Mineral Resources Limited

Exhibited a Robust 1HFY21 Financials: Mineral Resources Limited (ASX: MIN) is an Australia-based mining services company. The company owns a portfolio of mining operations across lithium and iron ore. It provides mining services through CSI Mining Services and Process Minerals International (PMI). MIN has recorded a robust performance during 1HFY21. The company has posted an increase of 55% YoY in its revenues in 1HFY21 to $1.5bn, owing to which EBITDA climbed by 131% YoY to $763mn. MIN has registered a NPAT of $430mn in 1HFY21 as compared to $129mn in 1HFY20. Notably, NPAT margins remained strong at 28% in 1HFY21.

Revenue and Profits Growth in 1HFY21 (Source: Company Reports)

Increase in Production: MIN has reported a higher production of Iron Ore (~14%YoY growth in CY2020) and Lithium. MIN has already commissioned 4 plants with more than 38mtpa of capacity in the last 12 months. The construction work for Kemerton hydroxide plant (Lithium Business) is also progressing well and is expected to commission in 2HFY21.

Dividend Declaration: As per the company announcement on 10^th February 2021, MIN will be distributing a dividend amount of AUD 1.00 to its shareholders, with an ex-date of 16 February 2021 and a payment date of 9 March 2021.

Outlook: As per the company reports, MIN’s short-term goals during CY21-CY23 is to be focused towards growing their mining services business by owning and operating supply chain infrastructure. The company also remains on track to expand their lithium hydroxide capacity and own natural gas. The company is expecting to take these objectives by keeping their ROIC higher and maintaining predictable cash flows. 

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: In the last one month, MIN has increased by 13.61% and by 23.31% in the last three months. The current market capitalisation of MIN stands at $7.49bn as on 3 March 2021. The stock is currently trading above the average 52-week price level range of $12.11-$41.30. On the technical analysis front, the stock has a support level of ~$38.017 and resistance of ~$39.54. We have valued the stock using an EV/Sales 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 a slight premium as compared to its peer average, considering a robust result for 1HFY21 and decline in borrowings. For the purpose we have taken peers St Barbara Ltd (ASX: SBM), Regis Resources Ltd (ASX: RRL), Newcrest Mining Ltd (ASX: NCM), to name a few. Considering robust financial results in 1HFY21, positive outlook, dividend declaration, valuations, and current trading levels, we recommend a “Hold” rating on the stock at the current market price of $39.30, up by 2.024% as on 3 March 2021.

Coronado Global Resources Inc.

Expectations on Higher Demand for Metallurgical Coal: Coronado Global Resources Inc. (ASX: CRN) is an Australia-based company that produces, markets, and exports a range of metallurgical coals. The company owns a portfolio of metallurgical coal mines in Queensland, Australia and in the states of Pennsylvania, Virginia, and West Virginia in the United States. With India’s seaborne metallurgical coal demand likely to grow at CAGR of 4.9% from 2021 to 2030, CRN will benefit by meeting the higher demand for the metallurgical coal.

Significant Reserves and Resources to Meet Higher Demand: CRN Group has a significant reserves and resources to meet higher demand in future. CRN is catering to the high demand from steel industry and the operating assets have a minimum life greater than 20 years. The group has a total of 964mt of reserves and 2,550mt of resources in FY20.

Demand & Supply for Metallurgical Coal (Source: Company Reports)

Outlook: CRN is expecting a growth in demand for metallurgical coal backed by higher production from India’s blast furnace (~51mt in 2021 to ~99mt in 2030) over the next decade (FY21-FY30). The company is expecting a Saleable Production range of 18.0-19.0mt in FY21 and a Capex of ~US$135-US$155mn in the same period.

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, CRN has decreased by 20.76% and by 1.43% in the last three months. The stock is currently trading below the average 52-weeks’ price level range of $0.580-$1.729. On the technical analysis front, the stock has a support level of ~$0.96 and resistance of ~$1.11. 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 a slight discount as compared to its peer median, considering a net loss posted in FY20 and decline in revenues during the same period. For the purpose we have taken peers Whitehaven Coal Ltd (ASX: WHC), South32 Ltd (ASX: S32), etc, which comes under the resource sector. Considering higher demand for the metallurgical coal, long-life for operating assets, decent outlook, valuations, and current trading levels, we recommend a “Buy” rating on the stock at the current market price of $0.99, as on 3 March 2021.

St Barbara Limited

New Contractor to Execute Mining Services: St Barbara Limited (ASX: SBM) is an Australia-based gold mining company. The company’s assets include the Leonora Operations in Western Australia, the Simberi Operations in Papua New Guinea, and the Atlantic Gold Operations in Nova Scotia, Canada. SBM has assigned underground mining services to a new contracting company Macmahon Holdings Limited. Macmahon will be executing underground mining services to the Gwalia underground gold project in Western Australia from May 2021.

Gold Production and Financial Highlights: SBM has posted a record production at Atlantic Gold at 53,919 ounces in 1HFY21 as compared to 47,060 ounces in 1HFY20. Also, the gold sales from Atlantic Gold increased from $97.82mn for HY ending December 2019 to $99.72mn for HY ending December2020. SBM has posted a NPAT of $37.4mn for half year ending December 2020 as compared with $38.65mn for six months ending December 2019.

Gold Production and AISC (Source: Company Reports) 

Dividend Declaration: As per the company report on 17 February 2021, SBM has announced an interim dividend of $0.04 per share, with an ex-date of 2 March 2021, and a payment date of 24 March 2021.

Outlook: SBM is expecting a revenue of $500mn over a period of 5 years (FY21-FY26) from executing underground mining services for gold. The capital expenditure for Circa will require $40mn over FY21 and FY22. 

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, SBM has decreased by 10.71% and by 22.77% in the last three months on ASX. The stock is currently trading below the average 52-week price level range of $1.615-$3.980. On the technical analysis front, the stock has a support level of ~$1.82 and resistance of ~$2.16. 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 premium as compared to its peer median, considering an increase in EBITDA margins and positive cash flows from operating activities. For the purpose we have taken peers Regis Resources Ltd (ASX: RRL), Newcrest Mining Ltd (ASX: NCM), IGO Ltd (ASX: IGO) and more. Considering the company’s growth in revenues through underground gold mining, positive outlook, valuations, and current trading levels, we recommend a “Buy” rating on the stock at the current market price of $2.00, up by 0.755% as on 3 March 2021.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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