OceanaGold Corporation

OGC Details

Increase in Quarterly Gold Production: OceanaGold Corporation (ASX: OGC) is engaged in Gold producing activities. The company’s operating assets include the Didipio Mine on Luzon Island in the Philippines; the Macraes Operations on the South Island of New Zealand, the Waihi Gold Mine on the North Island of New Zealand, and Haile Gold Mine in South Carolina, United States of America. The company has registered a higher gold production in Q4 2020. The company has posted an increase of 57% QoQ gold production in Q4 FY20 to 99,155 ounces of gold. The increase in gold production resulted from the processing of accumulated ore stocks with the Waihi site as well as accessing higher grade zones at Haile and Macrae’s open-pit operations.

Financial Highlights for FY20: OGC has reported a decline in its revenues to US$500.1mn in FY20 as compared with US$651.2mn in FY19 on the back of the temporary suspension of Didipio mine operations. The company has posted a net loss of US$150.4mn in FY20 as compared to a net profit of US$14.5mn in FY19. The company has witnessed a higher AISC to $1,278 per ounce in FY20 (19% growth YoY) due to lower production and higher cash costs on temporary suspension of Didipio.

Gold Production in Q4 2020 & FY20 (Source: Company Reports)

Risks: The company is engaged in Gold production, so any fluctuation in the prices of gold may result in financial losses for the company. The company is engaged in gold exploration; any adverse change in climatic conditions may lead to halting in mining operations and may lead to financial losses for the company.

Outlook: OGC has provided a multi-year outlook. The company is expecting to achieve a production of ~450,000 gold ounces (Annual Average) over a five-year period ending in December 2025, with the commissioning of three new underground mines. The company is expecting an average AISC of $1,050 per ounce sold and expansion at Haile and Macraes. The company is expecting to produce gold in a range of 340,000 oz – 380,000 oz in FY21, representing an increase of 20% year over year in gold production. 

Valuation Methodology: EV/Sales based Relative Valuation (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: In the last one month, OGC has increased by 2.87% and decreased by 20.12% in the last three months. The current market capitalisation of OGC stands at ~$1.41bn as on 26 March 2021. The stock is currently trading below the average 52-weeks’ price level range of $1.525-$4.290. On the technical analysis front, the stock has a support level of ~$1.86 and a resistance of ~$2.11. 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 some premium as compared to its peer average, considering higher gold production in Q4 2020, declining AISC in the coming years on the expectation of higher gold production and decent outlook. For the purpose, we have taken peers St Barbara Ltd (ASX: SBM), Regis Resources Ltd (ASX: RRL), to name a few. Considering the company’s higher expectation of gold production in coming years, commissioning of new mines, positive outlook, valuation, and current trading levels, we recommend a “Buy” rating on the stock at the current market price of $1.965, down by 2.239% as on 26 March 2021.

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

Resolute Mining Limited

RSG Details

Bibiani Gold Mining Update: Resolute Mining Limited (ASX: RSG) is engaged in gold mining activities in Australia and Africa. The company is engaged in exploring, developing, and operating gold mines through two segments: Syama and Bibiani. The company has recently updated the market regarding its Bibiani gold mining operation. The company has been advised to terminate its mining operations at the Bibiani Gold project after getting instructions from the Ghanaian Honourable Minister of Land and Natural Resources. RSG is now seeking clarification from the minister for the termination of its Bibiani Gold project. The company has entered into an agreement with Chifeng on 15 December 2020, to sell its interest in Bibiani for a total cash consideration of $105mn. The deal is likely to get canceled after the termination of Bibiani gold project from the Ghana minister, which may impact the future cash flows for the company.

FY20 Financial Highlights: RSG has registered an increase in its revenues to US$602.98mn in FY20 as compared with $456.40mn in FY19. Similarly, the company has registered an increase in its gross profits to US$104.19mn in FY20 as compared with US$42.20mn in FY19. The cash position has improved as on 31 December 2020 to US$88.59mn as compared with US$87.30mn as on 31 December 2019.

Revenue and Gross Profits (Source: Company Reports)

Outlook: As per the company’s guidance for 2021, RSG is expecting gold production of 350,000 oz to 375,000 oz at an AISC in a range of $1200/oz to $1275/oz. The company is expecting a non-sustaining capital expenditure to be ~$29mn and investment in exploration to be around $17mn for 2021. 

Valuation Methodology: EV/Sales based Relative Valuation (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: In the last one month, RSG has decreased by 29.32% and by 38.96% in the last three months. The current market capitalisation of RSG stands at $513.31mn as on 26 March 2021. The stock is currently trading below the average 52-weeks’ price level range of $0.455-$1.497. On the technical analysis front, the stock has a support level of ~$0.45 and a resistance of ~$0.61. 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 might trade at some discount as compared to its peer median, considering the termination of Bibiani Gold project by Ghana land & resources minister, and a high probability for cancellation of agreement with Chifeng Jilong Gold Mining Co. Ltd. for their interest in Bibiani gold project. For the purpose, we have taken peers Aurelia Metals Ltd (ASX: AMI), Regis Resources Ltd (ASX: RRL), St Barbara Ltd (ASX: SBM). Considering the awaiting clarification from Ghana Ministry on termination of Bibiani project, increase in top-line in FY20, higher gross profits, decent outlook, valuation, and current trading levels, we recommend a “Hold” rating on the stock at the current market price of $0.470, up by 1.075% as on 26 March 2021.

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

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