Mount Gibson Iron Limited

MGX Details

Recent Business Update: Mount Gibson Iron Limited (ASX: MGX) is an Australian based iron ore producer with operations in the Mid-West and Kimberley regions of Western Australia. As announced on 22 December 2021, MGX reported completion of the upgrades in Koolan Island Processing Plant and delivered operations update as follows –

• Total shipping stood at 0.7 Mwmt in H1FY22, comprised of 0.3 Mwmt from Shine and 0.4 Mwmt from Koolan Island. FY22 Group ore sales target stands at 2.0 Mwmt, comprised of 0.3 Mwmt from Shine and 1.7 Mwmt from Koolan Island.
• The waste to ore stripping ratio for Koolan Island averaged circa 15:1 in H1FY21 and is estimated to edge down substantially at circa 6:1 in H2FY22.

Q1FY22 – Quarterly Operational Activities

• Top Line: Sales stood at 0.4 million Mwmt, contributed by 0.1 MWmt from Shine and 0.3 Mwmt from Koolan Island operations in the Mid-West.
• Ore Reserves: Koolan Island’s ore reserves comprised 17.5 million tonnes at 65.3% Iron, which is one of the highest global direct shipping grade hematite iron ore deposits.
• Cash Position: MGX’ cash and investments position stood at $250 million as of 30 September 2021, with no debt. Cash outflow for the quarter clocked $111 million, reflecting capital project investments and waste stripping, and Shine stockpile expenditure and development.

FY21 Financial Snapshot, Analysis by Kalkine Group

Key Risks and Challenges

MGX is exposed to the risks of volatility in iron ore prices, which has affected financials substantially. The company’s operational performance is also exposed to the risks related to frequent changes in government policies and the continued attainment of regulatory approvals.

Outlook

Looking ahead, MGX is focused to deliver implementing sustainable cost and operational improvements across the existing business. The waste to ore stripping ratio is estimated to edge down substantially at circa 6:1 in H2FY22. From Koolan Island, MGX estimates a total sale of around 2.0 Mwmt in FY22.

Valuation Methodology: Price/Earnings 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 stock of MGX gave a negative return of ~56.085% in the past one year. The stock is currently trading lower than the 52-weeks’ average price level band of $0.350 - $1.010. The stock has been valued using the Price/Earnings multiple-based illustrative relative valuation method and arrived at a target price low double-digit (in percentage terms). The company might trade at a slight discount to its peers, considering risks associated with high iron ore price fluctuations and COVID-19 pandemic uncertainties. For valuation, few peers like Mincor Resources NL (ASX: MCR), Alkane Resources Ltd (ASX: ALK), Macmahon Holdings Ltd (ASX: MAH), and others have been considered. Given robust financial position, expected increase in sales for FY22, current trading levels, and upside indicated by valuation, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.410, as of 29 December 2021, 01:35 PM (GMT+10), Sydney, Eastern Australia.

MGX Daily Technical Chart, Data Source: REFINITIV

Jupiter Mines Limited

JMS Details

Q3FY22 Financial Performance: Jupiter Mines Limited (ASX: JMS) is a Perth-based mining company mainly involved in the exploration and production of manganese. The company has a 49.9% beneficial interest in Tshipi é Ntle Manganese Mining Proprietary Limited (Tshipi).

• Production: For Q3FY22, Tshipi produced graded ore at a quantity of 255,036 bcm with 2.9 million bcm in total mining movements. Average FOB cost of production (HGL) stood at ZAR 26.18/dmtu, down from NZR 31.00/dmtu registered in previous quarter.
• Sales: Total on land logistics shrunk to 727,418 tonnes, relative to 944,499 tonnes in previous quarter and 1,034,692 tonnes in Q3FY21. Sales slipped to 845,421 tonnes, down by 10% for the quarter.
• Target Status: Tshipi stands 2% ahead of graded ore mining target and 3% behind of target for total mining movement. Curtailed waste fleets and unexpected seasonal impacts in October contracted mining activities.
• Financial Position: Cash at bank as of 30 November 2021 stands at $1.8 million, considerably down from $9.5 million assumed in 30 November 2020. EBITDA clocked $1.7 million, down from 2.6 million registered in prior corresponding period.

Key Sales, Production, and Financial Information (Quarterly), Analysis by Kalkine Group

Key Risks and Challenges

• Steel Production in China: Chinese steel production was clocked at lowest levels in CY21 due to increased government interference in policy updates.
• Production Hurdles: The company’s production can be affected by unfavourable weather conditions, excavator’s breakdown, and operator issues.

