On today's TSX Breakouts report, there are 30 stocks on the positive breakouts list (stocks with positive price momentum), and an equal number of stocks are on the negative breakouts list (stocks with negative price momentum).
At the start of the week, we highlighted is Lithium Americas Corp. (LAC-T), a company with production slated to begin in 2019 from its lithium project located in Argentina. The stock has been a solid performer, rising 66 per cent year-to-date. Discussed today is another lithium play yet its share price has only appreciated 2 per cent so far this year. That being said, the stock price may gain momentum in the months ahead. The consensus target price implies a potential return of 77 over the next 12 months. The security discussed today is Nemaska Lithium Inc. (NMX-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The Company
Quebec-based Nemaska Lithium is an upcoming producer of lithium hydroxide and lithium carbonate with operations in Québec. The company's Whabouchi mine is located in the James Bay region of Quebec, and will have a processing plant (commercial hydromet plant) built in Shawinigan, Que. The company has developed technologies so it can produce high purity, battery-grade lithium hydroxide as well as lithium carbonate at its processing plant from its mine's spodumene lithium hard rock deposit, enabling the company to be a low cost producer. The hydromet plant has a planned annual production capacity of approximately 28,000 tonnes of lithium carbonate equivalent annually. According to the updated feasibility study, the expected mine life is 26 years with annual production of battery-grade lithium hydroxide of approximately 27,500 tonnes and an average cost of lithium hydroxide of $2,154 (U.S.) per tonne.
In terms of key milestones, management targets commissioning of the Whabouchi mine and concentrator in calendar 2018, with commissioning of its hydromet plant expected in calendar 2019.
The company has secured two offtake agreements representing approximately 50 per cent of annual planned production.
On June 29, the company completed a $50-million bought deal financing, issuing 47.62-million shares at a price of $1.05 per share. Proceeds from the financing will be used to fund the development of the Whabouchi mine, the Whabouchi spodumene concentrator, and the hydromet plant. In a news release issued last month, the president and chief executive officer Guy Bourassa stated, "Our last financing has given us the resources to continue construction at the mine site where we have already built the commercial concentrator building, administrative offices and access roads within the mine site. We have also contracted with Hydro-Quebec to build 13 km of hydro line to the mine site from the nearest substation. In addition, our technical team has been working closely with our engineering consultants to finalize the design and layout of the commercial hydromet plant, enabling us to select key suppliers."
The total cost for the project is anticipated to be over $500-million. An overhang could be lifted from the stock once the company secures additional financing to fund the project and as development of project continues to advance.
Lithium-ion and lithium polymer rechargeable batteries are used in cell phones, laptop devices, and electric vehicles – and demand for these products continues to grow.
Dividend policy
Management is focused on advancing its Lithium project. As a result, the company currently does not pay its shareholders a dividend.
Analysts' recommendations
According to Bloomberg, there are seven analysts who cover this small cap materials stock with a market capitalization of $480-million, of which all seven analysts have buy recommendations. More specifically, two analysts (from Canaccord Genuity and Echelon Wealth Partners) have 'speculative buy' recommendations.
The seven firms providing research coverage on the stock are as follows in alphabetical order: Canaccord Genuity, Clarksons Platou Securities, Cormark Securities, Echelon Wealth Partners, Eight Capital, National Bank Financial, and Roth Capital Partners.
The one-year consensus target price is $2.25, suggesting there is 77 per cent upside in the share price over the next 12 months. Individual target prices are as follows in numerical order: $2, $2.05, $2.10, two at $2.25, $2.30, and $2.80.
Revised recommendations
Most recently, in July, Joseph Reagor, the analyst from Roth Capital Partners increased his target price to $2.80 (the high on the Street) from $2.40, and maintained his 'buy' recommendation.
Financial forecasts
According to Bloomberg, based on just two analysts' forecasts, the consensus revenue estimates are $2-million for fiscal 2017, jumping to $56-million in fiscal 2018, and approximately $300-million in fiscal 2019. The company is forecast to report positive earnings per share in fiscal 2019 (the consensus earnings per share estimate is 25 cents).
The company's fiscal year end is June 30.
Insider transactions
The most recent transaction in the public market reported by an insider occurred in June. On June 13, the company's chief financial officer Steve Nadeau completed a relatively small purchase, acquiring 9,590 shares at an average price per share of $1.07 for his RRSP, increasing this portfolio's holdings to 145,195 shares.
Prior to that, Mr. Nadeau exercised his options, receiving 500,000 shares in his personal portfolio (not his RRSP) on April 28. That same day, he sold 88,950 shares at an average price per share of $1.18, leaving a remaining portfolio balance of 526,000 shares.
That month, on April 25, the president and chief executive officer Guy Bourassa sold 225,000 shares in the market at an average price per share of $1.183. The previous day, he sold 250,000 shares at an average price per share of $1.22. His remaining portfolio balance is significant at over 5.7-million shares.
Chart watch
The share price appears to be forming an inverse head and shoulders pattern – a bullish technical pattern.
In terms of key resistance and support levels, there is initial overhead resistance around $1.35, and after that, there is a ceiling of resistance around $1.50. Looking at the downside, there is initial support around $1.20. Failing that, there is support near its 50-day moving average (at $1.13) and then around $1.
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The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company's dividend policy, analysts' recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.
If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.
Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indices that have a minimum market capitalization of $200-million.
A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.
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