Stocks’ Details

AngloGold Ashanti Limited

Completion of Sale: AngloGold Ashanti Limited (ASX: AGG) is engaged in the production and exploration of gold. The market capitalisation of the company stood at $11.75 billion as on 28^th January 2021. Recently, the company announced that it has finished the sale of their entire interests in Société d’Exploitation des Mines d’Or de Sadiola S.A with its joint venture partner IAMGOLD Corporation (IMG) to Allied Gold Corp. AGG and IMG have received US$50 million from Allied Gold Corp and the Republic of Mali on the completion of the transaction.

Financial Highlights: During the quarter ended 30^th September 2020 (Q3 FY20), the company recorded gold production of 837,000oz at a total cash cost of $801/oz against 825,000oz at a total cash cost of $786/oz in Q3 FY19. The production growth was aided by exceptional performances at Sunrise Dam in Australia and AGA Mineração in Brazil. As a result of higher costs, All-in sustaining costs (AISC) for the quarter increased to US$1,044/oz against US$1,031/oz in Q3 FY19. Free cash flow for the quarter witnessed a rise of 290% to US$339 million, supported by lower costs from continuing operations, lower capital expenditure and a 30% higher gold price received.

Key Metrics (Source: Company Reports)

Guidance: For FY20, the company expects gold production in the range of 3.030Moz and 3.100Moz, which includes nine months of production from the South African producing assets. AISC for the year is expected to be between $1,060/oz and $1,120/oz.

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

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

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The strong cash flow helped the company in debt reduction, and as a result, adjusted net debt to adjusted EBITDA stood at 0.36x as on 30^th September 2020 against 1.06 times as on 30 September 2019.  The stock of AGG has corrected 7.59% and 40.45% in the last three and six months, respectively. As a result, the stock is inclined towards its 52-week low level of $4.800, offering decent opportunity for accumulation. We have valued the stock using an EV/EBITDA multiple based illustrative relative valuation method and arrived at a target price, which is offering an upside of low double-digit (in percentage terms). On a technical analysis front, the stock has a support level of ~$4.775 and a resistance level of ~$7.751. Hence, considering the growth in production, rising free cash flow, debt reduction, and current trading level, we give a “Buy” recommendation on the stock at the current market price of $6.090 per share, down by 0.815% on 28^th January 2021.

Gold Road Resources Limited

Decent Growth in Production: Gold Road Resources Limited (ASX: GOR) is involved in the exploration of gold and other minerals. The market capitalisation of the company stood at $1.06 billion as on 28^th January 2021. During the quarter ended December 2020, the company recorded gold production of 70,794 ounces from Gruyere at an AISC of A$1,265 per attributable ounce as compared to 55,919 ounces in the previous quarter. As a result, annual production for 2020 stood at 258,173 ounces (100% basis), which was in-line with annual guidance. Gold sales for the quarter stood at 34,554 ounces at an average price of $2,412 per ounce. In addition, the company generated free cash flow of $28.2 million as compared to $22.2 million of the previous quarter.

Operational Summary (Source: Company Reports)

Guidance: The company is focused on delivering shareholder value, which is likely to be supported by strong business and decent balance sheet and consistent low-cost production.

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

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: GOR ended the quarter with increased cash and equivalents of $132.9 million and no debt. In the last three and six months, the stock of GOR has corrected 12.73% and 36.93%, respectively. The 52-week low-high range for the stock stands at $0.805 - $2.020, respectively. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price, which is offering an upside of low double-digit (in percentage terms). For the purpose, we have taken peers such Regis Resources Ltd (ASX: RRL), OceanaGold Corp (ASX: OGC), and Saracen Mineral Holdings Ltd (ASX: SAR), to name a few.  On a technical analysis front, the stock has a support level of ~$1.134 and a resistance level of ~$1.464. Thus, in light of the increased production in December 2020 Quarter, growing free cash flow and decent outlook, we give a “Buy” recommendation on the stock at the current market price of $1.175 per share, down by 3.293% on 28^th January 2021.

West African Resources Limited

Decent Growth in Gold Production: West African Resources Limited (ASX: WAF) is engaged in the exploration for gold in Burkina Faso. The market capitalisation of the company stood at $826.19 million as on 28^th January 2021. During the quarter ended December 2020 (Q4 FY20), the company witnessed a rise of 10% in gold production to 50,299 ounces at an all-in sustaining cost of US$992/oz. In addition, unhedged gold sales for the quarter stood at 51,688 ounces at an average price of US$1,923/ounce. The company maintained continuous operations and undertook effective measures for the management of COVID-19.

Financial Summary (Source: Company Reports)

Outlook: For the upcoming quarter, the objective of the company revolves around increasing production, and reduce per-ounce costs and continue drilling campaign for Toega feasibility study.

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

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months 

Stock Recommendation: During the quarter, the company made early debt repayment of US$25 million. In addition, notional net debt decreased by US$23 million to US$101 million. The company closed the quarter with a cash balance of A$95 million. The stock of WAF has corrected 9.99% and 12.19% in the last three and six months, respectively. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price, which is offering an upside of low double-digit (in percentage terms). For the purpose, we have taken peers such as Perseus Mining Ltd (ASX: PRU), Resolute Mining Ltd (ASX: RSG), and South32 Ltd (ASX: S32). On a technical analysis front, the stock has a support level of ~$0.787 and a resistance level of ~$1.159. Thus, considering the rising production, decent outlook and improvement in notional debt and key risks with the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.900 per share, down by 4.256% on 28^th January 2021.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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