Kirkland Lake Gold Ltd

KLA Details 

Latest Drill Results at Detour Lake: Kirkland Lake Gold Ltd (ASX: KLA) is a gold mining, development and exploration company based in Canada and Australia. KLA has announced its latest results and activities at Detour Lake on 5 May 2021.  The company has reported new holes being drilled in the Saddle Zone between Main Pit and planned west pit location. Significant results were achieved from the drilling nine holes and one wedge hole at central portion of Saddle Zone. At the East portion of Saddle Zone, 14 holes drilled to target areas to the west of the Main Pit Mineral reserve shell. At West Pit, nine holes and one wedge hole has shown positive results and confirm the continuation of mineralisation through the west portion of the saddle zone. The company is dedicated to investing $75mn per year for next five years in technology and innovation to further reduce the carbon footprint. The company keeps investing in local communities with 76% of its total expenditure, representing $905mn of spending in Ontario and Victoria.

FY20 Financial Highlights: The company has registered an increase in its revenue to $2,460.1mn in FY20 against $1,379.98mn in FY19. KLA has reported an increase in its net earnings to $787.70mn in FY20 against $560.08mn in FY19. KLA has reported an increase in finance costs to $7.73mn in FY20 against $2.28mn in FY19. The company has seen an improvement in its liquidity position with an increase in current assets to $1,036.67mn as on 31 December 2020 against $794.63mn as on 31 December 2019.

Revenue Growth (Source: Company Reports)

Key Risks: The company requires regulatory approvals to carry out its business efficiently. Any delay in regulatory approval may result in liabilities for the company. The company may see an impact on its profit margins with a fluctuation in Gold prices.

Outlook: Exploration work at Detour lake is currently taking place with twelve drills current working and on schedule to achieve 270,000mn by the end of 2021. The company has provided gold production guidance for FY21. The company expects a total gold production in a range of 1,300-1,400 Kozs with an operating cash cost in a range of $450-$475 per ounce. The company expects to grow its production to 800,000 ounces in 2025. KLA expects its production at Macassa to ramp up to 400,000 ounces in 2023. 

Valuation Methodology: P/E based Relative Valuation Method (Illustrative)

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: The stock of KLA gave a return of ~11.06% in the last one month and a return of ~19.70% in the last three months. The current market capitalisation of KLA stands at ~$11.73bn as of 21 May 2021. The stock is currently trading below the average 52-weeks’ price level range of ~$41.50-~$80.50. On the technical analysis front, the stock has a support level of ~$49.51 and a resistance of ~$62.65. 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 % terms). We believe that the company can trade at some premium as compared to its peer median, considering an increase in top-line in FY20 and significant results achieved on drilling at Detour lake. For this purpose, we have taken peers Regis Resources Ltd (ASX: RRL), Newcrest Mining Ltd (ASX: NCM), Alkane Resources Ltd (ASX: ALK). Considering a significant increase in revenue in FY20, expectation of achieving higher production targets by 2025, Significant results from Detour Lake to continue with mineralisation process, an improved liquidity position, current trading levels and valuation, we recommend a “Hold” rating on the stock at the current market price of $55.90, down by ~0.072% as on 21 May 2021.

KLA Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Red 5 Limited

RED Details 

An Update on Darlot Gold Mine Production: Red 5 Limited (ASX: RED) is engaged in gold production. The company’s operations are located in Western Australia’s Eastern Goldfields Region. Its operations include Darlot Gold Mine, King of the Hills, Siana Gold Mine and Mapawa Gold Project. RED has lowered its production guidance to 74k-78k ounces (80k-85k ounces previously) from Darlot’s Gold Mine in FY21. The company has revised its production guidance at a consolidated All-In Sustaining Cost (AISC) of $2,240-$2,290/oz ($2,150-$2,280/oz previously). The company has lowered its production guidance on the back of lack of labour availability, impacting production at Darlot underground mine and the Great Western open Pit. 

Significant Progress for the KOTH Project: RED has reported significant progress for the development of King of the Hills (KOTH) process plant. The company expects KOTH to be a 2.4moz plant with 16 years of life. The project is expected to be completed with the scheduled timeline. The company expects to deliver the first gold from the KOTH bulk mining operation in the June Quarter of 2022.

1HFY21 Financial Highlights: The company has registered a decline in its top line to $97.71mn in 1HFY21 against $105.30mn in 1HFY20 on the back of lower recovery rate. The company has registered a loss of $1.77mn in 1HFY21. The company has posted a decline in its cash and cash equivalent position to $92.84mn as on 31 December 2020 against $116.22mn as on 30 June 2020.

Cas Position (Source: Company Reports)

Key Risks: The company is dependent on number of qualified and high performing personnel. Any loss of such key personnel and a delay in replacements may impact business strategies for the company. The company operates in multiple countries. Any severe movement in foreign exchange prices may lead to forex losses for the company.

Outlook: RED continues to undertake a comprehensive review on Darlot mining operations. RED is likely to provide production and cost guidance for FY22 from Dalot mining in the September quarter of 2021. RED continues to make significant progress towards the production on the King of the Hills (KOTH) Gold Project. The project remains on budget and expects to commence Gold production in the June Quarter 2022. 

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative) 

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: The stock of RED gave a return of ~-12.82% in the last one month and a return of ~-24.16% in the last three months. The current market capitalisation of RED stands at ~$457.53mn as of 21 May 2021. The stock is currently trading below the average 52-weeks’ price level range of ~$0.155-~$0.366. On the technical analysis front, the stock has a support level of ~$0.153 and a resistance of ~$0.227. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight discount as compared to its peer average, considering a decline in top-line in 1HFY21 and lack of labour availability, and weighing down production guidance. For this purpose, we have taken peers Perseus Mining Ltd (ASX: PRU), St Barbara Ltd (ASX: SBM), Calidus Resources Ltd (ASX: CAI), to name a few. Considering a decline in non-current liabilities, expectation on significant production from KOTH project, holding long-life assets, current trading levels, and valuation, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.17, down by ~12.821% as on 21 May 2021.

RED Daily Technical Chart (Source: Refinitiv, Thomson Reuters) 

Note: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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