Newcrest Mining Limited

NCM Details

Growth in Gold Production: Newcrest Mining Limited (ASX: NCM) is involved in the exploration, development, mining, and sale of gold. The market capitalisation of the company stood at $29.09 Bn as on 4^th August 2020. NCM holds a 9.9% stake in Antipa Minerals Limited (ASX: AZY). Recently, AZY has released an investor presentation, wherein the company stated that it is advancing world-class exploration and development projects. AZY possesses over $9 million of cash to explore 100% owned ground for near-term development opportunities. During the June 2020 quarter, the company experienced a QoQ growth of 7% in gold production to 573,175 ounces as a result of strong performance from all operations, together with a reduction in planned shutdown activities. This took the FY20 gold production to 2,171,118 ounces. For the same quarter, copper production stood at 40kt with a rise of 15% over the previous quarter. During the quarter, there was no impact of COVID-19 on the operations of the company.

Gold Production Summary (Source: Company Reports)

Upcoming Results: The company has expanded the global exploration portfolio with new projects and targets. The company has scheduled to release its FY20 and Q1 FY21 results on 14^th August 2020 and 29^th October 2020, respectively.

Key Risks: The company’s financial performance is sensitive to the risk of fluctuation in the market price of gold and copper, as the company mainly derives its revenues from the sale of these commodities. In addition, the company is also exposed to key financial risks such as capital and liquidity, and counterparty credit risk.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company successfully raised A$1.2 billion via a placement to institutional investors of A$1.0 billion and a Share Purchase Plan of A$200 million. NCM utilised these proceeds to finance the US$460 million purchase of the Fruta del Norte finance facilities. We have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price of high single-digit upside (in percentage terms). For the purpose, we have taken peers such as OceanaGold Corp (ASX: OGC), Northern Star Resources Ltd (ASX: NST), and Evolution Mining Ltd (ASX: EVN) to name few. Therefore, considering the decent growth in gold production, recent capital raising and valuation, we give a “Hold” recommendation on the stock at the current market price of $35.600 per share, down by 0.14% on 4^th August 2020.

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

Saracen Mineral Holdings Limited

SAR Details

Reserves Growth at Carosue Dam and Thunderbox: Saracen Mineral Holdings Limited (ASX: SAR) is involved in the exploration and production of gold. The market capitalisation of the company stood at $6.87 Bn as on 4^th August 2020. Recently, the company announced a growth of 12% in reserves to a record level of 3.7Moz at Carosue Dam and Thunderbox. The Carosue Dam open pit reserves experienced a growth of 85% to 750,000oz while Thunderbox open pit reserves rose by 22% to 926,000oz. During the June 2020 quarter, the company produced 145,830oz of gold at an all-in sustaining cost (AISC) of $1,152/oz. This took FY20 production to 520,414oz at an AISC of $1,101/oz.

Group Production and AISC (Source: Company Reports)

Guidance: For FY21, the company expects production at Carosue Dam and Thunderbox in the range of 380,000oz-400,000oz at an all-in sustaining cost of $1,200-1,300/oz. From FY23, the production is likely to reach 450,000oz per annum. The company expects to release its FY20 results on 17^th August 2020.

Key Risks: The company is exposed to commodity risk, which arises from the movements in the gold price. In addition, SAR’s business is also sensitive to the Australian dollar currency risk on gold sales, which are denominated in US dollars.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: As at 30^th June 2020, the company had cash and bullion amounting to $369 million. Net margin of the company stood at 16.8% in 1H FY20 as compared to the industry median of 14.3%. This indicates that the company possesses decent capabilities to convert its topline into the bottom line against the broader industry. We have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price of high single-digit upside (in percentage terms). For the purpose, we have taken peers such as OceanaGold Corp (ASX: OGC), Northern Star Resources Ltd (ASX: NST), and Evolution Mining Ltd (ASX: EVN), to name few. Therefore, in light of the growth in reserves at the company’s operations, increase in gold production and guidance, we give a “Hold” recommendation on the stock at the current market price of $6.080 per share, down by 2.408% per share on 4^th August 2020.

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

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