Stocks’ Details

Whitehaven Coal Limited 

FY20 Results Highlights: Whitehaven Coal Limited (ASX: WHC) is a leading Australian producer of premium-quality coal. As at 31 August 2020, the company had a market capitalisation of ~$923.44 million. For the year ended 30 June 2020 or FY20, the company reported an underlying EBITDA of $306 million, down by 69% on the previous year, impacted by the decline in global COAL Newcastle Index price, SSCC prices, increased costs, and decreased sales volumes. Further, the company reported underlying net profit after tax (NPAT) of $30 million, down by ~94% on the previous year. During the year, the managed ROM coal production was adversely impacted by factors at the open cut and underground mines. Net cash from operating activities stood at $146.4 million in FY20. At the end of FY20, the company had a net debt of $787.5 million and a cash balance of $106.8 million.

FY20 Results (Source: Company Reports)

What to Expect: Looking ahead, the company expects the demand for coal to grow in its nearby market, and it intends to meet the forecasted demand. Currently, the company is focused on improving operational outcomes and maintain a strong balance sheet. In FY21, the company expects its managed ROM Coal production to be in the range of 21.0mt - 22.8mt, with ~55% of the production weighted to the second half. Further, the company expects its coal sales to be between 18.5mt - 20.0mt.

Key Risks: The company’s future financial performance is dependent on future sales contract negotiations, general economic activity, industrial production levels, changes in coal demand, fluctuations in foreign exchange rates, changes in the supply of seaborne coal, changes in international freight rates and the cost of substitutes for coal. Further, the company’s operations are exposed to operating risks that could impact the amount of coal produced at its coal mines, delay coal deliveries, or increase the cost of mining for varying lengths of time.

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

EV/EBITDA 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 stock of WHC has corrected by 51.74% in the last three months and is trading close to its 52-weeks low price level, offering investors a decent opportunity for accumulation. On technical analysis front, the stock of the company has a support level of ~A$0.855 and a resistance level at ~A$1.993. We have valued the stock using EV/EBITDA 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 like Yancoal Australia Ltd (ASX: YAL), New Hope Corporation Ltd (ASX: NHC) and Energy Resources of Australia Ltd (ASX: ERA), to name few. Considering the continuing demand for high-quality coal, FY21 guidance, long-term fundamentals and current trading levels, we give a “speculative buy” recommendation on the stock at the current market price of $0.930, up by ~3.33% on 31 August 2020.

Gateway Mining Limited

Completion of Share Purchase Plan: Gateway Mining Limited (ASX: GML) is engaged in the exploration of gold and other minerals. The market capitalisation of the company stood at ~$45.65 Mn as on 31^st August 2020. Recently, the company announced that it has finished the Share Purchase Plan and raised $2 million. Previously, the company also raised $7 million from placement. These funds are likely to support the next major phase of drilling and exploration at its flagship 100%-owned Gidgee Gold Project in Western Australia. During June 2020 quarter, the company achieved success in defining numerous high-order anomalies, corresponding, and extending from areas of historical gold mining activity, and a significant anomaly throughout the granodiorite body and into the host mafic volcanic sequence. At the end of the quarter, the company signed a strategic Earn-In Agreement with Golden Mile Resources Ltd, in order to expand its landholding of the Gidgee Gold Project to over 1,000km². Net cash outflow for the quarter came in at $155K.

Cash Flows (Source: Company Reports)

Future Focus: The focus of the company revolves around minimal modern and systematic exploration. GML is also focused on shallow mineralization.

Key Risks: The company is mainly exposed to a variety of financial risks, such as interest rate risk, liquidity risk and credit risk. 

Stock Recommendation: The company possesses a strong balance sheet with around $9 million cash and no debt. On the technical analysis front, the stock of the company has a support level of ~A$0.023 and resistance level at ~A$0.029. The stock of GML has moved up by 14.39% and 84.62% in the past one and three months, respectively. As a result, the stock is trading close to the 52-week high level of $0.027. In addition, the stock is trading at a price to book value multiple of 3.7x as compared to the industry median (Basic Materials) of 2.3x on TTM basis, indicating an overvalued position at current juncture. Hence, considering the aforesaid facts, valuation, current trading levels and recent price movement, we have a watch stance on the stock at the current market price of $0.026 per share, up by 8.333% on 31^st August 2020.

Venture Minerals Limited 

Awarded with Preferred Road Haulage Tenderer Status: Venture Minerals Limited (ASX: VMS) is involved in the exploration of various minerals and resource projects. The market capitalisation of the company stood at ~$29.13 Mn as on 31 August 2020. Recently, the company stated that it has awarded preferred Road Haulage tenderer status for the Riley Iron Mine to Qube. Further, VMS has also been awarded for engaging Qube to provide the necessary Burnie Port Services to complete the logistics solution of delivering Iron Ore from the Riley Mine gate to on board ship. 

Equity Raising to Begin Mining and Production:  On 7^th August 2020, the company successfully finished a placement to sophisticated, professional and institutional investors and raised $4.0 million through a placement of 129,032,258 fully paid ordinary shares at an issue price of $0.031 per Share. The company is also likely to raise an additional $1.5 million via an underwritten share purchase plan. The company would utilise the fund to commence mining and production at the Riley Iron Ore Mine as well as for the exploration on Venture’s Kulin Gold Project and the Golden Grove North Copper-Gold Project.

Indicative Timetable (Source: Company Reports)

Future Focus: The company is focused on finalising discussions on financing of the wet screening plant. The company is also aiming first ore shipment in the upcoming month.

Key Risks: The company’s business is exposed to material business risk, which includes future commodity prices, exchange rate fluctuations, further exploration results and funding.

Stock Recommendation:  During the June 2020 quarter, the cash outflow from the operating activities stood at $515k. As on 30^th June 2020, the cash balance of the company (including Placement and SPP net of costs) stood at $6.1 million. On the technical analysis front, the stock of the company has a support level of ~A$0.029 and a resistance level at ~A$0.042. The stock of VMS is trading at a price to book value multiple of 12.1x against the industry average (Metals & Mining) of 5.9x on TTM basis. In addition, the stock of VMS went up by 82.35% and 158.33% in the last three and six months, respectively. The stock is inclined towards its 52-week high level of $0.042. Considering the recent capital raising and business activities during past months, we are of the view that most of the positive factors have been discounted at current levels. Hence, we have a watch stance on the stock at the current market price of $0.034, up by 9.677% on 31 August 2020. We also suggest investor to wait for further catalysts to drive the stock.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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