Stocks’ Details

Nelson Resources Limited

Capital Raising to Support Exploration: Nelson Resources Limited (ASX: NES) is an exploration company, with a key focus on its 828 km² Woodline Project. The company recently released a supplementary prospectus stating that due to excess demand under the Shortfall Offer, it has issued a further 9,158,618 New Shares and 4,579,275 attaching New Options under the Prospectus to raise an additional amount of $348,000. On 3^rd July 2020, the company notified that the Rights Issue was closed oversubscribed and raised an amount of $2,007,226, before costs. New options were issued at an exercise price of 8 cents, with a term of 2 years. Funds received from the issue will be allocated towards exploration of the Woodline Gold Project.

Capital Structure (Source: Company Reports)

Sale of the Yarri Project: In another important update in June 2020, the company notified that it has signed a 3-month option agreement with Haddison Limited, for the potential sale of its Yarri Project. Under the agreement, the company received a $5K non-refundable option fee. If chosen for the acquisition, Haddison will pay Nelson Resources a $100K cash consideration. After the sale, the company will be able to enhance its focus on the Woodline Project.

March Quarter Highlights: During the quarter, the company developed a clear exploration model to guide its future exploration programs at the Woodline Project. Work carried out at the project returned some high calibre gold intersections, suggestive of a large gold system. At the end of the period, the company had cash and cash equivalents amounting to $221k.

Key Risks: The company considers climate changes issues like extreme weather conditions and rising sea level, to be a potential risk to its operations. Water management is another key concern during its exploration activities, as most of the operations occur in water scarce areas. Moreover, legislation uncertainty or compliance changes due to climate-related impacts are other potential risks.

Stock Recommendation: The stock of the company gave positive returns of 72.09% and 191.74% over the last one and three months, respectively. Currently, the stock is trading close to its 52-week high of $0.085. In 1HFY20, the company had a current ratio of 0.92x, as compared to the current ratio of 5.79x in the previous half and the industry median of 1.85x. As on 31^st December 2020, the company had cash and short-term investments of $0.08 million and total debt of $0.06 million. On a TTM basis, the stock is available at a price to book value multiple of 2.2x, as compared to the industry median of 2.0x. Considering the aforesaid factors, we have a wait and watch stance on the stock at the current market price of $0.068, down 8.108% on 23^rd July 2020.

Navarre Minerals Limited

Decent Balance Sheet Position: Navarre Minerals Limited (ASX: NML) is an Australian-based gold exploration company focused on discovering large, long-life and high-grade gold deposits in under-explored areas of Victoria’s premier gold districts. The company recently completed the $8 million capital raise, through the issue of 64 million fully paid ordinary shares at a price of $0.125 per share, to existing and new institutional and sophisticated investors. The proceeds from the Placement will also be used to undertake first diamond drilling at the recently acquired Jubilee Gold Project and to contribute to Navarre’s 49% share of the Tandarra Gold Joint venture costs.

The company believes that with a strong balance sheet, it has an outstanding position to fast-track exploration of its Victorian gold properties with the main objective of building a maiden mineral resource at Resolution Lode. Recently, the company reported further significant gold assay results from an ongoing 9,000m diamond drilling program on the 100%-owned Resolution Lode prospect. The company has cash amounting to ~$13 million for deployment on the discovery of large, high-grade gold deposits within its Victorian mineral properties.

Tandarra Gold Project Update: In an update dated 30^th June 2020, the company notified regarding high-grade gold drill intercepts at the Macnaughtan prospect within the Tandarra Gold Project, confirming the potential of the southern Macnaughtan prospect to become the second significantly mineralised structure at Tandarra, along with the high-grade gold intersections at the Tomorrow Zone.

Strategic Acquisition: Earlier, in June, the company acquired 100% of the Jubilee Gold Project, which includes the historical 619m deep Jubilee Gold Mine that produced approximately 130,000 ounces of gold. Drill testing on the project is expected towards the end of the year.

Quarterly Cashflow Highlights: During the March quarter, operating cash outflow came in at $101. Cash used in investing activities amounted to $1.87 million. At the end of the period, the company had cash and cash equivalents of $6.69 million.

Operating Cash Flow (Source: Company Reports)

Key Risks: The company faces substantial level of regulation and restriction to obtain access to land in Australia. Inability to access land or delays in accessing may impact operations. Cash reserves are reduced by exploration costs and any failure in obtaining additional funding may require the company to scale back its exploration.

Stock Recommendation: The stock of the company gave positive returns of 19.05% in the last one month and is currently trading above the average of its 52-week trading range of $0.05 - $0.18. The company currently has a market capitalisation of ~$67.78 million, with 542.24 million outstanding shares. In 1HFY20, the company had a current ratio of 14.56x, as compared to the industry median of 1.85x. On a TTM basis, the stock is trading at a price to book value multiple of 2.9x, as compared to the industry average of 4.9x. Considering the ongoing developments across key projects, strong balance sheet position, key risks, and current trading levels, we give a “Speculative Buy” rating on the stock at the current market price of $0.130, up 4% on 23^rd July 2020, on account of the recent capital raising.

