Company Overview: Greenstone Resources Limited (ASX: GSR) is involved in the materials exploration and development activities, mainly including gold-nickel-cobalt. The company changed its name from Barra Resources Limited to Greenstone Resources Limited on the Australia Stock Exchange. GSR has its main focus on its flagship Burbanks Gold Project and its underexplored gold portfolio surrounding Coolgardie, including the Phillips Find Gold Project. It also operates Mt Thirsty Project, which is in Nickel & Cobalt.
GSR Details
Operational Update on Mt Thirsty Cobalt-Nickel Project:
- GSR is in talks with the joint venture partner (Conico) & adjacent license holders, related to the above-mentioned project’s consolidation. The execution of the same will allow to proceed with the next development phase for the project. Moreover, the negotiations with the Ngadju Traditional Owners continue, and update is expected in April 2022.
- The project had finished its Pre-Feasibility Study (PFS) on 20 February 2020 during the subdued commodity prices period. Due to which, it contributed to understate Project’s potential and provided a low-cost and sustainable source of cobalt supply outside of the Democratic Republic of the Congo and Russia. Previously released PFS excludes any of the optimization opportunities that are now under review.
1HFY22 Financial Highlights:
- Burbanks Gold Project: During March month of 2022, significant visible gold was intersected through the diamond drill hole BBRC338D, including 1.5 metres @ 43.7/t Au, 2.2 metres @ 17.1g/t Au and 1.05 metres @ 22.4g/t Au. The drill hole BBRC338D in the fully (100%) owned project is the deepest hole to date with mineralisation still open below 350m. It was also updated that Additional 15 holes are now underway to test multiple high-grade plunges from surface, and assays pending at Main Lode & Burbanks North.
- Capital Raising: On 23 February 2022, GSR completed a $3.5 million (before costs) capital raise by issuing 109,375,000 fully paid ordinary shares at a price of $0.032 per share. The raised amount will be majorly utilized in the exploration campaign at the Burbanks Gold Project.
- Cash Activities: The company received $46k as its cash receipts from customers in 1HFY22 as compared to Nil on pcp basis. Whereas the payment to suppliers stood at $248.24k in 1HFY21 and increased to $401.43k this half-year. The cash balance as on 31st December 2021, clocked at $14.44 million.
(Source: Analysis by Kalkine Group)
- Revenue & Profit/Loss Details: The total income for the period of 1HFY22 stood at $6.19k versus $116.41k on pcp. The Net losses increased during the period to $0.75 million, mainly owing to increased marketing, administration costs and exploration and evaluation costs written off.
(Source: Analysis by Kalkine Group)
Top 10 Shareholders:
The top 10 shareholders together form around 23.05% of the total shareholding, while the top 4 constitute the maximum holding. FMR Investments Pty. Ltd. and Luitingh (Lafras) are holding a maximum stake in the company at 10.55% and 3.45%, respectively, as also highlighted in the chart below:
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Top 10 Shareholders (Source: Analysis by Kalkine Group)
Key Metrics: GSR’s current ratio enhanced from 9.07x to 9.30x from 2HFY21 to 1HFY22, respectively. Moreover, it closed its half-yearly accounts with a virtually debt-free status, holding $0.01 million at the end of 31st December 2021.
Cash Balance & Debt Profile (Source: Analysis by Kalkine Group)
Key Risks:
- COVID-19 Pandemic: Travel restrictions and lockdowns due to COVID-19 might hold down its operations of mining and thereby affecting its earnings, cash flow and financial position.
- Commodity Risk: As the company’s business involves commodity prices, it might get affected by the changes in demands, currency fluctuations and commodity price differences.
- Regulatory Risk: The company is exposed to a more complex regulatory environment; any failure in the same could lead the business to fines, penalties, etc.
- Technology & Labor Risk: The business is quite dependent on the technology it applies and availability of labors. Hence, failure of regular upgradation and labor costs might affect the operations and profitability.
Outlook: As per the Mt Thirsty Cobalt-Nickel operational update, cobalt prices have surged by ~33% from US$61,000/t to a current spot price of US$81,380/t and nickel prices increased by ~108% from US$17,850/t to a current spot price of US$37,115/t from 2020, when the PFS was done. By leveraging the current spot price for both cobalt and nickel and based on the previously presented PFS (economic sensitivities included), the Mt Thirsty Cobalt-Nickel Project is expected to produce a pre-tax net present value (NPV 8%) of $712 million. The company is speculating the price escalation in nickel-cobalt is attributable to an emerging disconnect between supply-demand, mainly coming from electric vehicles. Going forward, the company expects to consolidate the ownership structure and installation of a dedicated management team in order to proceed with commercial production. Moreover, future exploration is planned at Phillips Find Gold Project and will initially target Newminster & Diablo.
Technical Analysis: On the daily chart, GSR price witnessed a breakout of a horizontal trendline at AUD 0.031 level (on Jan 21, 2022). Since the breakout, prices are sustaining above the trendline, which indicates bulls are in action. Further, the momentum oscillator RSI (14-period) is trading at ~50.38 level, indicating positive momentum. An important support level for the stock, is placed at AUD 0.031 while the key resistance level is placed at AUD 0.045.
Stock Recommendation: The company is trading higher than its 52-week low-high average of $0.018 - $0.046, respectively. The stock of GSR has given a positive return of ~32.14% in last three months and has been corrected by ~2.63% in the past week. In addition, the stock is trading at P/BV multiple of 2.2x as compared to the industry median (Metals & Mining) of 2.3x and (Basic Materials) of 2.4x on a TTM basis. Thus, it seems that the stock is undervalued at the current trading levels. Considering the valuation on TTM basis, decent liquidity position, virtually nil Debt-to-Equity ratio, Gold & Nickel projects updates, capital raised, current breakout on daily chart & technical levels, witnessing rise in Cobalt & Nickel prices and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of $0.036, as of 8th April 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.
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GSR Daily Technical Chart, Data Source: REFINITIV
Note 1: The reference data in this report has been partly sourced from REFINITIV
Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.
Technical Indicators Defined: -
Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.
Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.
Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.
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