Stocks’ Details

Champion Iron Limited

Decent Growth in Topline: Champion Iron Limited (ASX: CIA) is involved in the exploration and development of iron-ore and mining projects. The market capitalisation of the company stood at ~$1.49 billion as on 29^th October 2020. During Q2 FY21, the company resumed its operations at Bloom Lake with full operational capacity, following the announcement made by Government to categorize mining activities as a “priority service”. During the same quarter, the company reported record production of 2,268,800 wmt of high-grade 66.1% Iron ore concentrate against 2,189,700 wmt in Q2 FY19. During the quarter, the company experienced a continuous rise in iron ore prices along with decent demand from China. For 1H FY21, the company recorded revenue amounting to $555.6 million as compared to $438.3 million in 1H FY20. During the half-year, CIA reported net income of $187.7 million against net income of $72.5 million in 1H FY20.

Financial Summary (Source: Company Reports)

Outlook: Going forward, the company is focused on the improvement of its operations at Bloom Lake. In addition, the company is expecting strong support from the continuous rise in iron ore prices.

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: Despite the income and mining taxes payments of $97.0 million and a dividend payment of $17.0 million in Q2 FY21, the company ended H1FY20 with a decent cash balance of $425.8 million. On a technical analysis front, the stock of CIA has a support level of ~$2.840 and a resistance level of ~$3.351. 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 high single-digit (in percentage terms). For the purpose, we have taken peers such as Rio Tinto Ltd (ASX: RIO), South32 Ltd (ASX: S32) and BlueScope Steel Ltd (ASX: BSL). Thus, considering robust iron ore prices, growth in production and decent cash position, we give a “Hold” recommendation on the stock at the current market price of $3.310 per share, up by 4.416% on 29^th October 2020.

Coronado Global Resources, Inc.

Decent Performance in Q3 FY20: Coronado Global Resources Inc. (ASX: CRN) is mainly involved in the development and operation of premium quality metallurgical coal mines in Queensland, Australia. The market capitalisation of the company stood at ~$1.07 billion as on 29^th October 2020. For the quarter ended 30^th September 2020 (Q3 FY20), the company reported saleable production of 4.6 Mt, reflecting a rise of 31.2% over June 2020 quarter. This was supported by the resumption of the US mining operations at Buchanan and Logan and strong Australian (Curragh) performance. In addition, the company also recorded saleable production from the Curragh mine of 3.6 Mt, indicating a rise of 24.5% on the June quarter. As a result of higher production and improved market conditions, CRN posted sales of 4.9 Mt, which increased by 27.0% on the prior quarter.  During Q3 FY20, the company reported revenue of US$376 million, up by 23.7% over June 2020 quarter. The topline growth was underpinned by higher sales volume.

Sales Mix (Source: Company Reports)

Outlook: For 1H FY21, the company has rescheduled additional core hole drilling and subsurface geotechnical exploration at Mon Valley (PSF), Pennsylvania USA. This indicates the company’s immediate focus on cost and capital management.

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: On 11^th September 2020, CRN finished equity raising of US$180 million and used the funds to repay a portion of the Syndicated Facilities Agreement (SFA). As on 30^th September 2020, the company reported net debt of US$273 million, which were significantly decreased from US$405 million as on 30^th June 2020. On a technical analysis front, the stock of CRN has a support level of ~$0.589 and a resistance level of ~$0.920. 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 Stanmore Coal Ltd (ASX: SMR), South32 Ltd (ASX: S32) and BlueScope Steel Ltd (ASX: BSL). Hence, considering the rise in saleable production, growth in topline and decline in debt position, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.770 per share, down by 0.646% on 29^th October 2020.

Buru Energy Limited

Record Oil Sales in September 2020 Quarter: Buru Energy Limited (ASX: BRU) is engaged in the exploration, development and production of petroleum. The market capitalisation of the company stood at $41.04 million as on 29^th October 2020. Recently, the company updated the market with its activities for the quarter ended 30^th September 2020, wherein, it reported oil sales of ~146,000 barrels (gross) from liftings in July and September 2020. Oil production for the quarter stood at ~93,000 barrels (gross) at an average rate of ~1,010 barrels a day. In addition, the company also finished Ungani Far West Reeves interval with initial test flow rates of ~270 bopd.

Financial Summary (Source: Company Reports)

Outlook: With respect to its exploration activities, the company is advancing its preparation for an extensive 2021 exploration program.

Stock Recommendation: The company closed the quarter with a robust balance sheet comprising cash and cash equivalents of $23.3 million. The stock of BRU is inclined towards its 52-week low level of $0.062, offering decent opportunities for accumulation. In addition, the stock is trading at a price to book value multiple of 0.9x as compared to the industry median of 1.5x on TTM basis. On a technical analysis front, the stock of BRU has a support level of ~$0.078 and a resistance level of ~$0.111. Thus, in light of the decent production, focus on exploration activities, current trading levels and key risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.091 per share, down by 4.211% on 29^th October 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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