Stocks’ Details
 

New Hope Corporation Limited

Decent Growth in Revenue: New Hope Corporation Limited (ASX: NHC) is engaged in the coal mining, exploration, port operation, conventional oil etc. The market capitalisation of the company stood at $1.01 Bn as on 10^th March 2020. It experienced continued improvement in safety performance for the six months ended 31^st January 2020. At Bengalla, NHC reported a decent rise in production to 5.4 million tonnes for the 1H FY20. Further, there was a rise in production costs per tonne at New Acland because of a decrease in production due to the decline in reserves of Stage 2.


Safety Performance (Source: Company Reports)

Expected Volatility in the Coal Market: The company is expecting volatility in the near-term, and it is optimistic about the strong demand for high-quality thermal coal throughout Asia. 

Valuation Methodology: P/E Multiple Based Relative Valuation

P/E Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months
 
Stock Recommendation: NHC is well placed for retaining its position as one of the leading coal producers of Australia on the back of quality assets and strong balance sheet. Net margin of the company stood at 16.1% in FY19 as compared to the industry median of 12.5%. This reflects that the company has converted its topline into the bottom line very efficiently against the peer group. We have valued the stock using P/E based relative valuation approach, for the purpose, we have taken peers such as Coronado Global Resources Inc (ASX: CRN), Fortescue Metals Group Ltd (ASX: FMG) and Rio Tinto Ltd (ASX: RIO) and arrived at a target price which is offering an upside of lower double-digit (in percentage terms). Hence, considering the quality assets, strong balance sheet and decent net margins, we give a “Buy” recommendation on the stock at the current market price of $1.270 per share, up by 4.527% on 10^th March 2020. 

OceanaGold Corporation

Forward Gold Sale Arrangement: OceanaGold Corporation (ASX: OGC) is engaged in the exploration of gold with major operating assets in the Philippines, New Zealand and the United States. The market capitalisation of the company stood at $1.54 Bn as on 10 March 2020. Recently, it has entered a forward gold sale arrangement with the support of members of the current banking group of OGC for delivering 48,000 ounces of gold during September and December 2020. The company has received a pre-payment amounting to US$78.5 million on 28 February 2020 for the gold sale arrangement. OGC would utilise the proceeds from the sale for working capital purposes to align cash flows of the business with expenditures.

Revenue for FY19 amounted to US$651.2 million with a fall of 16% as compared to FY18. The revenue was impacted by lower sales volumes at Didipio in the second half and increased sales volumes from Haile.


Financial Overview (Source: Company Reports)

Cost Guidance for 2020: For FY20, the company expects its cash costs in the range of US$675 – US$725 per ounce sold with AISC of between US$1,075 – US$1,125 per ounce. 

Valuation Methodology: P/E Multiple Based Relative Valuation
 

P/E Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months
 
Stock Recommendation: In the fourth quarter, the operating cash flows of the company witnessed a QoQ growth of 44% on the back of higher gold sales with no significant movement in net workingcapital. We have valued the stock using P/E based relative valuation approach, for the purpose, we have taken peers such as Northern Star Resources Ltd (ASX: NST), Evolution Mining Ltd (ASX: EVN), Newcrest Mining Ltd (ASX: NCM) etc., and arrived at a target price which is offering an upside of high single-digit (in percentage terms). Therefore, considering the recent forward gold sale arrangement and growth in operating cash flows, we give a “Speculative Buy” recommendation on the stock at the current market price of $2.390 per share, down by 3.629% on 10 March 2020.

Sandfire Resources Limited

Strong Production and Cost Management: Sandfire Resources Limited (ASX: SFR) is involved in the exploration of gold and base metals with a market capitalisation of $653.37 Mn as on 10^th March 2020. Recently, Director Paul Hallam has made a change to holdings in the company on 28^th February 2020 by acquiring 4,000 fully paid ordinary shares at the consideration of $17,000.

First half of the financial year 2020 has proved as another period of strong operational and financial performance, which was supported by strong production and cost management at its DeGrussa operations in Western Australia. It reported strong revenue amounting to $313.1 million driven by payable metal sales of 33,616 tonnes of contained copper and 18,252 ounces of contained gold. 


Key Financial Metrics (Source: Company Reports)

Short-Term focus of SFR: The short-term focus of the SFR revolves around completing the optimisation of the Feasibility Study and permitting for the T3 development project in Botswana. It is placed well for addressing the projected medium-term shortfall in copper supply on the face of new mid-tier copper mines with low capital intensity.

Stock Recommendation: SFR is in a decent position to finance the next stage of growth and diversification with the help of a zero-debt balance sheet. On TTM basis, the stock is trading at a price to book value multiple of 1.1x, lower than the industry median (metals and mining) of 1.2x. Therefore, in the light of debt-free balance sheet and focus for growth and diversification, we give a “Buy” recommendation on the stock at the current market price of $3.650 per share, down by 0.545% on 10 March 2020.

Nickel Mines Limited

Robust Rise in Sales Revenue: Nickel Mines Limited (ASX: NIC) is in the production of nickel pig iron and nickel ore. The market capitalisation of the company stood at $699.5 Mn as on 10^th March 2020. Recently, the company has changed its financial year-end to 31 December from 30 June for aligning reporting dates throughout the Nickel Mines Group entities. For the six months ended 31^st December 2019, the company reported sales revenue amounting to US$236.1 Mn with a rise of 264% on pcp. Profit after tax stood at US$91.3 Mn, reflecting a growth of 27%.


Sales Revenue (Source: Company Reports)

Focus for Year Ahead: Going forward in 2020, the company along, with its strategic partner as well as major shareholder Shanghai Decent would be focused on sustaining the excellent operational performance of RKEF projects. It will also explore additional value-adding growth opportunities.

Stock Recommendation: As at 31^st December 2019, the group had cash balance US$49.8 Mn. On the TTM basis, the stock is trading at a price to book value multiple of 0.5x, lower than the industry median (Coal) of 1.2x. Hence, considering the robust growth in revenue, focus for 2020, and expected valuation upside, we give a “Buy” recommendation on the stock at the current market price of $0.440, up by 4.762% on 10 March 2020. 
 
 
Comparative Price Chart (Source: Thomson Reuters)

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