AlphaValue Corporate Services Fundamental Analysis FR
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AlphaValue Corporate Services
This research has been commissioned and paid for by the company and is deemed to constitute an acceptable minor non-monetary benefit as defined in MiFID II

Blackstone Resources

CR
Bloomberg   BLS SW
Batteries-Battery Sys  /  Switzerland  Web Site   |   Investors Relation
Banking on big-bang battery technology initiatives
Target
Upside 339%
Price (CHF) 2.66
Market Cap (CHFM) 114
Money Making

Blackstone has no cash-flow generation capacity as of today and is essentially an asset gatherer, which gradually planned to pivot away from precious metals and into battery materials, and thereafter into battery manufacturing. While it largely remains a funding bet at this juncture, after the COVID-19 outbreak, the near-term business focus has shifted towards battery R&D as the ramp-up plans at the respective mining/smelting/trading assets have been delayed. While this shift isn’t comforting from a medium-term cash-flow standpoint, the group’s recent funding commitments/agreements allay any financing concerns.

Mining’s cash positioning

With the operational start at the Peruvian gold ore processing mill, Blackstone’s immediate-term cash-flow situation should ease, given that this mill’s ore is procured from nearby mines and the output is a semi-pure alloy of gold and silver, hence, processing isn’t as complex. Moreover, as gold demand tends to more inelastic vis-à-vis other base metals (which may have other better alternatives), the cash flows tend to be more stable. Further support should surface once other assets start producing meaningfully, which should also mark the beginning of cash flows from the sale of critical EV materials. However, these asset’s low grades and/or high cost should result in weaker margins vis-à-vis large-cap miners.

Trading to provide further support

With the addition of trading, Blackstone should end-up improving the safety profile of its cash flows as periods of acute market volatility tend to be the apt operating environment for traders to capitalise on market imperfections. Though we don’t expect this division to be a key source of dividend for Blackstone’s shareholders, like the case for Glencore, where $1bn of dividends is almost guaranteed via trading income, it should certainly be an important source of funding for the group’s numerous growth initiatives.

Brave battery bet

Blackstone’s battery foray is a high risk-high return wager akin to a venture capital investment. Hence, apart from successful R&D – which again is a complex matter, much depends on sustained receipt of (state-sponsored) financing/grants. The group’s integrated business structure is only an early-stage advantage, and attainment of targeted improvements in batteries’ energy density and cost of development should be formidable challenges. Hence, the markets are likely to be critical of how this division progresses. Fortunately, the group attained various R&D milestones since H2 20, thereby opening the critical funding window.

Negative FCFs are here to stay

Even though Blackstone should end-up attaining average c.12% EBITDA margin during 2022-23, the group’s medium-term aggressive growth pursuits are likely to prevent it from attaining a positive FCF position. Also, the immediate-term performance in conventional return metric terms (like ROCE and ROE) should remain weak – although 2020 was skewed by the material profit on asset disposals. Fortunately, given that most of the group’s borrowings are owed to key shareholders (details in ‘Debt’ section), the possibility of a near-term cash squeeze remains low, unless realisation of (state) grants becomes difficult.

Change 21E/20 Change 22E/21E
  12/20A 12/21E 12/22E 12/23E CHFM of % total CHFM of % total
Total -1.76 -6.76 2.20 70.0 -5 100% 9 100%
Norway 0.00 -1.19 -1.60 -0.97 -1 24% 0 -5%
Peru 0.00 -0.37 0.79 7.63 0 7% 1 13%
Battery 0.00 -2.50 1.41 60.5 -3 50% 4 44%
Trading 0.00 -0.06 0.71 2.37 0 1% 1 9%
Columbia 0.00 -1.23 3.29 5.26 -1 25% 5 50%
Other/cancellations -1.76 -1.41 -2.38 -4.82 0 -7% -1 -11%
 
12/20A
12/21E
12/22E
12/23E
 
Total
ns
-425% 2.74% 21.3%  
Norway
-101%  
Peru
15.0% 24.9%  
Battery
17.2% 33.2%  
Trading
-3.57% 2.50% 4.58%  
Columbia
8.47% 8.29%  
       
Changes to Story : 30/11/2021, Changes to Forecasts : 30/11/2021.