Stocks’ Details
 

Resolute Mining Limited

Secured flexible and low-cost funding:Resolute Mining Limited (ASX: RSG) is a gold producer with a unique skill set and reputation in Africa and is primarily involved in the development of resource projects and prospecting and exploration for minerals. On 20 March 2020, the company announced that it has secured flexible, low-cost funding by executing the documentation for a new flexible low-cost syndicated loan facility with a maximum limit of US$300 million which comprises a three-year US$150 million revolving credit facility and a four-year US$150 million term loan facility. This facility provides the company with flexible low-cost debt under terms which are highly competitive for a senior debt facility of this type and it will refinance the company’s US$63 million secured project loan facility provided by Taurus Funds Management Limited as well as replace US$195 million of existing senior bank debt facilities.

FY19 Results Highlights:For the year ended 31 December 2019, the company reported a sales revenue of A$770 million and Underlying EBITDA of A$202 million after adjustments for non-recurring items. For the period, the company reported gold production of 384,731oz and gold sales of 394,920oz. The average gold price received was A$1,933/oz. 


FY19 Results (Source: Company Reports)

Outlook:The company believes that it is in a strong position to deliver on the full potential of its asset base and generate long-term value and has set the guidance for FY20 to 500,000oz at an AISC of US$980/oz. During the year, the company will focus on generating positive free cashflow from operations at Syama and Mako and it will also focus on identifying oxide resources at Syama, the expansion of the underground resources at Tabakoroni, and mine life extension opportunities at Mako.

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:RSG’s stock is trading near to its 52-week low of $0.605, offering investors a decent opportunity for accumulation.  Considering the company’s recent low-cost syndicated loan facility, last year financial performance and its decent outlook, we have valued the stock using the price to earnings based relative valuation method and arrived at a target price offering an upside of lower double-digit (in percentage terms). For the purpose, we have taken peers like Regis Resources Ltd (ASX: RRL), OceanaGold Corp (ASX: OGC) and St Barbara Ltd (ASX: SBM).Hence, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.780, up by 8.33% on 20 March 2020, owing to the announcement related to the securing of low-cost syndicated loan facility. 
 

BlueScope Steel Limited

Well-Equipped to Operate in the Current Challenging Conditions:BlueScope Steel Limited (ASX: BSL) is a global leader in premium branded coated and painted steel products, serving customers across the Pacific Rim from Asia, Australia, New Zealand and to the west coast of North America. Due to the unprecedented environment and economic uncertainty caused by the increasing rate of COVID-19 transmission, BlueScope has withdrawn its outlook for 2H FY2020, as per which, the company was expecting underlying earnings before interest and tax of around $302.4 million. The company has recently experienced business interruption due to the national shutdown in Malaysia, and a number of automakers in North America have temporarily ceased the production. The company believes that it is in a strong position to withstand the current uncertain times. 

Right balance of returning funds and investing for the future: For H1FY20, the company reported net profit after tax (NPAT) of $185.8 million, down 70% on pcp, driven by the decline in commodity steel spreads.  As at 31 December 2019, the company’s balance sheet was in a strong position with net debt of $47 million and liquidity of $2.5 billion. The company’s Board announced an expectation on the on-market buy-back, to buy up to $100 million during 2H FY2020 and has decided to pay interim dividend of 6 cents per share for 1H FY20, reflecting the right balance of returning funds to shareholders and investing for the future in key projects such as the North Star expansion. Recently, the company’s Director- Kathleen Marie Conlon acquired 7,500 shares for a total value of $74,175 via on-market trade.


H1FY19 Financial Snapshot (Source: Company Reports)

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:In recent years, the company has put a lot of work to transform its business, hence it believes that it is now well equipped to operate in the current challenging environment. In the last six and three months, the company’s stock has witnessed a decline of 26.51% and 41.23%, respectively. We have valued the stock using the price to earnings-based valuation approach and have arrived at a target price offering an upside of lower double-digit (in percentage terms). For the said purpose, we have taken peers like Adelaide Brighton Ltd (ASX: ABC), CSR Ltd (ASX: CSR) and Fletcher Building Ltd (ASX: FBU). Considering the uncertainty around covid-19 impacts, recent withdrawal of FY20 Outlook and current trading levels, we give a “Hold” recommendation on the stock at a market price of $9.470, up by 5.105% on 20 March 2020. 
 

Mineral Resources Limited

Restructuring of Non- Core Manganese Assets:Mineral Resources Limited (ASX: MIN) a Perth-based leading mining services provider which has become one of the ASX’s best performing contractors since listing in 2006. The company recently entered into an Asset Sale Agreement with Resources Development Group (RDG) Limited to deliver value to Mineral Resources Limited from its non-core manganese assets. Under this agreement, the company will transfer its Manganese Assets to RDG and in return will receive scrip equivalent to a 75% shareholding in RDG. The company expects this transaction to complete by the end of FY20.

Decent Half year Performance:For the half year ended 31 December 2019 (1H20), the company generated Underlying EBITDA of $330 million, up 224% on the prior corresponding period, underpinned by strong growth in the Mining Services segment and record iron ore sales.Over the period, the Mining Services reported a 95% growth in underlying EBITDA driven by the ramp up of Koolyanobbing and growth in external contracts.

 
H1FY20 Results Summary (Source Company Reports)

Valuation Methodology: EV/Sales Multiple Based Relative Valuation
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation:MIN’s stock is trading near to its 52 weeks low price of $12.440, offering an opportunity for accumulation. In H1 FY19, the company had a gross margin of 98.6% which is higher than the margin of 91.4% in the previous, demonstrating its increasing profitability. We have valued the stock using EV/Sales based relative valuation method, and for the purpose, we have taken peers such as Pilbara Minerals Ltd (ASX: PLS), Western Areas Ltd (ASX: WSA), IGO Ltd (ASX: IGO), and arrived at a target price, which is offering an upside of lower double-digit (in percentage terms).Hence, considering the company’s restructuring of Non- Core Manganese Assets, decent H1FY20 financial performance and current trading levels, we give a “Buy” recommendation on the stock at the current market price of $13.760, up by 5.038% on 20 March 2020. 
 
 
Comparative Price Chart (Source: Thomson Reuters)

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