Capricorn Metals Ltd

CMM Details

December Quarter Highlights: Capricorn Metals Limited (ASX: CMM) is a gold explorer and developer based in Perth, Western Australia. The company divested its funds towards gold exploration at Karlawinda. The Karlawinda Project includes the Bibra gold deposit and various outstanding exploration targets, including the advanced Francopan gold prospect. CMM has reported considerable progress on Karlawinda Gold Project. The company has projections of spending $92.7mn on the project and has already spent $30.2mn in December 2020 quarter. The company currently holds $96.4 mn in the form of cash and bank to fund its development activities which are in line with a budget of $165-$170 mn. CMM has registered healthy cash on its balance sheet of $18.90mn as at December 2020 quarter, through the proceeds from the issue of securities in the previous quarters.

Strategic Investment to Boost Revenues: As per the company reports on 18 January 2021, CMM will be investing $1.2mn in DiscovEx Resources Limited (ASX: DCX). On approval from DCX’s shareholders, CMM will be holding a 12% shareholding in DCX. DCX holds an extensive gold and base metals reserve in the Pilbara which will aid CMM to post better revenues, going forward.   

Cash Balance (Source: Company Reports)

Change of CFO and Company Secretary: CMM has reported that Tammie Dixon has resigned from the position of CFO and Company Secretary. Ms Tammie will support the company on a contract basis for 12 months. CEO of the company Kim Massey will be looking after the financial functions and the role of a company secretary.   

Key Risks: The company is engaged in the exploration of gold, so any fluctuations in the prices of gold may affect the financials of the company. Secondly, there is always a risk of inaccurate estimates while exploration, which may lead to higher operational costs and financial loss for the company.

Outlook: For March 2021, CMM is expecting to carry out various activities related to development activities at KGP. The company is expecting to culminate gold from its Karlawinda Gold Project by June 2021 quarter. We believe it will be revenue accretive for the company, going forward. CMM is expecting a capacity of 4.5-5.0 mtpa for oxide/fresh ore blend in the first 3 years of commencement and up to 4.0-4.5 mtpa in the years beyond. 

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative)

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: In the last one month, CMM has decreased by 8.01% and by 8.28% in the last three months. The current market capitalisation of CMM stands at ~$512.52mn as of 10 March 2021. The stock is currently trading below the average 52-week price level range of $0.850-$2.370. On the technical analysis front, the stock has a support level of ~$1.455 and a resistance of ~$1.624. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight premium as compared to its peer median, considering growth in revenues on expectations of gold reserves at Karlawinda Gold Project and availability of cash reserves to meet capital expenditure requirements. For the purpose, we have taken peers 'Regis Resources Ltd (ASX: RRL), St Barbara Ltd (ASX: SBM), to name a few. Considering an increase in production and revenues in the near-term, decent liquidity position, valuation, and current trading levels along with key risks associated with the business, we recommend a “Speculative Buy” rating on the stock at the current market price of $1.550, up by 4.026% as of 10 March 2021.

CMM Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Davenport Resources Limited

DAV Details

Signs of Recovery Due to Pick-Up in Demand: Davenport Resources Ltd (ASX: DAV) is engaged in mineral exploration. DAV’s wholly-owned subsidiary, East Exploration GmbH, holds potash project licenses in South Harz potash district. The South Harz Potash District Project comprises three mining licenses, Ebeleben, Muhlhausen-Nohra and Ohmgebirge and two exploration licenses, Kullstedt and Grafentonna. As per the company reports, there are signs of recovery from Asian countries like China and India. Due to a recent change in the subsidy policy for potash in India, and a sign of recovery after a continuous decline in shipments to China, DAV is expecting an uptick in volume. As per the company reports, the prices for standard MOP have also seen an uptick from US$215 to ~US$250 per tonne CIF in the recent months.

Decent Cash Position and Capital Raising to support Project Financing: DAV has shown improvement in net cash to $841k in the December Quarter 2020. Along with healthy net cash, the company has raised $8.33mn from the second tranche of placement. This would further aid DAV to invest in the drilling project at the Ohmgebridge. The company has already raised $10mn through placements for the development of DAV’s German potash project. Further, the company expects drilling at Ohmgebridge project in Q2/Q3 of CY2021, thus allowing the unveil of technical and economic analysis of the project.

Cash Balance (Source: Company Reports)

Outlook: DAV is expecting a potential demand for potash, going forward, on the back of rising agricultural production and an increase in fertiliser usage. Other key factors, such as increasing demand for biofuels, and animal feed, shift to protein-based diets, etc. will lead the demand for potash to grow at 2-3% per annum.

Stock Recommendation: In the last one month, DAV has increased by 41.89% and by 77.96% in the last three months. The current market capitalisation of DAV stands at ~$42.31mn as on 10 March 2021. The stock is currently trading above the average 52-weeks’ price level range of $0.030-$0.120. On the technical analysis front, the stock has a support level of ~$0.0905 and a resistance of ~$0.12. On the valuation front, the stock is trading at a P/B multiple of 13.4x as compared to the industry median of 3.2x on a TTM (Trailing Twelve Months) basis. Considering the steep returns in the past months, an initial stage of a pick-up in demand, negative ROE, valuation on TTM Basis, and current trading levels, we are of the view that most of the positive factors have been discounted at current juncture. Hence, we suggest investors to wait for a better entry-level and give an “Expensive” rating on the stock at the current market price of $0.105, up by ~4.999% as of 10 March 2021.

DAV Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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