OceanaGold Corporation

OGC Details

Reflection of Strong Confidence of Lenders Owing to Revision in Credit Facility: OceanaGold Corporation (ASX: OGC)is a multinational, mid-tier gold mining company with significant global operating, development and exploration experience. As on 16^th December 2019, the market capitalisation of the company stood at $1.69 billion. The company has recently announced that it has amended its existing $200 million Revolving Credit Facility with its banking partners, reflecting the strong confidence of lenders in the business. The major changes include the elimination of the 2019 amortisation or “step-down” with the Facility remaining at $200 million, combined with an extension of the Facility now maturing in December 31, 2021. 

Track Record of Operational Improvements: The company witnessed a third consecutive quarter of operating improvements with respect to Haile. During the third quarter ended 30 September 2019, revenue of the company stood at $134 million, reflecting a fall from Q2FY19 revenue of $186 million.This fall was because of “nil” sales from Didipio, partially offset by the higher gold price received. The company had a similar quarter on quarter production at Haile & Macraes and produced 107.5 koz of gold at a group AISC (All in Sustaining Costs) of $1,122 per oz sold.


Financial Highlights (Source: Company Reports)

Increase in Production with Lower AISC: The company expects a rise in production from Macraes and Haile and anticipates producing between 460,000 and 480,000 ounces of gold along with 10,000 to 11,000 tonnes of copper in 2019. OGC’s consolidated AISC is now expected to be lower in Q4FY19 with higher production at Macraes and Haile. For 2019, the ASIC is expected to range between US$1,040 and US$1,090 per ounce sold.

Valuation Methodology: EV/EBITDA Multiple Approach 

EV/EBITDA Multiple Based Valuation (Source: Thomson Reuters)

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

Stock Recommendation: As per ASX, the stock of OGC is trading close to its 52-week low of $2.520, proffering a decent opportunity for accumulation. For the quarter ended 30 September 2019, gross margin of the company stood at 41.3%, higher than the industry median of 7.5%. EBITDA margin of the company was 26% as compared to the industry median of 3.3%. This indicates that the company is managing its costs well and is capable of converting its revenue into profits. Thus, considering the current trading levels, improvement in gross and EBITDA margin and modest outlook, we valued the company using one relative valuation method, i.e., EV/EBITDA multiple, and arrived at a target price high single-digit upside (in percentage terms). Hence, we recommend a “Buy” rating on the stock at the current market price of $2.800, up by 2.941% on December 16, 2019.

 
OGC Daily Technical Chart (Source: Thomson Reuters)
 

Resolute Mining Limited

RSG Details
 
Strategic Review of Bibiani Gold Mine: Resolute Mining Limited (ASX: RSG) is a gold mining company, engaged in the development of resource projects and prospecting and exploration for minerals. As on 16^th December 2019, the market capitalisation of the company stood at ~$1.04 billion. The company has recently announced the appointment Stuart Gale as Chief Financial Officer effective 20 January 2020. The company has also initiated a strategic review process to evaluate options for the Bibiani Gold Mine, designed to review the company’s plan to recommission the mine, assess capital requirements, evaluate funding alternatives, and investigate recently received expressions of interest from third parties seeking to acquire the asset.

Syama Satellite Exploration Update:The company announced the exploration results from drilling campaigns and stated that the company generated excellent results from Tabakoroni drilling and exploration programs in Senegal and Côte d’Ivoire. The drilling results from Tabakoroni drilling confirmed high-grade shoots with 12m at 93.16g/t Au from 133m. For the quarter ended 30 September 2019, Mako Gold Mine produced 44,191 ounces at an AISC of US$716/oz. During the period, the company produced more than 100,000 ounces of gold, despite the unscheduled maintenance of Syama roaster.


September 2019 Quarter Production and Costs (Source: Company Reports)

What to Expect: The company expects that the production guidance for the twelve months ended December 31, 2019 at 400,000oz of gold, affected by the shutdown of the Syama roaster, but intends to offset the lost production by processing oxide material through the sulphide circuit carbon in leach infrastructure. RSG anticipates that the group AISC for the twelve months to 31 December 2019 to be US$1,020 per ounce, up from previously US$960 per ounce. With respect to Ravenswood, December 2019 quarter will witness a suspension of operations at Mt Wright, and the commissioning of the third ball mill.

Valuation Methodology: EV/EBITDA Multiple Approach 

EV/EBITDA Multiple Based Valuation (Source: Thomson Reuters)

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

Stock Recommendation: As per ASX, the stock gave a return of 6.48% in the past six months and is currently trading close to its 52-week low levels of $0.965. For 1H19, gross margin of the company improved on the previous quarter and stood at 21.3%. Net margin of the company stood at 12%, higher than the industry median of 10.6%. Taking the backdrop of trading levels, decent returns, improvement in margins and modest outlook, we have valued the stock using a relative valuation method, i.e., EV/EBITDA multiple, and arrived at a target price of lower double-digit upside (in percentage terms). Hence, we recommend a “Buy” rating on the stock at the current market price of $1.140, down by 0.87% on December 16, 2019.
 
RSG Daily Technical Chart (Source: Thomson Reuters)

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