Stocks’ Details

Newcrest Mining Limited

Completed Share Purchase Plan: Newcrest Mining Limited (ASX: NCM) is engaged in the exploration mining, development, and sale of gold. The market capitalisation of the company stood at ~$27 billion as on 8^th July 2020. Recently, the company provided an exploration update, wherein it stated that at the Havieron Project, step out drilling has expanded the footprint of mineralisation with hole HAD066 drilled 220m north-west of previous drilling intersecting 82.1m @ 2.4 g/t Au and 0.08% Cu. Moreover, the Infill drilling at Red Chris has affirmed the continuity of high grade within East Zone.

On 1^st June 2020, the company announced that it has completed its share purchase plan offer and raised around A$200 million. The company increased the size of SPP from A$100 million to A$200 million, considering the strong support showcased by eligible shareholders for the SPP. This SPP follows the successful completion of a A$1.0 billion placement to institutional investors. The proceeds from the Institutional Placement would be utilised to finance the purchase of the Fruta del Norte Facilities and fund other organic growth options such as declines at Red Chris and Havieron.

Sources and Uses of Fund (Source: Company Reports)

Production Guidance: The company stated that the guidance for FY20 has not been impacted by COVID-19, and hence, it expects gold production in the range of 2,100 koz-2,200 koz. The company anticipates copper production in the ambit of 140 kt-145 kt. The company is expected to release its Q4 FY20 and FY20 results on 23^rd July 2020 and 14^th August 2020, respectively.

Key Risks: The company mainly derives its revenue from the sale of gold and copper on the basis of prevailing market prices. Hence, any fluctuation in the market price of gold and copper can affect the top line of the company. Moreover, the fluctuation in external economic drivers such as foreign exchange rates, increased costs, capital and commodity inputs can create disruptions in the business.

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

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The fund raised from SPP and the institutional placement along with its free cash flow generation ensures a decent balance sheet and places the company in a decent position to finance its future growth avenues. Current ratio of the company stood at 2.17x in 1H FY20, higher than the industry median of 1.81x, reflecting a decent position of the company to settle its short-term obligations. We have valued the stock using the EV/Sales multiple based illustrative relative valuation method. For the purpose, we have taken peers such as OceanaGold Corp (ASX: OGC), Resolute Mining Ltd (ASX: RSG), St Barbara Ltd (ASX: SBM), etc., and arrived at a target price of low double-digit upside (in percentage terms). Thus, considering the decent exploration results, healthy balance sheet, decent liquidity position and recent capital raising, we give a “Hold” recommendation on the stock at the current market price of $33.120 per share, up by 0.091% on 8^th July 2020.

Northern Star Resources Ltd

A Look at June 2020 Quarter: Northern Star Resources Ltd (ASX: NST) is engaged in the production and exploration of gold and other minerals. The market capitalisation of the company stood at ~$10.32 billion as on 8^th July 2020. During June 2020 quarter, the company generated an underlying free cash flow of $217.9 million from the sale of 262,717oz. This brought total sales for FY20 to 900,388oz and production for the year to 905,177oz. This outstanding free cash flow results reflect the performance of its staff and business partners.  The company has announced to pay FY20 fully franked interim dividend of 7.5 cents per share on 16^th July 2020. NST has scheduled to release its FY20 results on 23^rd August 2020.

June Quarter Highlights (Source: Company Reports)

Sale of Ashburton Project:  On 22^nd June 2020, the company announced the sale of Mt Olympus Project comprising most of the Ashburton Project in Western Australia to Kalamazoo Resources Limited for deferred contingent cash consideration of $17.5 million. The company added that the Ashburton Project no longer fits in its portfolio but still has strong potential on the exploration and production fronts.

Key Risks: NST’s business is sensitive to operational safety risk, which arises from the failure in managing recognised safety hazards. This is mainly contributed by exposure to and use of chemicals, dangerous goods and explosives as well as ground seismicity. Moreover, change in climate can impact the operations of the company. This risk is influenced by a material change in water balance. NST has increased alternative water usage via pit water harvesting and increased mine dewatering water - replacing freshwater extraction in order to manage this risk.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: As of 30^th June 2020, the cash, bullion and investments of the company stood at $769.5 million, reflecting a rise of 40% from $551.4 million at 31^st March 2020. Net margin of the company stood at 15.3% in 1H FY20 as compared to the industry median of 14.3%. This implies that the company possesses decent capabilities to convert its top-line into the bottom-line against the peer group. We have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price of high single-digit upside (in percentage terms). For the purpose, we have taken peers such as IGO Ltd (ASX: IGO), OceanaGold Corp (ASX: OGC) and Gold Road Resources Ltd (ASX: GOR), etc. Hence, considering the decent free cash flow, increased cash position and improved net margins, we maintain a “Hold” rating on the stock at the current market price of $14.840 per share, up by 6.456% on 8^th July 2020.

Saracen Mineral Holdings Limited

FY20 Production Surpassed Guidance: Saracen Mineral Holdings Limited (ASX: SAR) is involved in the exploration and production of gold. The market capitalisation of the company stood at ~$6.62 billion as on 8^th July 2020. For the quarter ended 30^th June 2020, the company reported gold production of 145,830oz and the production for FY20 stood at 520,414oz, which surpassed the guidance of +500,000oz. During the quarter, gold sales stood at 148,011oz at an average sale price of $2,280/oz for sales receipts of $337.5 million. The company flagged the potential to prioritise the milling of higher-grade portions of the stockpiles at Carosue Dam and Thunderbox in the June quarter as a response to COVID-19. The following picture gives an overview of production for March 2020 quarter:

Production and AISC (Source: Company Reports)

Outlook: The company stated that the long-standing strategy to ‘future-proof the business’ includes the prudent build-up of surface ore stockpiles to 1.7Moz. For FY21 the company is expecting the production to be around 600,000oz. The company is likely to release its FY20 results on 16^th August 2020.

Key Risks: SAR is exposed to various market risks such as interest rate risk and commodity risk. Interest rate risk is primarily influenced by the variable interest rates on the assets and liabilities while the commodity risk arises from movements in the gold prices. Moreover, the group manages liquidity risk by maintaining sufficient cash reserves and marketable securities, as well as through the continuous monitoring of budgeted and actual cash flows.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: As of 30^th June 2020, the cash and bullion of the company stood at $369.3 million post debt repayment of $38.5 million, tax payment of $15.7 million, and spent of around $89-$94 million on growth capital and exploration in the June quarter. Gross margin and EBITDA margin of the company stood at 33.5% and 47.4% in 1H FY20, reflecting YoY growth of 8.4% and 10.3%, respectively. We have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price with high single-digit upside (in percentage terms). For the purpose, we have taken peers such as Evolution Mining Ltd (ASX: EVN), IGO Ltd (ASX: IGO), and Gold Road Resources Ltd. Thus, considering the decent production during June quarter, strategy to future-proof the business and improvement in key margins, we give a “Hold” recommendation on the stock at the current market price of $6.110 per share, up by 1.883% on 8^th July 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as personalised advice.