Stocks’ Details

OceanaGold Corporation

Operational Results of Q4: OceanaGold Corporation (ASX: OGC) is a multinational gold mining company with assets located in the Philippines, New Zealand and the United States. As on 10 February 2020, the market capitalization of the company stood at ~$1.79 billion. The company has recently released its unaudited fourth quarter 2019 reports wherein it stated that it produced 108,151 ounces of gold over the quarter. The company’s AISC for the fourth quarter was $980 per ounce on sales of 107,330 ounces of gold and no copper sales.


Fourth Quarter Operational Results (Source: Company Reports)

What to Expect: The company has recently provided the production and cost guidance for FY20. It expects to deliver additional 25% of gold ranging between 360 to 380 koz and anticipates organic growth opportunities at Macraes. The company also expects All-In Sustaining Costs to be in between US$1,075 to US$1,125 per oz sold. 

Valuation Methodology: Price to Cash Flow Based Valuation

Price to Cash Flow Based Multiple (Source: Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months, 1USD=1.49 AUD

Stock Recommendation: As per ASX, the stock of OGC is trading close to its 52-weeks low level of $2.490, proffering a decent opportunity for accumulation. For the quarter ended 30 September 2019, gross margin of the company stood at 41.3%, higher than the industry median of 7.5%. In the same time span, Debt/Equity was 0.13x, lower than the industry median of 0.16x. Considering the trading levels, high gross margin and decent outlook, we have valued the stock using the price to cash flow valuation approach and have arrived at a target upside of higher single-digit (in percentage terms). Hence, we recommend a “Buy” rating on the stock at the current market price of $2.830, down by 1.394% on 10 February 2020. 
 

Evolution Mining Limited

Regional Lake Aircore Drilling Commences: Evolution Mining Limited (ASX: EVN) is engaged in the exploration, mine development, mine operations and the sale of gold and gold/copper concentrate in Australia. As on 10 February 2020, the market capitalization of the company stood at ~6.43 billion. LA Mancha Group International B.V and its associates recently changed their relevant interests in Evolution Mining Limited.The company has stated that it will release its interim results for the period ending 31 December 2019 on 12 February 2020. The company recently noted that as a part of its Earn-in and Exploration Joint Venture with Musgrave Minerals Ltd, an aircore drilling has been commenced on Lake Austin, a part of Cue Gold Project. 

In the recently released quarterly report for December 2019, the company reported that it produced 170,890 ounces of gold at an AISC of $1,069 per ounce during the quarter. In the same time span, free cash flow of the group was $83.8 million. During the December quarter, the company sold 173,408oz of gold at an average gold price of A$2,091/oz. 


Production and Sales Summary (Source: Company Reports)

What to Expect: The company has given the gold production guidance and expects it to be around 725,000 ounces in FY20. It also expects its AISC to be between $940 to $990 per ounce. The company also anticipates its sustaining capital to range in between $90.0 to $130.0 million and major capital to be in between $195.0 to $235.0 million.

Valuation Methodology: Price to Cash Flow Based Valuation

Price to Cash Flow Based Multiple (Source: Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: During FY19, net margin of the company stood at 14.5%, higher than the industry median of 11%. This indicates that the company is managing its costs well and is capable of converting its revenue into profits. In the same time span, current ratio of the company was 2.31x as compared to the industry median of 1.75x. Considering the higher net margin and current ratio, decent outlook and financial performance, we have valued the stock using price to cash flow relative valuation approach and have arrived at a target upside of higher double-digit (in percentage terms). For the said purposes, we have considered Newcrest Mining Ltd (ASX: NCM), Northern Star Resources Ltd (ASX: NST) and Regis Resources Ltd (ASX: RRL) as peers. Hence, we recommend a “Buy” rating on the stock at the current market price of $4.06, up by 7.692% on 10 February 2020. 
 

Northern Star Resources Ltd

Completion of Share Purchase Plan allotment and refunds: Northern Star Resources Ltd (ASX: NST) is engaged in the production and exploration of gold and other minerals. As on 10 February 2020, the market capitalization of the company stood at ~$9.95 billion. The company has recently announced that it has to refund allotments under the SPP offer because of higher demand for SPP shares as compared to its availability. The company will release its interim results for the period ended 31 December 2019 on 11 February 2020.

In the quarterly report for December 2019, the company stated that it sold 214,635oz of gold at an AISC of $1,421/oz. In the same time span, underlying free cash flow of the company stood at $88 million with cash, bullion and investments of $1.4 billion. 


Quarterly Activities Report (Source: Company Reports)

What to Expect: The company has given guidance for FY20 production and expects it to be between 340,000 oz to 380,000 oz at AISC ranging between $1,260 to $1,370/oz.

Stock Recommendation: As per ASX, the stock of NST gave a return of 39.63% in the past 3 months and a return of 13.11% in the last one month. The stock is also trading very close to its 52-weeks high level of $14.055. During FY19, EBITDA margin of the company was 34%, higher than the industry median of 29.1%. In the same time span, ROE of the company stood at 16% as compared to the industry median of 12.3%. Considering the returns, trading levels, high EBITDA margin and ROE, we recommend a “Hold” rating on the stock at the current market price of $13.620, up by 1.189% on 10 February 2020.
 

Alumina Limited

Earnings Update of AWAC & Alcoa: Alumina Limited (ASX: AWC) is engaged in bauxite mining, alumina refining and aluminium smelting. As on 10 February 2020, the market capitalization of the company stood at ~$6.31 billion. The company recently released Alcoa Corp December quarter earnings release, wherein it noted that year on year performance of AWAC has improved and mining and refining production went up by 4% on FY18. In the same time span, average annual cost of alumina production went down by 7%. 


Net Distributions and Net Debt (Source: Company Reports)

What to Expect: In FY19, the company expects to produce 12.6mt of Alumina and expects to sale 6.2mt of Bauxite with respect to AWAC. It also anticipates growth capex of $55 million and sustaining capex of $155 million. Alumina Limited has good options to grow low cash cost alumina production which is expected to meet growth in market demand.

Stock Recommendation: As per ASX, the stock of AWC is trading close to its 52-week low of $2.070, proffering a decent opportunity for accumulation. During 1H19, ROE of the company was 10.3%, higher than the industry median of 5.6%. In the same time span, Debt/Equity was 0.05x, lower than the industry median of 0.14x. Considering the trading levels, higher ROE and modest outlook, we recommend a “Buy” rating on the stock at the current market price of $2.090, down by 4.566% on 10 February 2020. 
 
 
Comparative Price Chart (Source: Thomson Reuters)

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