Newcrest Mining Limited

NCM Details

LGL Signed New Compensation Contracts with Lease Landholders: Newcrest Mining Limited (ASX: NCM) is a producer of gold and undertakes necessary mining, exploration, and development operations to extract gold and gold/copper concentrate. Its portfolio consists of Cadia, Telfer, Lihir, Wafi-Golpu, Gosowong, and Red Chris. As on 7^th January 2021, the market capitalisation of the company stood at ~$22.59 billion. The company’s wholly-owned subsidiary, Lihir Gold Limited (LGL), recently entered new relocation and compensation sharing contracts with the mining lease area holders at the Lihir gold mine in Papua New Guinea (PNG). These agreements needed new structuring and updates to offer transparent distribution of benefits and wages/salaries to the beneficiaries. It was also required for a clear relationship between the landholders and LGL. The company’s substantial holder, Allan Gray Australia Pty Ltd and its related corporate bodies, recently increased its voting power in the company from 8.87% to 9.88%.

Q1FY21 Performance in-Line with Expectations: The Group reported gold production of 503koz and copper production of 35kt in Q1FY21, in-line with the expectations. However, it was 12% lower than 573koz gold produced in Q4FY20. The production was affected due to the planned yearly shutdowns at the plants, lower grades, and recovery rates at certain sites. These were offset by improved gold head grades at Telfer. The company incurred a 12% increase in the AISC for Q1FY21 at US$980 per ounce on QoQ basis, due to lower production, strengthened AU$ and CA$ on the operating costs of Cadia, Telfer and Red Chris and lower copper sales volume. For 35kt of copper produced, NCM realised a higher price for the September quarter at US$6,548 /t versus US$5,445 /t in June 2020. NCM’s listing on TSX is another step to pursue its growth in the US post the Red Chris mine acquisition in Canada and expanding portfolio of early-stage investments in the US.

Production & Costs Summary, Q1FY21 (Source: Company Reports)

Outlook: The production of gold and copper is expected to be higher for the December 2020 quarter. NCM is positive about meeting its FY21 guidance figures. It expects the total production of gold in the range of 1,950koz-2,150koz and copper production to be between 135kt-155kt.

Valuation Methodology: PE Multiple Based Relative Valuation (Illustrative)

PE Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: The stock of NCM gave a negative return of 9.10% in the past three months and a negative return of 18.25% in the past six months. The stock is trading below the average of its 52-week band. The stock of NCM has a support level of ~$26.22 and a resistance level of ~$28.93. We have valued the stock using Price to Earnings multiple based illustrative relative valuation method and have arrived at a target price with an upside of low double-digit (in % terms). For the purpose, we have taken peers like Northern Star Resources Limited (ASX: NST), Evolution Mining Limited (ASX: EVN), Red 5 (ASX: RED) and others. Considering the current trading levels, higher growth of copper and gold expected in Q2FY21, outlook and valuation, we give a ‘Buy’ recommendation on the stock at the current market price of $27.590, down by 0.290% on 7^th January 2021.

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

Ramelius Resources Limited

RMS Details

Trading Update: Ramelius Resources Limited (ASX: RMS) is a gold producer in Western Australia (WA) currently operating Mt. Magnet, Vivien, Edna May, and Marda gold mines at the related processing plants around WA. As on 7^th January 2021, the market capitalisation of the company stood at ~$1.43 billion. For December 2020 quarter, the company reported gold production of 72,896 oz, taking the 1H21 production to 144,240 oz, exceeding the guidance expectations. The forward gold sales order book moved up to 229,750 oz at an average price of $2,288/oz for December 2020 quarter. There was a net increase of $34.5 million in net cash and gold movement exclusive of dividend and stamp duty for December 2020 quarter. Its net cash and gold at hand stood at $213.4 million for Q2FY21 versus $205.7 million for Q1FY21. The cash outflows included $1.8 million of debt repayment, stamp duty of $10.7 million and planned capex for the quarter. The exploration update confirms 245m @3.0g/t gold at Eridanus/Mt Magnet. However, it will be further drilled to determine the scope of mineralisation. Deeper drill testing will be done at Marda, and the assay results of drilling at Penny are awaited.  

FY20 Result Highlights: During FY20, the company saw decent operating and financial performance from its mining operations and production hubs. RMS posted record production of 230k oz, up by 17% on YoY basis. It delivered a record NPAT of $113.4 million, up by 420% on YoY.

Revenue Growth, FY20 vs FY19 (Source: Company Reports)

Outlook: The company has provided production guidance of 260-280koz at All-In-Sustaining Costs of between $1,230-1,330/oz for FY21. It aims to improve the conversion of resource to reserve in FY21.

Valuation Methodology: PE Multiple Based Relative Valuation (Illustrative)

PE Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: The stock of RMS gave a negative return of 15.87% in the past three months and a negative return of 15.47% in the past six months. The stock of RMS has a support level of ~$1.457 and a resistance level of ~$1.911. We have valued the stock using PE multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). For the purpose, we have taken peers like Silver Lake Resources Limited (ASX: SLR), Regis Resources Limited (ASX: RRL), and others. Considering the current trading levels, decent 1H21 results, exceeding gold production numbers, available production guidance for FY21, and valuation, we give a ‘Hold’ rating on the stock at the current market price of $1.760, down by 0.565% on 7^th January 2021.

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

Disclaimer  

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as personalised advice.