Stocks’ Details

Northern Star Resources Limited

June 2020 Quarter Update: Northern Star Resources Limited (ASX: NST) is engaged in the production and exploration of gold and other minerals. During the June 2020 quarter, the company generated an underlying free cash flow of $218 million from the sale of 262,717oz. This brought total sales for FY20 to 900,388oz, with production for the year at 905,177oz. The outstanding free cash flow results reflect the performance of its staff and business partners. The company paid a FY20 fully franked interim dividend of 7.5 cents per share on 16th July 2020. The company undertook necessary COVID-19 related measures and improved performance during the quarter, especially at the Australian operations. The cost of these further measures came in at around $10 million. NST is likely to release its FY20 results towards the end of August 2020.

June Quarter Highlights (Source: Company Reports)

Sale of Ashburton Project:  Recently, the company announced the sale of the Mt Olympus Project comprising most of the Ashburton Project in Western Australia to Kalamazoo Resources Limited, for deferred contingent cash consideration of $17.5 million. The Ashburton Gold Project has produced 350,000oz Au and currently contains a Mineral Resource estimate of 20.8Mt @2.5g/t Au for 1.65Moz. The company added that the Ashburton Project no longer fits in its portfolio but still has strong potential on the exploration and production fronts.

Key Risks: NST’s business is sensitive to operational safety risk, which arises from the failure in managing recognised safety hazards. This is mainly due to exposure to and use of chemicals, dangerous goods, and explosives as well as ground seismicity. Moreover, change in climate can impact the operations of the company. This risk is influenced by a material change in water balance.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings 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: The stock of NST closed at $15.96 with a market capitalization of ~$11.96 billion. The stock made a 52-week low and high of $8.85 and $16.77 and is currently trading at the upper band of the range. As of 30^th June 2020, the cash, bullion and investments of the company stood at $769.5 million, reflecting a rise of 40% from $551.4 million as on 31st March 2020. We have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in percentage terms). For the purpose, we have taken peers such as IGO Ltd (ASX: IGO), OceanaGold Corp (ASX: OGC) and Gold Road Resources Ltd (ASX: GOR), to name a few. Hence, considering the decent free cash flow, increased cash position and improved net margins, we maintain a “Hold” rating on the stock at the current market price of $15.96 per share, down by 1.115% on 28th July 2020.

Lynas Corporation Limited

Awarded a Contract for a U.S. based Heavy Rare Earth Separation Facility: Lynas Corporation Limited (ASX: LYC) is a leading supplier of sustainable Rare Earth materials to high growth global manufacturing supply chains. On 27 July 2020, the company announced that Phase I work on a U.S. based Heavy Rare Earth separation facility has advanced to the contract phase. Notably, the U.S. Department of Defense (“DoD”) have signed a contract for this work. If this contract is completed successfully, it may lead to further contracts for commercial scale production.

Quarterly Results for the Period Ended 30 June 2020: In the June 2020 quarter, all operations in Kuantan were shut down for 44 days, due to COVID-19 led outbreak. Notably, the company saw decreased production volumes due to production constraints. LYC reported NdPr production of 775 tonnes, down from 1,369 tonnes reported in the prior quarter. Further, total REO production came in at 2,579 tonnes, down from 4,465 tonnes in the March quarter. For the quarter, the company invoiced sales revenue of $38 million with sales receipts of $42 million. The company exited the quarter with cash balance of $101.7 million.

The company also stated that it has restarted the Lynas Malaysia plant, following an announcement by the Prime Minister of Malaysia on 1 May 2020 that almost all economic sectors, including manufacturing, will be allowed to operate. The plant will run at approximately 70% of Lynas NEXT production rates which will allow the company to refill supply chains and to restock depleted inventories of critical materials.

June Quarter Highlights (Source: Company Reports)

Outlook: The company expects a strong demand from its customers in Japan, Europe and the U.S. and is focused on providing them with a secure source of sustainably produced Rare Earths. Despite the current challenges of COVID-19, LYC remains committed to progressing its 2025 growth plan. 

Key Risks: The company is subject to several risks that could potentially have an adverse impact on its performance. These risks include commodity prices risk; currency risks; market risks; liquidity risks; and credit risks. Further, the company is subject to several operational risks such has exploration funding and capital, uncertainty around future development of projects and exploration risk.

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

EV/Sales 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: The company currently seems to be in a strong financial position and despite the current challenges of COVID-19, it remains committed to progress its Lynas 2025 growth plan. In the last one month, the stock of LYC has increased by 31.35% on ASX. The stock made a 52-week low and high of $1.035 and $2.96 and is currently trading at the upper band of the range. We have valued the stock using EV/Sales multiple based illustrative relative valuation method and have arrived at a price correction of single-digit (in percentage terms). Considering the uncertainty around the COVID-19 impacts, expected decline in the valuation and recent June quarter results, we put our watch view on the stock at the current market price of $2.37, down 2.496% on 28 July 2020.

Ramelius Resources Limited

June 2020 Quarter Update: Ramelius Resources Limited (ASX: RMS) is engaged in the exploration, mine development, mine operations and the production and sale of gold. The market capitalisation of the company stood at $1.85 billion as on 28 July 2020. In the June 2020 Quarter, the company produced 86,517 ounces of gold, which outperformed the original guidance of 65,000 – 70,000 ounces. Over the period, the company took a prudent approach to capital management by repaying $8.1 million debt, as per the company’s Syndicated Facility Agreement. At the end of the June quarter, the company’s balance sheet was in a decent position with net cash and gold on hand of $161.1 million. For FY2020, the company recorded gold production of 230,426 ounces at an AISC of $1,164/oz.

June Quarter Highlights (Source: Company Reports)

Mining Contract Extension: In another update, the company stated that MACA Limited has extended its contract with RMS to provide mining services at the Mt Magnet Gold Project for a further period of 3 years.

Latest Exploration Results: Recently, the company notified the market with excellent exploration results from the West Australian gold projects. RMS added that this latest new mine plan can produce more than 1.4Moz gold at an average AISC of $1,250 - $1,350/oz over six-year mine life. The Life-of-Mine Plan has the capability to deliver further resource extensions from current operations, whilst maintaining the ability to also grow through acquisition.

Risks: The company is exposed to the risk of changes in market interest rates, that relates primarily to cash assets at variable interest rates. There is also a risk that the company will not be able to meet its financial obligations as they fall due. Further, the company is susceptible to fluctuations based on changes in global economic conditions and end-use markets.

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

Price to Cash Flow Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: The stock of RMS closed at $2.24 with a market capitalization of ~$1.85 billion. The stock made a 52-week low and high of $0.762 and $2.4 and is currently trading at the upper band of the range. The stock has generated positive returns of ~15% and ~85.48% in the last one month and three months, respectively. Debt to equity multiple of the company stood at 0.10x against the industry median of 0.16x. We have valued the stock using the P/CF multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in percentage terms). For the purpose, we have taken peers such as Silver Lake Resources Ltd (ASX: SLR), Regis Resources Ltd (ASX: RRL), Westgold Resources Ltd (ASX: WGX), to name few. Hence, considering the above factors, robust June quarter numbers, outlook, excellent exploration results, and deleveraged balance sheet, we give a “Hold” recommendation on the stock at the current market price of $2.24 per share, down by 2.609% on 28 July 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer  

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as personalised advice.