One Mid-Cap Basic Materials Stock to Watch for – FIL

Filo Mining Corp. (TSX: FIL) is a Canada-based mineral exploration company actively engaged in the acquisition, exploration, and development of mineral properties in South America.

Key highlights

• Declining liquidity: During FY21, the company reported a decrease in its cash balances to CAD 19.41 million from CAD 36.32 million in the previous fiscal. For the similar reported period, cash used in the operating activities increased to CAD 24.39 million vs CAD 17.08 million in the FY20. The reduced cash balance and increased cash outflows in the operating activities are a drag on the company’s liquidity position which hinders the smooth-running of business operations and ongoing activities.

• Increased operating losses: During FY21, the company witnessed a major increase in its operating losses to CAD 47.01 million vs operating losses of CAD 23.11 million in the previous comparable period. The biggest driver in the higher losses was an increased Exploration and project investigation expenses of CAD 40.90 million for the similar period vs CAD 19.05 million in the pcp.

• Strategic investment: On March 11, 2022, the group announced the successful completion of the private placement of close to CAD 100 million from BHP Western Mining Resources International Pty Ltd., which is a wholly owned subsidiary of BHP Group Ltd. The proceeds will be used for the development of Filo del Sol project, working capital, and various other corporate-related expenses.

• Operational updates: The group is operating across seven diamond rig counts and is expected to increase it to 11 diamond rig counts by the middle of the current year. The higher number of operating sites increases the probability of the mineral discovery lying beneath the sites, which will be a key positive for revenue generation.
  

• Technical analysis: The stock showed an uninterrupted rally from the lows of CAD 1.80 levels in February 2021 to the highs of approximately CAD 12.0 in June 2021. From there the prices declined a bit and the dip was bought immediately which extended the rally to the lifetime highs of CAD19.0. One of the leading indicators, the Relative Strength Index is currently in the overbought territory and showing a reading of 73.92, suggesting the prices can cool off from nearby levels.
  

Stock recommendation 

The stock delivered a positive return of 37.71% in the past one month and 52.18% in the past three months. The group is currently not generating any revenues because of which the net losses have widened to CAD 32.41 million in the FY21 as compared to net losses of CAD 18.78 million in the FY20. The recent strategic investment of CAD 100 million, from the renowned name, BHP group, is a key positive from a strategic point of view for the company. It's worth watching for the company to start generating revenues given the increasing number of diamond rig counts, which could make the company transition into operating profits in the near term.

Therefore, based on the above rationale and technical analysis, we recommend a “Watch” rating at the last closing market price of CAD 18.84 on March 24, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on March 24, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary

Investors can evaluate the stock based on the support and resistance levels provided in the report in case of keen interest taking into consideration the risk-reward scenario.

Disclaimer

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