Nickel Mines Limited

 

NIC Details
 
Equity Raising to Fund RKEF Ownership: Nickel Mines Limited (ASX: NIC) is engaged in the production of nickel pig iron and nickel ore. The market capitalisation of the company stood at $891.03 Mn as on 26 May 2020. The company recently revealed a capital raising of A$231 million through a fully underwritten 1 for 3.6 entitlement offer comprising of institutional entitlement offer and retail entitlement offer. The company intends to utilise the funds for enhancing the ownerships in the Hengjaya RKEF Project and Ranger Nickel RKEF Project from 60% to 80%.
 
Other Recent Updates: In another update, the company state that UBS Group AG and its related bodies corporate has ceased to be a substantial holder of the company, effective from 6 May 2020.
 
March’20 Quarter Key Highlights: The company reported record quarterly nickel production at both Hengjaya Nickel and Ranger Nickel RKEF projects. RKEF production increased by 2.9%, from 10,968.2 tonnes to 11,291.3 tonnes of nickel metal (on 100% basis), as compared to the December quarter. NIC attributable nickel production for the period increased by 2.9% from 6,581.0 tonnes to 6.774.8 tonnes of nickel metal, as compared to the previous quarter. RKEF sales for the period decreased by 1.3% from US$141.1 million to US$139.3 million (100% basis), as compared to the previous quarter. RKEF EBITDA for the period decreased by 12% from US$56.6 million to US$49.8 million (100% basis), as compared to the previous quarter. RKEF cash costs for Hengjaya Nickel and Ranger Nickel for the period stood at US$7,671/tonne and US$7,673/tonne, respectively. Production from the Hengjaya Mine declined by 20% to 155,599 tonnes as compared to the previous quarter, as mining operations transferred to the new Central Pit.
 
 

Monthly Production Data from Both Hengjaya Nickel and Ranger Nickel (Source: Company Reports)
 
Future Aspects: The company continues to work to establish personal development and training program with local and regional stakeholders.Notably, the company’s operations are presently unaffected by COVID-19, and NIC finds it difficult to gauge the impact of the crisis in the future.
 
Valuation Methodology:EV/Sales Multiple Based Relative Valuation (Illustrative)
 

EV/Sales Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation: In the last six months, the stock of NIC has declined by 7.78% on ASX and is trading close to the average of its 52-week low and high of $0.293 and $0.731, respectively. Due to the industry features of continuous production throughout the year, the production of Tsingshan did not stop either in China or out of China due to Chinese New Year. Consequently, the impact on Tsingshan’s production in China from the COVID-19 led crisis have been minimal. Net margin of the company stood at 38.7% in 1H FY20, which is higher than the industry median of 14.3%. We have valued the stock using the EV/Sales multiple based illustrative relative valuation method and arrived at a target price with an upside of lower double-digit (in percentage terms). Hence, considering the above scenario, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.525, down by 1.869% on 26 May 2020.

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

Volt Resources Limited

 

VRC Details
 
Gold Exploration in Siguiri Basin: Volt Resources Limited (ASX: VRC) is engaged in the exploration and development of Flake Graphite. The market capitalisation of the company stood at $30.38 Mn as on 26 May 2020. Recently, the company informed the market that it has begun the exploration programs at its Guinea gold projects, which is situated in Siguiri Basin, and forms part of the West African Birimian Gold Belt.The early exploration program will consist of systematic soil sampling, mapping, and sampling of artisanal shafts. These samples will be shipped for analysis to a laboratory. The company expects the Konsolon program to be completed within 30 days, with a collection of 1,800 samples.
 
VRC to Acquire 85% Interest in Luiri Hill Gold Project: On 21 May 2020, the company announced that it has entered into a binding Term Sheet to acquire an 85% interest in the Luiri Hill Gold Project, on a conditional basis. The Luiri Project is situated in south-central Zambia. The buyout of the Luiri Project will aid VRS in launching a new gold business along with the expansion of its Bunyu Graphite Project in Tanzania. In another update, the company stated that it has also inked a Share Sale Deed (“Deed”) to acquire a gold project situated in Guinea, Africa.
 
March’2020 Quarter Update: During the period, the Company and its advisor, Alphier Capital, formerly Exotix Capital, progressed on the plan to raise the targeted funding of USD 15,000,000 for Bunyu Project Stage 1 development, through the issue of Senior Notes by way of private placing on the Development and Enterprise Market (DEM) of the Stock Exchange of Mauritius (SEM).
 
1HFY20 Key Highlights: During the period, the company reported total revenues of $324 as compared to ~$4,021 reported in the year-ago period. Net loss for the period stood at $1.8 million, as compared to ~1.37 million reported in the year-ago period.
 

1HFY20 Key Highlights (Source: Company Report)
 
Stock Recommendation: As per ASX, the stock of VRC is trading very close to its 52-weeks’ high level of $0.025. The stock of VRC gave a positive return of ~166.67% in the last one month. The company reported a negative ROE of 8.7% in 1HFY20. Current ratio of the company stood at 0.12x in the same time span as compared to the industry median of 1.81x. Thus, it can be said that the stock of VRC is overvalued at the current juncture. Based on the above factors, current trading level and tepid results, we suggest investors to wait for better entry level and give an “Expensive” rating on the stock at the current market price of $0.024 per share, up by 50% on 26 May 2020. It looks like the stock is up due to the release of a trading update (as explained above).

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

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