Stocks’ Details

Donaco International Limited

Strengthened Liquidity via Rights Issue: Donaco International Limited (ASX: DNA) is engaged in the operation of leisure and hospitality businesses across northern Vietnam and Cambodia. The company recently updated that the voting power of On Nut Road and its associates reduced from 19.25% to 12.84%. In another update, the company stated that its Board is in final negotiations to appoint a new CEO. Currently, the business is being overlooked by two Executive Directors on the Board.

Quarterly Update: During the June 2020 quarter, the company’s revenue stood at $0.9 million, as compared to $20.3 million in pcp, due to the impact of COVID-19 on casino operations. Revenue went down due to the closure of DNA Star Vegas and Aristo International hotel for an extended period. Moreover, visitors to the casinos dropped by ~98% in the quarter due to closure of the China and Vietnam border.

On the positive side, the company reached a settlement with the Thai Vendor and convinced its principal lender, Mega Bank, to defer the principal payment of US$5 million. Cash and cash equivalents at the end of the period stood at $12.8 million. Aristo International was officially reopened, with casino operating on a limited basis. Moreover, the company strengthened its balance sheet via a rights issue and enhanced its liquidity position.

Group Financial Summary (Source: Company Reports)

What to Expect: In the June quarter, the company raised capital worth $14.41 million to provide additional liquidity to the business. The company will require further funding in the near term for repayments and covenants under the Mega Bank facility and working capital purposes. To control costs, the company has set a target cash burn rate from maintaining the casino asset and associated corporate costs of ~US$0.8 – US$0.9 million.

Key Risks: The company is exposed to a possibility of adverse macroeconomic conditions, including exchange rate declines, cross-border disputes or terrorist attacks, regulatory changes affecting casino operators, etc. 

Stock Recommendation: The stock of the company was corrected by 30.43% in the last three months. Currently, the stock is trading close to its 52-week low of $0.026. On the technical analysis front, the stock has a support level of ~0.025 and a resistance level of ~$0.10. In 1HFY20, the company had a gross margin of 90.9% as compared to the gross margin of 91.5% in pcp. On a trailing twelve months (TTM) basis, the stock has an EV/Sales multiple of 0.5x as compared to the industry median of 2.5x. Considering the cost control measures, strengthened balance sheet position, settlement with the Thai lendor and Mega Bank, valuation on TTM basis, and current trading levels, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.030, down 6.25% on 25^th August 2020.

Magnetite Mines Limited

Substantial Progress in Development of the Razorback Iron Project: Magnetite Mines Limited (ASX: MGT) is a development stage mineral exploration company advancing the Razorback Iron Project located in the Braemar Iron Province of north-east South Australia. In a recent update, the company notified that the initial selective mining assessments of the Razorback Iron Project have been completed, confirming the lateral continuity of high-grade iron ore horizons within the existing JORC 2012 resource. In its response to the ASX price and volume query regarding the change in price and a significant increase in volume, the company stated that it has no explanation other than its announcement on the oversubscribed capital raising and subsequent commencement of pre-feasibility study to facilitate the new staged development approach for the Razorback Iron Ore Project.

June Quarter Results: During the June 2020 quarter, the company commenced its Prefeasibility Study (PFS) for the Razorback Iron Project after completion of the positive scoping study. The company agreed on the material terms under the non-binding indicative farm-in proposal from Braemar Mining Developments Pty Limited, under which BMD proposed to farm into the Razorback Iron Ore Project by spending up to $20 million. During the quarter, the company also raised ~$857,637 in a Rights Issue and $75,000 through an Additional Placement. Funds raised will be primarily allocated towards the development of the Razorback Iron Project. Cash used in operating activities for the quarter stood at $174k. At the end of the period, the company had cash and cash equivalents amounting to $831k.

Operating Cash Flow (Source: Company Reports)

Outlook: The company believes that the combined application of selective mining and ore-sorting technology to the Razorback Iron Project offers the potential to deliver much higher iron ore grade. It is making substantial progress towards the development of the project and is confident about the credibility of the Project as an investment proposition.

Key Risks: The company’s ownership of financial instruments exposes it to a variety of risks, including credit risk, liquidity risk, and interest rate risk. In addition, stiff competition in the mining sector can be a potential challenge in the future.