Carwine Resources Limited

Increased Gold Grades at Hill 800: Carwine Resources Limited (ASX: CWX) is an exploration company focused on exploring and developing economic gold, copper and base metal deposits within Australia. The company has four projects, including the Jamieson, Paterson, Oakover, and Fraser Range Projects. The company recently updated that Ilwella Pty Ltd ceased to be a substantial holder. In a key update dated 14^th May 2020, the company announced new results from its drilling program at Hill 800 which extend mineralisation at depth, with increased gold grades. Hill 800 is an advanced gold-copper prospect within Carawine’s Jamieson Project, located in northeast Victoria. Assay results from drill hole H8DD022, targeting the down-dip and southern strike extent of the prospect were as under:

Assay Results (Source: Company Reports)

March Quarter Update: During the period, the company’s Jamieson Project witnessed exceptional gold and copper grades returned from diamond drilling at Hill 800. For the Paterson Project, the company applied for a new exploration licence application “Three Iron”, about 50km northwest of the Baton tenements. Under the West Paterson JV, drilling to test targets within the Baton tenement is expected to commence Q3 2020. Historic exploration review continued at Big Bang, under the Fraser Range Project. For the Fraser Range JV, the company has planned the commencement of ground EM and air core drilling at the Big Bullocks 1 prospect in Q3 2020. Cash at the end of the period stood at $2.3 million. For the June quarter, the company estimated expenditure to be around $0.5 million, with ~$0.2 million accrued from exploration programs completed during March 2020.

What to Expect: The company is now planning to conduct further technical studies to evaluate the next steps for Hill 800, which may include additional extensional drilling or deeper drilling to search for its interpreted porphyry source. The company possesses a strong portfolio of 100%-owned exploration projects and high-quality earn-in and joint venture agreements, which will experience increased exploration activity during the remainder of 2020 and beyond.

Key Risks: The company is exposed to risks of changes in market interest rates primarily due to its cash balances. Moreover, failure to forecast and maintain adequate cash reserves can impact the operations and financial health of the business.

Stock Recommendation: The stock of the company has corrected by 14.29% in the last 3 months and is currently trading close to the average of its 52-week trading range of $0.098 - $0.295. In 1HFY20, the company had a current ratio of 7.81x, as compared to the industry median of 1.85x. On a TTM basis, the stock is available at a price to book value multiple of 1.4x, as compared to the industry median of 2.0x. Considering the cash position, latest business developments, decent future prospects, and current trading levels, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.19, up 5.556% on 23^rd July 2020.

Prodigy Gold NL

Drilling at Several Projects Planned for FY21: Prodigy Gold NL (ASX: PRX) has a unique greenfields and brownfields exploration portfolio in the proven multimillion-ounce Tanami Gold district. In a recent update, the company announced that it is preparing to recommence exploration activity across the 100%-owned gold portfolio in the Tanami region of the Northern Territory. The company has been exploring in the Tanami region for a long time, has the technical IP of the district and has proven its effectiveness at operating within the regulatory system. In another update, the company stated that it is maintaining exploration momentum, with exploration staff now on ground following COVID-19 delays. The company has a COVID-19 management plan in place.

March Quarter Corporate Highlights: At the end of the period, the company maintained a robust cash position of $11.4 million, with no debt, providing sufficient funding to navigate any COVID-19 related impacts in the short-term. The company has $24 million worth of farm-in commitments across its Joint Venture portfolio from partners including IGO Limited, Newcrest Mining, and Newmont Goldcorp. During the quarter, exploration and evaluation expenditure amounted to $1.048 million.

Operating Cash Flow (Source: Company Reports)

What to Expect: For its 100% owned projects, the company has 19 targets planned for aircore or Reverse Circulation (RC) drill testing in FY2021. First programs are expected to start at the Bluebush-Bonanza and North Arunta projects. With respect to the Lake Mackay JV, the company has 6 targets with RC and diamond drilling planned in FY2021.

Key Risks: The Group’s activities expose it to a variety of financial risks, including market risk, interest rate risk, credit risk and liquidity risk. The Group’s exposure to interest rate risk relates primarily to the cash and cash equivalents. Credit risk is a risk of a financial loss if the counterparties are failing to discharge their obligation. Liquidity risk related to the inability to maintain sufficient funds to meet operational and exploration expenditure.

Stock Recommendation: The stock of the company gave positive returns of 52.08% and 121.21% over the last one and three months, respectively, and is currently trading below the average of its 52-week trading range of $0.028 - $0.160. In 1HFY20, the company had a current ratio of 20.24x, as compared to the industry median of 1.85x. Considering the business prospects, cash position, and price movements over the past few months, we suggest investors to wait for better entry levels. Hence, we have a watch stance on the stock at the current market price of $0.071, down 2.74% on 23^rd July 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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