue growth during H2 FY21. Furthermore, the raw-materials supplies have returned to normal pre-covid levels, and consequently, production in H2 FY21 is expected to be substantially higher than H1 FY21. Looking Ahead, the Company aimed to obtain an electric furnace to produce ferro-vanadium directly from raw-material concentrates, which can further double the production capacity. In a nutshell, FAR aimed to generate long term returns for the shareholders with new revenue streams and the accelerated progress of the Balasausqandiq vanadium project.

Considering the forecasted revenue growth for H2 FY21, favourable industry dynamics, increase in production capacity, improvement in cash position, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Ferro-Alloy Resources Limited at the current price of GBX 27.00 (as on 13 October 2021 at 10:23 AM GMT+1), with lower-double digit upside potential based on 10.03x EV/NTM Sales (approx.) on FY22E sales(approx.).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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