Mount Gibson Iron Limited

MGX Details

FY21 Performance Update: Mount Gibson Iron Limited (ASX: MGX) is engaged in the mining and processing of hematite iron ore. The company has recently updated about its FY21 results and reported total iron ore sales of 3 million wet metric tonnes, during the year.

• PAT stood at $64 million, compared to $84.2 million in the pcp.
• It ended the period with cash and investments of $364.7 million as of 30 June 2021.
• Cash flow from operations stood at $165.2 million in FY21.

Quarter ended 30 June 2021 Activities Update:

During the 30 June 2021 quarter period, the company has commenced production at the Shine Project in the Mid-West.

• The company has reported group sales of 0.5 Mwmt in the June 2021 quarter.
• Operating cash flow during the quarter stood at ~$5 million.
• MGX reported average unit cash costs before capital expenditure at $66/wmt FOB for the full year, which was in line with guidance.

Trend in Cash Balance (Source: Analysis by Kalkine Group)

Key Risks: The onset of COVID-19 pandemic has impacted the company's operations due to a reduction in the availability of skilled personnel.

Outlook: The Group has planned for the first ore shipment from the Shine Project in August 2021. It has provided ore sales guidance of 3.0 – 3.2 Mwmt for FY22, with operating costs of $75-80/wmt FOB. 

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

Source: 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 management has declared a final dividend of 2 cents per share for FY21 period.  As per ASX, the stock of MGX is trading below its average 52-weeks’ levels of $0.645-$1.010. The stock of MGX gave a negative return of ~16.24% in the past one year and a negative return of ~20.78% in the past three months.  The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at some discount to its peers’ average EV/Sales (NTM trading multiple), considering the reduction in profits and increase in cash cycle days. For the purpose of valuation, peers such as BlueScope Steel Ltd (ASX: BSL), Sims Ltd (ASX: SGM), Coronado Global Resources Inc (ASX: CRN), and others have been considered. Considering the indicative valuation, current trading levels, expected shipment of ore from the Shine Project in August 2021, strong balance sheet and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.650, down by ~6.475% as on 26 August 2021.

MGX Daily Technical Chart, Data Source: REFINITIV 

Norwest Minerals Limited

NWM Details

Business Update: Norwest Minerals Limited (ASX: NWM) is engaged in the mining of natural resources. As per a recent update, its Director Mr Ching Hong Loong has undergone a change of initial interest in the company and has acquired 4,466,667 ordinary shares in the company and 2,233,334 at $0.105 call options.

Quarter Ended 30 June 2021 Performance Update:

• The company has received the final gold assay results for reverse circulation at the Bulgera Gold Project. The intercept includes 16m at 7.3g/t Au from 194m in BRC21015, and the hole finished at 18.5g/t gold mineralisation at 210m.
• 6m at 11.8g/t Au from 218m in BRC21013.
• It reported cash outflow of $0.178 million during the quarter from the operating activities.
• NWM ended the period with a cash reserve of $1.1 million as of 30 June 2021 and is debt-free.
• It has announced its plan for $5 million in capital raising on 14 July 2021.

Cash & Short-Term Investments Trend (Source: Analysis by Kalkine Group)

Key Risks: The company is involved in extensive investment activities in its key projects and any challenge for the access of funds might pose a risk to the operations of the Group.

Outlook: The company plans to execute a 10-hole diamond drilling program scheduled to commence in August/ September 2021. It is also planning for RC drill programme at the Bali Copper Project.

Stock Recommendation: As per a recent update, the company has announced that it has received assay results from 5,600m aircore drilling program at Marymia East, and is further targeting prospects at Jenkins, Area 2, and Contessa. As per ASX, the stock of NWM is trading below its average 52-weeks’ levels of $0.065-$0.145. The stock of NWM gave a negative return of ~7.08% in the past six months and a negative return of ~15.66% in the past one month. On a TTM basis, the stock of NWM is trading at a P/BV multiple of 1x, lower than the industry median (Basic Materials) of 2.7x, thus seems undervalued. Considering the current trading levels & valuation on TTM basis, receipt of final gold assay results, decent balance sheet with absence of debt, plan to drill further holes going ahead and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the market price of $0.070, as on 26 August 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

NWM Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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