Stocks’ Details
 

Sandfire Resources Ltd

Strong Vein-hosted Mineralisation at A4 Prospect: Sandfire Resources Ltd (ASX: SFR) is a leading Australian mining and exploration company with a market capitalisation of around ~$745.94 million as at 17^th April 2020. On 17 April 2020, the company provided an update on the exploration activities at its Tshukudu Project in the Kalahari Copper Belt in Botswana, wherein, it announced that it has received significant assay results which continue to expand and enhance the new sediment-hosted copper-silver discovery in the area. Notably, the results received from step-out drilling at the A4 discovery extends the zone of near-surface, vein-hosted mineralisation to a strike length of over 700m (previously 250m). The company has also announced an updated Ore Reserve and Mineral Resource for the DeGrussa Operations, summarized in the below tables.


Updated Ore Reserve and Mineral Resource for the DeGrussa Operations (Source: Company Reports)

Covid19 Update: In late March, the Botswana Government imposed a 28-day lockdown in the area, as a result of which, the drilling was suspended. The company is looking forward to when it can safely return to the field to resume resource drilling at A4 and also commence its new planned AEM survey, which will help it to vector into potential new discoveries.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation Method

EV/EBITDA Based Relative Valuation Method (Source Thomson Reuters)

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

Stock Recommendation: For H1FY20, SFR reported a gross margin of 62.6%, higher than the industry median of 46.8%. For the same period, the company reported current ratio of 3.9x, higher than the industry median of 1.76x, demonstrating that the company is well positioned to pay its short-term obligations. We have valued the stock using EV/ EBITDA multiple based illustrative relative valuation method and have arrived at a target upside of lower double-digit (in percentage terms). Considering the aforesaid facts, the company’s recent exploration success and current liquidity position, we give a “Buy” recommendation to the stock at the current market price of $4.270, up by 1.909% on 17^th April 2020. 

OZ Minerals Limited (ASX: OZL)

Covid19-Update: OZ Minerals Limited (ASX: OZL) is an Australian based modern mining company which has a market capitalisation of around $2.92 billion as on 17^th April 2020. At the recently held Annual General Meeting (AGM), the management of the company assured its stakeholders that OZL is well positioned to deal with the uncertainties of the external environment. The company has introduced strict work travel restrictions in mid-February, ahead of government requirements. OZL’s sites are currently working with considerably reduced workforces with very different arrangements which sees greater physical isolation. 

Q1FY20 Update: Despite the COVID-19 pandemic constraints, the company’s operations delivered a strong opening to 2020 with Prominent Hill delivering 15,580 tonnes of copper and 49,049 ounces of gold at a negative C1 cost. During Q1FY20, the company extended the revolving credit facility to $480 million which further strengthened its financial position.

What to expect: For 2020, the company intends to embed the new operations, allow the assets and its people to really catch up and systemise all the good initiatives it has developed over the years, as it continue to deliver against a background of COVID-19 impacts. Although the company’s exploration and some growth plans are temporarily on hold, the company remains of the view that it is in a relatively much stronger position, financially and strategically, than many other larger copper producers.

Valuation Methodology: P/BV Multiple Based Relative Valuation

 
P/BV Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: In FY19, the company reported EBITDA margin of 31.4% and net margin of 14.8%, both higher than the industry medians. For the same period, the company reported Debt/Equity ratio of 0.06x, lower than the industry median of 0.14x. We have valued the stock using P/BV multiple based illustrative relative valuation method and arrived at a target price, which is offering an upside of lower double-digit (in percentage terms). Considering the aforesaid facts, OZL’s decent performance in Q1FY20, and the company’s financial strength, we give a “hold” rating to the stock at the current market price of $8.960, down by 0.555% on 17^th April 2020.  
 

Dacian Gold Limited

Raising Capital via Placement and Entitlement Offer:  Dacian Gold Limited (ASX: DCN) is an Australian gold miner that has a market cap of around $83.38 million as at 17^th April 2020. On 8^th April 2020, the company announced an institutional placement and 1 for 1 Entitlement Offer to raise up to approximately A$98 million which will be used for partial repayment of Dacian’s Project Debt Facility, pre-stripping activities at the Doublejay open-pit, targeted exploration activities and working capital. On 17 April 2020, the company completed the dispatch of the Prospectus to Dacian shareholders eligible to participate in the retail component of its pro-rata accelerated non-renounceable entitlement offer announced on Wednesday, 8 April 2020, scheduled to close on 1^st May 2020.


Use of Funds (Source: Company Reports)

What to expect: Assuming the successful completion of the Offer, the company’s unaudited pro forma net debt position as at 29 February is expected to move from A$79.8 million to a net cash position of A$8.3 million. In FY20, the company its production to be in between 138,000 – 144,000 oz and with MMGO AISC to be in between $1,550 – $1,650/oz. From FY21-FY23, the company’s average expected annual production is expected to be around 110,000oz @ AISC $1,350/oz.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation


Price to Earnings Multiple Based Approach (Source: Thomson Reuters)
Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: As per the company’s update on 8 April 2020, its Mt Morgans Gold Operation is currently unaffected by the Covid-19 pandemic however, a number of changes have been made to reduce the exposure to potential sources of COVID-19. We have valued the stock using Price to Earnings based illustrative relative valuation method and arrived at a target upside of lower double-digit (in percentage terms). Considering the company’s capital raising, its decent FY20 outlook and resilient performance amid Covid-19 situation, we give a “buy” recommendation on the stock at the current market price of $0.375, up by 2.74% on 17^th April 2020. 
 

Orocobre Limited

Approval Received from the Shareholders of Advantage Lithium Corp.: Orocobre Limited (ASX: ORE) is a mineral exploration and production company with focus on developing Lithium/Potash resources in Argentina. The company is currently in the process of acquiring of 100% of the issued and outstanding shares of Advantage Lithium Corp. Recently, it received the necessary approval from Advantage shareholders and now the acquisition is subject to approval by the Supreme Court of British Columbia which is currently scheduled to hear an application to approve the Arrangement on 16 April, 2020. 

Olaroz Production Recommenced: Recently, the Argentine Ministry of Production declared Olaroz and Borax operations as "essential" activities, following which, the production and shipping of lithium carbonate was recommenced at Olaroz with a significantly reduced number of personnel at site.

H1 FY20 Results: In the first half of FY20, the company received positive results from its Olaroz Lithium Facility with revenue of US$39.4 million and EBITDAIX of US$6.1 million. Over the period, the company continued to deliver positive operating margins despite weaker market conditions. As of 31 December 2019, the company had a cash balance of US$195 million. The company recently informed that it will release its 2020 March quarter production report on Wednesday 22 April 2020.
 

Financial Results Summary (Source: company Reports)

Valuation Methodology: P/BV Multiple Based Relative Valuation

P/BV Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months *1USD = 1.57 AUD as at 17 April 2020
Stock Recommendation: The stock of ORE has corrected by 39.94% in the past three months and is currently trading near to its 52-week low price of A$1.835, providing a decent opportunity for accumulation. We have valued the stock using P/BV based illustrative relative valuation method and arrived at a target price, which is offering an upside of lower double-digit (in percentage terms). Considering the company’s positive results from its Olaroz Lithium Facility in H1FY20, recommencement of production and shipping of lithium carbonate at Olaroz, and current trading levels, we give a “Buy” recommendation to the stock at the current market price of $2.190, up by 1.86% on 17^th April 2020. 
 
 
Comparative Price Chart (Source: Thomson Reuters)

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