Stocks’ Details

Evolution Mining Limited

Strong Rise in Financial Metrics: Evolution Mining Limited (ASX: EVN) is engaged in the exploration, mine development, mine operations as well as the sale of gold and gold/copper concentrate in Australia. The market capitalisation of the company stood at $6.65 Bn as on 12^th February 2020. For the half-year ended 31^st December 2019 (1H FY20), the company reported a rise of 62% to $147.2 in statutory net profit after tax and posted the same rise in underlying net profit after income tax, which amounted to $149.1 million. These strong financial results have been supported by gold production of 362,857 ounces at an All-in Sustaining Cost (AISC) amounting to $1,041 per ounce.
Moreover, the company generated group cash at a record high of $242.4 million, which has been driven by strong mine cash flow generation with operating cash flow amounting to $511.8 million and net mine cash flow, post sustaining and major capital, of $351.8 million.


Free Cash Flow (Source: Company Reports)

Guidance for FY20: The company is expecting gold production for FY20 in the range of 725,000 – 775,000 ounces of gold at an anticipated AISC between $890 – $940 per ounce. The company is anticipating major capital to be in the ambit of $195 – $235 million.

Valuation Methodology:P/CF Based Valuation

P/CF Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: On the back of strong performance in 1H FY20, the Board of the company declared an interim dividend amounting to 7.0 cents per share, fully franked, with a record date of 25^th February 2020. The company is currently debt-free and has increased its net cash position. We have valued the stock using P/CF-based relative valuation method, and for the purpose, we have taken peers such as Northern Star Resources Ltd (ASX: NST), Regis Resources Ltd (ASX: RRL), Newcrest Mining Ltd (ASX: NCM) etc., and arrived at a target price, which is offering an upside of high single-digit (in percentage terms). Therefore, considering the company’s strong performance in 1HFY20, debt-free position and valuation, we give a “Buy” recommendation on the stock at the current market price of $4.000 per share, up by 2.564% on 12^th February 2020.

Mineral Resources Limited

Robust Improvement in NPAT: Mineral Resources Limited (ASX: MIN) is engaged in the integrated supply of goods and services to the resources sector. The market capitalisation of the company stood at $3.23 Bn as on 12^th February 2020. The company recently announced that it has ceased to be a substantial holder in Norwest Energy NL on 13^th January 2020. The company reported statutory earnings before interest, tax, depreciation and amortisation amounting to $1,575 million in 1H FY20. This number comprises a gain of $1,290 million on the sale of a 60% interest in the Wodgina Lithium Project. Statutory and underlying NPAT of the company stood at $884 million and $129 million, respectively, reflecting a rise of 279% over pcp.


Financial Performance (Source: Company Reports)

Focus for FY20: The company is targeting to double production & revenue over the upcoming three years. With respect to the Crushing business for FY20, the company anticipates contract volumes to experience a rise of more than 20% on FY19. MIN is expecting mining services EBITDA to be in the range of $280 - $300 million.

Valuation Methodology:P/CF Based Valuation

P/CF- Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: For 1HFY20, the Board of the company declared a fully franked interim dividend amounting to 23.0 cents per share, reflecting a rise of 77% on 1H FY19. We have valued the stock using P/CF-based relative valuation approach and for the purpose, we have taken peers such as IGO Ltd (ASX: IGO), Western Areas Ltd (ASX: WSA), Evolution Mining Ltd (ASX: EVN) etc., and arrived at a target price, which is offering an upside of high single digit (in percentage terms). Thus, in the light of decent performance in 1HFY20 and valuation upside, we maintain a “Hold” rating on the stock at the current market price of $17.600 per share, up by 2.684% on 12^th February 2020.

Gold Road Resources Limited

Guidance for Gruyere:  Gold Road Resources Limited (ASX: GOR) is engaged in the exploration of gold and other minerals. The market capitalisation of the company stood at $1.4 Bn as on 12^th February 2020. The company recently updated the market with Gruyere 2020 production guidance for the Gruyere Joint Venture (50:50 JV between Gruyere Mining Company Pty Ltd and Gold Road Resources Limited). Drilling at Gruyere was completed in 2019, which provided a rise of 29% or 1.23 million ounces in Measured and Indicated (M&I) Resources to 6.1 million ounces at the Gruyere JV via the upgrade of Inferred Resources to Indicated Resources. 

For Gruyere, it is expected that the gold production would lie in the range of 250,000 – 285,000 ounces for FY20. GOR’s AISC is anticipated in the ambit of $1,100 – $1,200 per attributable ounce. The following picture depicts an idea of variation to the mineral resources:

 
Variations to the Mineral Resource (Source: Company Reports) 

Focus for FY20 in relation to Gruyere JV: The Gruyere JV would continue studies on optimising mining and processing at Gruyere. The company would also wrap up the geotechnical studies and metallurgical studies to allow for an updated open pit design in FY20.

Valuation Methodology:EV/Sales Based Valuation

EV/Sales Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The ramp-up to full production (provided in guidance for Gruyere) would continue along with numerous scheduled plant shutdowns in the March 2020 quarter, which will allow the operations team to improve plant availability, operating efficiencies, and conduct wear and maintenance programmes. We have valued the stock using EV/Sales based relative valuation approach and for the purpose, we have taken peers such as Saracen Mineral Holdings Ltd (ASX: SAR), Northern Star Resources Ltd (ASX: NST) and Orocobre Ltd (ASX: ORE) and arrived at a target price, which is offering corrections of single-digit (in percentage terms). As per ASX, the stock of GOR is trading close to its 52-week high of $1.645. Hence, considering the expected price correction and current trading levels, we have a watch stance on the stock at the current market price of $1.635 per share, up by 2.508% as on 12^th February 2020.
 
 
Comparative Price Chart (Source: Thomson Reuters)

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