Stocks’ Details

Black Cat Syndicate Limited

Issue of Placement Shares: Black Cat Syndicate Limited (ASX: BC8) is engaged in mineral exploration at its Bulong Gold Project in Western Australia. The market capitalisation of the company stood at ~$88.99 Mn as on 27^th July 2020. Recently, the company announced a drilling plan for the September 2020 quarter, wherein, it stated that the program would be focused on ounces that could be mineable in the near term. The company stated that drilling has commenced with >15,000m of RC planned for the September 2020 quarter. BC8 identified high priority targets at multiple prospects including Imperial/Majestic, Fingals Fortune and Rowe’s Find. The company added that RC drilling is likely to continue until the end of 2020.

Also, the company has issued 11,939,024 fully paid ordinary shares at $0.82 per share, raising around $9.79 million before costs. These shares have been issued in relation to applications of $10 million to professional and sophisticated investors, which was announced on 15^th July 2020. The balance of the shares to be issued requires shareholder approval for the directors to subscribe for 256,098 shares on the same terms to raise a further $210,000.

Sources and Uses of Funds (Source: Company Reports)

Outlook: The strategic objectives of the company revolve around achieving strong balance sheet position with a target of robust cash flows.

Key Risks: The company is mainly exposed to credit risk, which arises from the default by counterparties in meeting their contractual obligations. In addition, the company is sensitive to market risks, such as interest rate risk and foreign exchange risk. Market risk is influenced by the changes in market prices.

Stock Recommendation: Current ratio of the company stood at 6.35x in 1H FY20, reflecting YoY growth of 27.5%. This indicates that the company has improved its capabilities to address its short-term obligations. Cash balance of the company stood at $5.34 million at the end of 1H FY20, while the outstanding debt was zero. The stock of BC8 is trading at a price to book value multiple of 12.9x as compared to the industry median (Metals & Mining) of 2.1x on a trailing twelve months (TTM) basis. The stock of BC8 has moved up by 114.47% and 108.97% in the last three and six months, respectively. As a result, the stock is inclined towards its 52-high level of $1.00. Thus, considering, the current trading levels and upside in price in the past few months, we have a wait and watch stance on the stock at the current market price of $0.830 per share up by 1.84% on 27^th July 2020.

Encounter Resources Limited

Assay Results from Diamond Drilling: Encounter Resources Limited (ASX: ENR) is a diversified mineral explorer with a market capitalisation of ~$43.53 Mn as on 27^th July 2020. Recently, the company finished the diamond drill program at the 100% owned Lamil Copper-Gold Project. The company added that the near-surface zone of limonite-goethite altered quartz veining intersected in ETG0201 has returned 36m @ 0.5g/t Au from 28m. This intersection extends the zone of supergene gold mineralisation on the single section of drilling at the Gap to over 180 meters. At the end of the March 2020 quarter, net cash outflow from the operating activities stood at $123k.

Cash Flows (Source: Company Reports)

2020 Plans: The company stated that planning for the 2020 field program is well advanced, with fine-fraction soil sampling, a magneto-telluric survey, a moving loop electromagnetic survey, as well as several drilling programs planned.

Key Risks: The company’s business is sensitive to a variety of risks arising from its use of financial instruments such as credit risk, liquidity risk and market risk. Credit risk arises from the failure of obligations by counterparties and liquidity risk arises from the company’s inability to meet its financial obligations as they fall due.

Stock Recommendation: As of 31^st March 2020, the company held cash reserves of ~$2.1 million and listed investments valued at ~$0.75 million. The stock of ENR is trading at a price to book value multiple of 2.6x as compared to the industry median (Metals & Mining) of 2.1x on a trailing twelve months (TTM) basis. During the last three and six months, the stock of ENR has moved up by 24.00% and 40.91%, respectively. Thus, considering the aforesaid facts and movement in the stock, we have a wait and watch stance on the stock at the current market price of $0.160 per share, up by 3.226% on 27^th July 2020.

Caprice Resources Ltd

Resumption of Exploration Activities: Caprice Resources Limited (ASX: CRS) is involved in mining and mineral exploration activities. The market capitalisation of the company stood at ~$7.21 Mn as on 27^th July 2020. Recently, the company announced the resumption of exploration activities at its 100% owned Northampton Project in Western Australia. During the quarter ended March 2020, the company received results from its maiden drilling campaign in the Cook Prospect on its Wild Horse Hill Project in the Northern Territory undertaken in the December quarter. The initial drilling program was focused on testing the Cook Prospect with the completion of 10 RC drill holes; each drilled to a maximum depth of 150m. The following picture gives an overview of cash flows from operating activities at the end of the March 2020 quarter:

Cash Flows from Operating Activities (Source: Company Reports)

COVID-19 Impact: The company stated that restrictions for travel due to the COVID-19 pandemic impacted its ability to undertake field activities at the Wild Horse Hill and Northampton Projects over the June quarter.

Key Risks: The company is exposed to various financial risks, such as liquidity risk, credit risk, and market risk. To manage liquidity risk, the company maintains sufficient cash balance to meet its liabilities when they are due, under both normal and stressed conditions. As mentioned above, COVID-19 impacted operations at the Wild Horse Hill and Northampton Projects and the duration of the impact is currently uncertain.

Stock Recommendation: At the end of the March 2020 quarter, cash and cash equivalents of the company stood at $3.321 million. The company reported nil debt at the end of 1H FY20. The stock of CRS is trading towards its 52-week high level of $0.260. Considering the resumption of exploration activities and decent exploration results, we believe that most of the positive factors have been discounted at current trading levels. Thus, in light of current trading levels, low market capitalisation and impact of COVID-19, we have a wait and watch stance on the stock at the current market price of $0.230 per share, up by 4.545% on 27^th July 2020.

Oakajee Corporation Limited

Completion of Drilling Program: Oakajee Corporation Limited (ASX: OKJ) is engaged in the review of investment opportunities in the resources sector and exploration for gold and base metals within Australia. The market capitalisation of the company stood at ~$4.08 Mn as on 27^th July 2020. Recently, the company announced that the Aircore (AC) drilling program at the Paynes Find Gold Project has been successfully completed. During the quarter ended March 2020, the company has continued early-stage exploration and preparation work across its Paynes Find Gold Project in Western Australia and its Birrindudu Nickel Project in the Northern Territory. OKJ continues to follow state and federal government guidelines and has not experienced any disruptions in Western Australia with respect to its Paynes Find Gold Project. The next exploration stage at Paynes Find Gold Project is to re-sample the anomalous gold zones on 1m downhole intervals to better define the target zones. At the end of the March 2020 quarter, net cash outflow from the operating activities stood at $181k.

Cash Flow (Source: Company Reports)

Key Risks: The company’s financial performance is exposed to several risks, such as credit risk, liquidity risk and market risk. Market risk is influenced by the changes in interest rates and share prices.

Stock Recommendation: The company possessed a cash balance of $3,136,119 in liquid assets comprising $2,575,119 of cash and shares held in listed entities with a market value of $561,000 as of 31^st March 2020. OKJ has an EV/Sales multiple of 18.0x as compared to the industry median (Construction Materials) of 10.7x on TTM basis. The stock of OKJ has moved up by 50.00% and 73.08% in the last one and three months, respectively. The stock is inclined towards its 52-week high level of $0.057. Hence, considering the current trading levels and price movements, we have a wait and watch stance on the stock at the current market price of $0.050 per share, up by 11.111% on 24^th July 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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