Stock Recommendation: The stock of the company gave positive returns of 750% in the last 3 months. On the technical analysis front, the stock has a support level of ~0.009 and a resistance level of ~$0.019.  In 1HFY20, the company had a current ratio of 0.88x, as compared to the industry median of 1.78x. As on 31^st December 2019, the company had cash and short-term investments of $0.32 million and total debt amounting to $1.98 million. On a trailing twelve months (TTM) basis, the stock has a P/BV multiple of 5.2x, as compared to the industry median (metal and mining) of 2.3x. Considering the price movements, cash position, and current trading levels, we have a wait and watch stance on the stock at the current market price of $0.016, down 5.882% as on 25^th August 2020.

Torian Resources Limited

High Grade Results from Multiple Prospects: Torian Resources Limited (ASX: TNR) is a highly active gold exploration and development company with an extensive and strategic land holding comprising six projects. The company recently appointed Dale Schultz, an experienced geologist, as a non-executive director on the Board. The company identified significant prospects at the Canasta Prospect at Mt Monger – Wombola Gold Project. These included 9m @ 4.49 g/t Au from 38m incl. 3m @ 12.60 g/t Au from 43m and 10m @ 0.56 g/t Au from 55m. In addition, intercepts of 7m @ 0.50 g/t Au from 62m incl. 1m @ 2.40 g/t Au from 62m were identified at the Meld Prospect. In a previous announcement, the company notified about the identification of significant intercepts at the Divine Prospect, as provided in the snapshot below:

Divine Prospect Intercepts (Source: Company Reports)

Drilling Contract Update: The company was awarded the drilling contract for the Mt Stirling Gold Project, with the initial 5,000m RC drilling campaign to begin in Q3 2020. 8,000 – 10,000m drilling campaign at the Diorite Block is expected to commence in Q4 2020. Notably, Phase 1 drilling at the project identified a potentially large gold system with ore grade Au now intercepted over 100m below prior drilling and extends over 1,000m strike. The company will fund the above activities from the proceeds of ~$2.2 million, secured under the oversubscribed rights issue. At the end of the June quarter, the company had cash and cash equivalents amounting to $360k.

Key Risks: The company is exposed to a variety of financial risks, including credit risk, liquidity risk, and interest rate risk. In addition, the company is exposed to risks specific to the mineral exploration and mining industry, which may include delay in development of projects, on-site accidents, failure in meeting exploration targets, etc.

Stock Recommendation: In the last three months, the stock was corrected by 54.04%. Over a period of 6 months, the stock has given positive returns of 95.31%. Currently, the stock is inclined towards its 52-week low of $0.004. As on 31^st December 2019, the company had cash and short-term investments of $0.05 million and total debt amounting to $0.13 million. On a trailing twelve months (TTM) basis, the stock has a P/BV multiple of 0.6x, as compared to the industry median of 2.3x. Considering the ongoing business developments, recent price movements, key risks related to exploration and development of projects, and current trading levels, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.015 on 25^th August 2020.

Xantippe Resources Limited

Commencement of Drilling: Xantippe Resources Limited (ASX: XTC) is primarily engaged in exploration activities at the Southern Cross Gold Project, located in Western Australia. The company recently notified about the commencement of drilling at the Southern Cross Gold Project. The company is planning to drill 18 reverse circulation holes for a total depth of 3,000m, with an estimated time of completion of 3 weeks. The program is aimed at extending some of the high-grade targets.

June Quarter Highlights: During the quarter, the company successfully completed maiden exploration drilling at the Southern Cross gold project in Western  Australia, at the Glendower, Xantippe and Treasury South prospects for a total depth of 1,722m. Subsequent to the maiden drilling programme, the company began the Phase 2 exploration program. During the quarter, the company also completed a share placement of $1.25 million to fund ongoing exploration activities at its Southern Cross Gold Project. Cash used in operating activities during the quarter stood at $589k. At the end of the quarter, the company had cash and cash equivalents of $1.816 million.

Operating Cash Flow (Source: Company Reports)

Key Risks: The company’s operations are exposed to financial risks, comprising market risk (essentially interest rate risk), credit risk and liquidity risk. 

Stock Recommendation: In the last one month, the stock has given positive returns of 25%. In the past 3 months, the stock has corrected by 16.67%. On the technical analysis front, the stock has a support level of ~0.002 and a resistance level of ~$0.005. The company has a market capitalisation of $8.15 million. In 1HFY20, the company had a current ratio of 0.60x, as compared to the industry median of 1.78x. As on 31^st December 2019, the company had cash and short-term investments of $0.10 million, with no debt balance. Considering the volatility in returns, low market capitalisation, and recent business updates, we have a wait and watch stance on the stock at the current market price of $0.004, up 100% on 25^th August 2020, possibly due to the update on commencement of drilling.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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