Saracen Mineral Holdings Limited 

Announcement of Sale of Mining Leases and Exploration Tenements: As per the recent release, Hawthorn Resources Limited (ASX: HAW) had advised that it entered into the binding asset sale and purchase agreement with the Saracen Mineral Holdings Limited (ASX: SAR) and its subsidiary Saracen Gold Mines Pty Ltd. The agreement focuses on the sale of Hawthorn’s interests in Box Well and Deep South mining leases along with exploration tenements totalling 18 tenements and leases. However, the sale is subject to usual conditions precedent for such transaction which includes the due diligence by Saracen Mineral Holdings Limited. The consideration for assets amounted to A$13.5 million which is payable in cash. The sale is expected to be completed before 30 June 2019. In March 2019 quarter, SAR witnessed gold production of 89,208oz involving an AISC of A$1,035/oz. The company’s gold sales stood at 89,002oz which involves an average sale price amounting to A$1,766/oz which helped it in garnering the revenues amounting to A$157.2 million.


Group Production and AISC (Source: Company Reports)

What to Expect From SAR: The production outlook for Saracen Mineral for FY 2019 stood at 345-365,000oz at an AISC of A$1,050-1,100/oz. Also, the company happens to be on track to deliver into the 7-year production outlook with the upside case to 400kozpa. SAR also stated that 7-year production outlook and particularly FY 2020 production guidance would be revised in the quarter ended September 2019.

Stock Recommendation: Saracen Minerals is possessing decent position with respect to its key margins as its net margin stood at 15.2% at the end of December 2018 which is higher than the industry median of 13.3% reflecting the better capability of converting its top line into the bottom line. During the same period, its EBITDA margin stood at 37.1% which is higher than the industry median of 35.8%. Also, the company is having a strong balance sheet with the available funding in excess of A$300 million along with the operating cash flows and ore stockpiles. Over the span of one year, the stock has delivered the return of 41.36%. It represents a good return over the period of one year. Hence, considering the above factors and decent outlook, we maintain our “Hold” recommendation on the stock at the current market price of A$2.700 per share (up 5.469% on 26 April 2019).
 

Newcrest Mining Limited 

Funding of Exploration Programs: Recently, Encounter Resources Ltd had made an announcement that Newcrest Mining Ltd (ASX: NCM) would be funding the exploration programs across Encounter-Newcrest joint ventures in Tanami and West Arunta Provinces in 2019. The release stated that Encounter-Newcrest have 5 joint ventures that cover total of 5,900km² of Tanami and West Arunta Provinces in Western Australia. In the briefing book, it was mentioned that Newcrest Mining is possessing ten consecutive halves of strong free cash flow. Also, the company is having a strong balance sheet and good debt structure. The company’s dividend policy focuses on balancing financial performance and capital commitments with prudent leverage and gearing level.

Cumulative Free Cash Flow (Source: Company Reports)

What to Expect From NCM: Newcrest Mining looks to shell out ordinary dividends which are sustainable over time having regard to the financial policy, profitability, balance sheet strength as well as reinvestment options in the business. The company is targeting a total dividend payment of at least 10-30% of the free cash flow generated for that financial year. It plans to give a dividend of at least US15 cents per share on full year basis.

Stock Recommendation: From the valuation standpoint, the stock of Newcrest Mining seems to be overvalued as its P/E ratio stood at 40.27x which is higher than the peer median of 22.54x. Also, the company’s stock has witnessed a rise of 7.87% in the span of the previous three months, while in the time frame of six months, the stock rose by 22.11%.Currently, the stock is trading slightly towards the 52-week higher level of $26.540 with an annual dividend yield of 1.01% which is lower than the industry median of 3.2%. Hence considering aforesaid facts and current trading level, we give an “Expensive” recommendation on the stock at the current market price of A$25.350 per share (up 2.424% on 26 April 2019).  
 

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