Stocks’ Details

Saracen Mineral Holdings Limited

June 2020 Quarter Highlights: Saracen Mineral Holdings Limited (ASX: SAR) is engaged in the exploration and production of gold. The company recently released its June quarterly report, wherein it reported total production of 145,830oz for the June quarter at an AISC of $1,152/oz. During the quarter, Thunderbox produced 42,117 ounces of gold at an AISC of $812/oz; Carosue Dam produced 50,315oz at an AISC of $1,271/oz; KCGM produced 53,398oz (Saracen’s 50%) at an AISC of $1,329/oz. The company’s production for FY20 stood at 520,414oz at an AISC of $1,101/oz, which surpassed FY20 guidance of +500,000oz. Gold sales for FY20 stood at 148,011oz at an average price of $2,280/oz, generating sales receipts amounting to $338 million. Unaudited revenue for FY20 stood at $1,072 million while unaudited statutory NPAT is likely to be between $190 million - $200 million.

Group Production and AISC (Source: Company Reports)

Production Guidance for FY21: The company’s long-standing strategy to ‘future-proof the business’ include the build-up of surface ore stockpiles to 1.7Moz. For FY21, the company expects production of over 600,000 ounces. The company has scheduled to release its FY20 results on 17^th August 2020.

Key Risks: The group’s business is mainly exposed to market risks, such as interest rate risk and commodity risk. Interest rate risk arises from the assets and liabilities bearing variable interest rates, and commodity risk is influenced by the movements in the gold prices. SAR’s business is also sensitive to Australian dollar currency risk on gold sales, which are denominated in US dollars.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: Net margin of the company stood at 16.8% in 1H FY20 as compared to the industry median of 14.3%. This indicates that the company possesses decent capabilities to convert its topline into the bottom line against the broader industry. We have valued the stock using P/E multiple based illustrative relative valuation method. For the purpose, we have taken peers such as Evolution Mining Ltd (ASX: EVN), Regis Resources Ltd (ASX: RRL), OceanaGold Corp (ASX: OGC), etc. and arrived at a target price of high single-digit upside (in percentage terms). Hence, considering the production growth in FY20, improvement in net margin and outlook, we give a “Hold” rating on the stock at the current market price of $6.130 per share, up by 4.075% on 21^st July 2020.

Perseus Mining Limited

Decent Growth in June 2020 Production: Perseus Mining Limited (ASX: PRU) is engaged in mining and exploration activities. The market capitalisation of the company stood at ~$1.68 billion as on 21^st July 2020. During the June 2020 quarter, the company’s operating performance remained strong with a growth of 12% in production to 64,676 ounces. During the quarter, the company experienced a fall of 15% in production costs to US$805 per ounce and a decline of 14% in AISC to US$935 per ounce. Fall in AISC reflects the impact of the improved period-on-period gold production, which was slightly offset by additional costs of around US$20 per ounce associated with the implementation of measures to ensure business continuity during the COVID-19 crisis.

Key Operating Metrics (Source: Company Reports)

Guidance: PRU anticipates production for 1H FY21 to be in the range of 139,000 ounces to 125,500 ounces at AISC of between US$940 per ounce to US$1,205 per ounce. However, this guidance is subject to the company’s operations remaining largely unaffected by the COVID-19 crisis. PRU will release its results for FY20 on 26^th August 2020.

Key Risks: As the group’s major activities revolve around gold, hence any downward movement in gold prices may present a business risk to the company.  In addition, the company is also exposed to a variety of financial risks: market risk (including currency risk, interest rate risk and price risk), credit risk, liquidity risk and equity price risk.

Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow Multiple Based Relative 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 month of June 2020, the company announced the acquisition of Exore Resources Limited, which would result in the ownership of around 2,000 square kilometres of highly prospective land in northern Côte d’Ivoire to PRU. The company ended the June 2020 quarter with a Cash and bullion of US$164 million, reflecting a rise of US$2 million after spending US$27 million of capital on Yaouré. The stock of PRU has moved up by 24.24% and 39.32% in the span of one and three months, respectively. Currently, the stock is inclined towards its 52-week high of $1.510. We have valued the stock using the P/E multiple based illustrative relative valuation method. For the purpose, we have taken peers such as St Barbara Ltd (ASX: SBM), Regis Resources Ltd (ASX: RGS), OceanaGold Corp (ASX: OGC), etc. Therefore, considering current trading levels along with upside movement in the stock within past few months, we have wait and watch stance on the stock at the current market price of $1.480 per share, up by 3.136% on 21^st July 2020.

Silver Lake Resources Limited

Record Production in June 2020 Quarter: Silver Lake Resources Limited (ASX: SLR) is engaged in the production and exploration of gold with tenements in Mount Monger goldfields of Western Australia. The market capitalisation of the company stood at ~$2.05 billion as on 21^st July 2020. For the June 2020 quarter, the company reported record production of 73,068 ounces of gold equivalent with sales of 64,593 ounces gold and 416 tonnes copper at a realised gold price of $2,300/oz and an AISC of $1,344/oz. The company’s investment in exploration within proven mineralised corridors and proximal to established infrastructure has continued during the quarter. Production for FY20 stood at 273,071 ounces gold equivalent with record gold sales of 255,533 ounces and 2,175 tonnes of copper.

Group production and AISC (Source: Company Reports)

Sales Guidance: For FY21, the company anticipates sales in the range of 240,000 ounces to 250,000 ounces gold and 1,100 tonnes copper at an AISC of A$1,400 to A$1,500 per ounce.

Key Risks: The company is exposed to various risks such as price and demand for gold and exchange rates. Any movement in future demand and gold prices may create a negative impact on its profit margins, future development and planned future production. The Group is exposed to the Australian dollar currency risk on gold sales, which are denominated in US dollars. Hence, revenue would be affected by movements in the US dollar gold price or movement in the Australian Dollar exchange rate.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: The company managed to close the June 2020 quarter with increased cash and bullion of $269 million with no outstanding debt. Current ratio of the company stood at 3.20x in 1H FY20 as compared to the industry median of 1.81x. This implies that the company is in a decent position to address its short-term obligations as compared to the peer group. We have valued the stock using the P/E multiple based illustrative relative valuation method. For the purpose, we have taken peers such as Perseus Mining Ltd (ASX: PRU), Ramelius Resources Ltd (ASX: RMS), Saracen Mineral Holdings Ltd (ASX: SAR), etc. and arrived at a target price of high single-digit upside (in percentage terms). Hence, considering the record production in June quarter, increased cash balance and decent liquidity position, we give a “Hold” recommendation on the stock at the current market price of $2.440 per share, up by 4.721% on 21^st July 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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