Dacian Gold Limited

DCN Details

Refinancing of Debt Facility:  Dacian Gold Limited (ASX: DCN) is engaged in the exploration and mining of gold. Recently, the company has inked a committed term sheet for a new corporate-level debt facility with ANZ of $16 million. The new facility is likely to replace its existing syndicated project finance debt, and the said agreement delivers on DCN’s objective to refinance the project finance facility. As announced on 13^th September 2021, the company has appointed Mick Wilkes on the role of Non-Executive Director to its Board of Directors.

FY21 Financial Summary:

• Revenue from Gold Sales: For the year ended 30^th June 2021, the company recorded sales revenue of $241.62 million against $270.04 million in FY20. The sales revenue was generated from the sale of 108,270 ounces of gold at an average price of $2,226 per ounce in FY21.
• Improvement in Bottom Line: During the year, the company witnessed improvement in net losses to ~$7.5 million against ~$116.46 million in FY20. As a result, loss per share also improved to -1.2 cents from -40.6 cents in the previous year.
• Rising Net Cash Inflow: The company recorded increased net cash inflow from operating activities to ~$55.47 million against ~$22.95 million in FY20.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Commodity Price Risk: The company generates a major portion of revenue from the sale of gold, which exposes the business to speculation of gold prices. Hence, any adverse movement in the prices may impact operational and financial health.
• Climate Risk: DCN is exposed to risks arising from the uncertainties in relation to change in climate, which could suspend its mining operation temporarily.

Outlook:

• As per the recent five-year mine plan, the company is optimistic about a significant extension to the previous plan with a target annual gold production of 115,000oz, at an average annual AISC of $1,550/oz.
• Looking forward, DCN continues to carry out opportunities to extend and grow the mine plan beyond the current profile, with several development projects and exploration programs being advanced.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative) 

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The company closed FY21 with a cash balance of ~$35.94 million. The company is trading below its 52-week low-high average of $0.195 - $0.565, respectively. The stock of DCN has been corrected by ~9.09% and 39.02% in the past three and six months, respectively. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers’ average EV/Sales multiple, considering the COVID-19 disruptions, negative ROE, and low current ratio. For the purpose of valuation, peers such as Westgold Resources Ltd (ASX: WGX), Aurelia Metals Ltd (ASX: AMI), Resolute Mining Ltd (ASX: RSG), and others have been considered. Considering the expected upside in valuation, Improvement in net losses, rising net cash inflow from operating activities, low debt-to-equity ratio, decent long-term outlook, current trading level, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.235, as on 19^th October 2021, 12:52 PM (GMT+10), Sydney, Eastern Australia.

DCN Daily Technical Chart, Data Source: REFINITIV 

Resolution Minerals Ltd

RML Details

Extension of Share Purchase Plan: Resolution Minerals Ltd (ASX: RML) is involved in the exploration of gold in Alaska (USA), copper, cobalt, and other battery metals in the Northern Territory and gold, vanadium, and iron ore in Alaska (USA). The company has recently extended the closing date for the ongoing Share Purchase Plan to 20 October 2021 in order to ensure that all eligible shareholders have an opportunity to participate in the SPP.

• The company has wrapped up the first round of drilling on a large-scale battery metal targets on its Benmara Project, Northern Territory.
• The drill targets have recognized prospective rock type previously mis-mapped and GA-SEEBASE 3D basement modelling.

FY21 Results Summary

• Capital Raising for Exploration Developments: During FY21, the company raised $5.5 million primarily through share placements, and an SPP is going on to raise a further $1.5 million. The company would use these funds to progress its existing and newly acquired exploration tenements.
• Improvement in Net Losses: RML witnessed improvement in net losses after tax to $983,485 against loss of $1,281,967 in FY20, mainly due to decreased impairment expense, increased labour recoveries as a result of managed exploration activity, and lower broker relations expenditure.
• Acquisition of New Tenement: Subsequent to the year-end, RML entered an agreement to acquire 100% of two tenements surrounding the Benmara project, which is adding 541km, and lodgment of two new tenements.

(Source: Analysis by Kalkine Group)

Key Risks:

• Gold Prices Risk: Any unfavorable movement in gold prices could impact the financial and operational growth of the company.
• Regulatory Risk: Any change in policy by the government could impact the company’s growth. Hence, any non-compliance could lead the business to fines, penalties, etc.

Outlook:

• Looking forward, RML is focused on battery metals in under-explored Northern Australia and precious metals on specific prospects at the 64North Gold Project in Alaska.
• In the upcoming year, the company continues its exploration program focused on gold and battery metals and will also evaluate other complementary projects.
• RML has scheduled to conduct the 2021 Annual General Meeting on 11^th November 2021.

Stock Recommendation: The company closed FY21 with cash & cash equivalents of ~$1.7 million against ~$2.16 million as on 30^th June 2020. The company re-instated the At-the-Market Subscription Agreement with Acuity Capital to raise working capital of $3 million over a two-year period in the last quarter of FY21. The stock of RML is trading near to its 52-week low level of $0.018, offering decent opportunity for accumulation. The stock of RML gave a negative return of ~11.99% in the past three months. The stock of RML is trading at a price to book value multiple of 0.6x against the industry median (Basic Materials) of 2.5x on a TTM basis. As a result, the stock seems undervalued. Considering the valuation on a TTM basis, improvement in losses, capital raising, recent acquisition of two tenements, decent outlook, deleveraged balance sheet, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.020 as on 19^th October 2021, 2:51 PM (GMT+10), Sydney, Eastern Australia.

RML Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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