Stocks’ Details

AngloGold Ashanti Limited

Completion of sale of Morila to Firefinch: AngloGold Ashanti Limited (ASX: AGG) is engaged in the production and exploration of gold. As on 3 December 2020, the market capitalization of the company stood at ~$11.77 billion. AGG and Barrick Gold Corporation have sold their combined stake of 80% in Morila Limited to Firefinch Limited for a cash consideration of $28.8 million. This sale aligns with the company’s objective of streamlining its portfolio to focus its capital allocation on assets with lower costs and longer life.

Quarterly Highlights (For the Period Ended 30 September 2020): During the quarter ended 30 September 2020, the company reported a YoY improvement of 290% in its free cash flows to US$339 million and a growth of 72% in adjusted EBITDA to US$803 million. Over the quarter, the company produced 837 koz and sold 826 koz of gold. The company also reported a healthy balance sheet with a YoY improvement of 47% in adjusted net debt to US$875 million, lowest since 2011.

Quarterly Highlights (Source: Company Reports)

Guidance: The company has provided guidance for FY20 and expects to produce 3.030Moz and 3.100Moz of gold from the South African-producing assets at an AISC of between US$1,060/oz and US$1,120/oz. Sustaining capital expenditure is forecasted to be between US$610 million to US$650 million.

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: The company made decent progress in executing its strategy, despite the global spread of COVID-19. As per ASX, the stock of AGG is inclined towards its 52-weeks’ low levels of $4.8, proffering a decent opportunity for the investors for accumulation. The stock of AGG has a support level of ~$5.1 and a resistance level of ~$7.98. We have valued the stock using the EV/Sales multiple based illustrative relative valuation and have arrived at a target upside of lower double-digit (in % terms). For the said purposes, we have considered Resolute Mining Ltd (ASX: RSG), Regis Resources Ltd (ASX: RRL), Northern Star Resources Ltd (ASX: NST), etc., as peers. Considering the company’s streamlined portfolio, decent quarterly performance, current trading levels and decent FY20 guidance, we recommend a ‘Buy’ rating on the stock at the current market price of $6.150 on 3 December 2020.

Oil Search Limited

Alaska Update: Oil Search Limited (ASX: OSH) is engaged in the exploration, development, and production of oil and gas resources. As on 3 December 2020, the market capitalization of the company stood at ~$7.68 billion. The company has provided an update on Alaska portfolio and reported an increase of 33% in 2C contingent resource, taking total gross Alaskan North Slope 2C resources to 968 mmbbl from 728 million barrels of oil. The company seems well-positioned to progress into FEED on a single drill site first phase of the Pikka Project in early 2021.   

Quarterly Highlights (For the Period Ended 30 September 2020): During the quarter, the company reported total production of 7.30 million barrels of oil, reflecting a marginal rise from 7.29 mmboe in Q2 FY20. At the end of the same period, the company recorded total hydrocarbon sales of 7.55 mmboe, reflecting a rise of 11.2% over Q2 FY20. However, the revenue of the company went down by 29% to US$189.0 million. This was mainly due to a reduction in the average realized LNG and gas price, which was largely impacted by the oil price lag on LNG contract prices.

Key Metrics (Source: Company Reports)

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

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

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

Stock Recommendation: The company is focused on optimizing its cost base and is aiming to deliver significant growth from its resources. The company is expecting an increase of over 80% in production by 2030 and is building on strong foundations. The company has narrowed down its investment expenditure guidance to US$390 – US$460 million from US$440 – 530 million. On a technical front, the stock of OSH has a support level of ~$2.498 and a resistance level of ~$4.311. We have valued the stock using the price to cash flow multiple based illustrative relative valuation and arrived at a target price of low double-digit upside (in percentage terms). For the said purposes, we have considered Origin Energy Ltd (ASX: ORG), Ampol Ltd (ASX: ALD), Senex Energy Ltd (ASX: SXY), etc., as peers. Considering the current trading levels, modest long-term outlook, and decent quarterly performance, we recommend a ‘Buy’ rating on the stock at the current market price of $3.74, up by 1.081% on 3 December 2020.

Syrah Resources Limited

Syrah Confirm Robust Economics for Anode Production: Syrah Resources Limited (ASX: SYR) is engaged in the exploration of minerals. As on 3 December 2020, the market capitalization of the company stood at ~$435.60 million. The company has recently completed Bankable Feasibility Study for the expansion of its natural graphite Active Anode Material facility in the US and has also started Front End Engineering and Design for an initial 10ktpa AAM facility in Q1FY21.

Quarterly Highlights (For the Period Ended 30 September 2020): During the third quarter, the EV market returned to growth, reflecting an increase of 69% on the previous quarter. At the end of the same period, the company sold 3kt of finished product inventory at an average price of US$470/t and reported a cash balance of US$44 million on 30 September 2020. During the quarter, the company received US$2.31 million of cash from its customers and used US$6.65 million of cash from operating activities.

Cash flows from Operating Activities (Source: Company Reports)

Stock Recommendation: The company seems on track to become the first vertically integrated producer of natural graphite active anode material outside China. As per ASX, the stock of SYR is inclined towards its 52-weeks high of $1.092 but retains further potential for growth. The stock of SYR gave a return of 156.32% in the past three months and a return of 120.10% in the last one month. On a technical front, the stock of SYR has a support level of ~$0.92 and a resistance level of ~$1.06. On a TTM basis, the stock of SYR is trading at a P/BV multiple of 0.9x, lower than the industry median (Metals & Mining) of 2.7x. Considering the current trading levels, decent liquidity position, and TTM valuation, we recommend a ‘Hold’ rating on the stock at the current market price of $1.04, down by 0.953% on 3 December 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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