Outlook

Chinese steel market is expected to resurge post a recent downfall which shall improve top-line measures. JMS intends to maximize Tshipi’s production utility and cash returns due to revised medium-term mine plan and operational efficiency program (implemented in April 2021), which have demonstrated performance improvements.

Valuation Methodology: P/E Value 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 stock of JMS gave a negative return of ~24.569% in the past one year. The stock is currently trading lower than the 52-weeks’ average price level band of $0.180 - $0.375. The stock has been valued using the Price/Earnings multiple-based illustrative relative valuation method and arrived at a target price low double-digit (in percentage terms). The company might trade at a slight discount to its peers, considering high volatility in manganese price and increased shipping costs. For valuation, few peers like Perenti Global Ltd (ASX: PRN), Macmahon Holdings Ltd (ASX: MAH), Iluka Resources Ltd (ASX: ILU), and others have been considered. Given Tshipi’s improved operational efficiency, focus on Tshipi mine expansion, consolidation within the Kalahari manganese region, current trading levels, and upside indicated by valuation, we give a “Speculative Buy” recommendation on the stock at the closing market price of $0.220, down by ~2.223%, as of 29 December 2021.

JMS Daily Technical Chart, Data Source: REFINITIV

Dacian Gold Limited

DCN Details

Recent Business Update: Dacian Gold Limited (ASX: DCN) is a mid-tier gold producer. It undertakes gold production at the Mt Morgans Gold Operations (MMGO) and has multiple exploration targets including Phoenix Ridge, Transvaal, Craic, and Westralia Deposit. On 21 December 2021, delivered highlights on intersection below the Jupiter Open Pit. The updates were as follows –

• Drilling activities below the Heffernans open pit extends mineralization to a depth of over 500 meters.
• Significant intersection was explored at Heffernans, comprising 215.2 meters at 0.9g/t from 598.0 meters.
• Syenite pipes of Jupiter mining complex span a 2km strike extent with bulk stockwork mineralization.
• DCN completed four diamond drill holes at Doublejay and Heffernans, with pending assays.

Q1FY22 Financial Update

• Company’s Growth Drivers: Drilling of beneath Jupiter open pits illustrated size and grade potential with 102.9m at 1.4 grams/tonne Au from 436.3m, untersected 160m below Heffernans. Completion of total exploration and growth drilling stood at 19,000m with ore reserves of 0.4Moz and mineral resources of 2.45Moz.
• Investments Update: Opertational investments continued during the quarter with inflow of development capital valuing $18.5 million on advaning Redcliff project and Doublejay pre-stripping, and $5.1 million spent on exploration activities.
• Production Levels: For the quarter, production stood at 15,819 ounces at an AISC of $2,362/ounce, typically in line with H2FY22 guidance.
• Financial Position: Cash and gold on hand stood at $33.2 million as on 30 Septembert 2021. Total debt clocked $16.0 million following the refinancing of project debt facility.

FY21 Financial Snapshot, Analysis by Kalkine Group

Key Risks and Challenges

The company faces a shortage of labor because of buoyant mining sector in Western Australia and COVID-19 imposed mobility restrictions. The interstate travel ban affects the exploration deployment and activity of workforce underground.

Outlook

FY22 production guidance stands at 100k – 110k ounces at an AISC of $1,550 - $1,700 per ounce. The recent mineralization developments in Jupiter Open Pit may deliver substantial top-line growth. Moreover, DCN completed four diamond drill holes at Doublejay and Heffernans, with pending assays, which shall add to production portfolio.

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 stock of DCN gave a negative return of ~48.667% in the past one year. The stock is currently trading lower than the 52-weeks’ average price level band of $0.155 - $0.565. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price low double-digit (in percentage terms). The company might trade at a slight premium to its peers, considering prudent financial position post equity raise and favourable exploration activities. For valuation, few peers like Macmahon Holdings Ltd (ASX: MAH), Regis Resources Ltd (ASX: RRL), Perenti Global Ltd (ASX: PRN), and others have been considered. Given trading levels close to 52-weeks’ low, reduced financial leverage, favourable potential of Jupiter open pit, updated resource estimates, and upside indicated by valuation, we give a “Speculative Buy” recommendation on the stock at the closing market price of $0.185, down by ~2.632% as of 29 December 2021.

DCN Daily Technical Chart, Data Source: REFINITIV

Note: The purple line reflects the RSI (14-day period)

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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