Dacian Gold Limited

DCN Details

Maiden Mineral Resource Estimate for McKenzie Well: Dacian Gold Limited (ASX: DCN) is an explorer, miner, and producer of gold. As on 17^th February 2021, the market capitalisation of the company stood at ~$242.08 million. The company recently announced the discovery of maiden mineral resource estimate of 946kt for 34k ounces for its Mckenzie well project. The project is situated approximately ~25km from the Mt Morgans processing plant.

Despatch and Registration of Scheme Booklet: On 29^th January 2021, the company announced the registration of Scheme Booklet by Australian Securities and Investments Commission (ASIC) in relation to the proposed NTM Gold Limited’s (NTM) acquisition by DCN through a Scheme of Arrangement. The booklet has been dispatched to the NTM shareholders and they will be asked to approve the plan at a Scheme Meeting to be held on 3 March 2021 in West Perth. The proposed merger is expected to close by mid-March 2021.

As per the Scheme Booklet and merger terms, NTM shareholders will receive 1 new DCN share for every 2.7 NTM shares held at the record date. Post the merger, NTM will become a wholly owned subsidiary of DCN. All existing NTM options will be cancelled as per option cancellation deed and will be exchanged for 22.2 million DCN options. New DCN shares will be issued upon the conversion of present NTM performance rights into NTM shares before the record date under the Scheme.

Synergies from The Proposed Merger: The combined entity will have a higher pipeline of exploration and development avenues, higher market presence and liquidity. DCN combined with NTM will have a stronger balance sheet, expanded resource base to develop existing projects & pursue a gold consolidation strategy.

Q2FY21 Results: The company reported production of 27,162 ounces of gold at an All-In Sustaining Costs (AISC) of $1,430/oz. With this quarter’s production, DCN achieved 1H21 production of 59,961 ounces of gold at an AISC of $1,356/oz. The company remains on track to meet its annual year guidance of 110-120k oz at an AISC of $1,400-$1,550/oz. As on 31 December 2020, DCN held cash and gold of $37.9 million and net cash of $14.5 million.

Cash and Debt Summary, Q2FY21 (Source: Company Reports)

Outlook: DCN has planned a phase-III drill program (of 56 holes), mining studies and inclusion of the estimated resource into the mine plan thereafter during Q3FY21. The company is also looking to expand the drilling opportunities at McKenzie Well post and the testing of the Opaleye limb later in FY21.

Valuation Methodology: EV/Sales Multiple 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: The stock of DCN gave a positive return of 14.08% in the past three months and a positive return of 14.08% in the past six months. The stock is currently trading slightly below the average 52-weeks’ price band of $0.29-$0.590. The stock of DCN has a support level of ~$0.335 and a resistance level of ~$0.532. We have valued the stock using an Enterprise Value to Sales multiple based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at some discount as compared to its peer average, considering the risks associated with the company’s business due to pandemic restrictions, stiff competition, higher exploration expenditure and global uncertainties. For the purpose, we have taken peers like Ramelius Resources Ltd (ASX: RMS), Perenti Global Limited (ASX: PRN), Pantoro Limited (ASX: PNR) to name a few, which comes under gold sector. Considering the company’s decent Q2FY21 results, on track 1H21 production guidance, repayment of debt, improved liquidity position, and valuation, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.405, down by ~6.897% on 17^th February 2021.

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

Latin Resources Limited 

LRS Details

Convertible Security Funding Agreement with Lind Partners: Latin Resources Limited (ASX: LRS) is involved in exploration of minerals with resource projects in Latin America and Australia. As on 17^th February 2021, the market capitalisation of the company stood at ~$90.37 million. On 15 February 2021, LRS gave notice in accordance with Section 708A(5)(e) of the Corporations Act regarding the issue of 4.45 million shares to Stocks Digital instead of cash payment for digital marketing and advertising services provided. On 1 February 2021, the company completed its already declared security funding (convertible) agreement with Lind Partners by full repayment of debt. With this transaction, LRS is in a positive financial position, and has five quarters of funding available along with a debt free postion.

December 2020 Quarter Results: On Noombenberry Halloysite Kaolin (NHK) Project, the company undertook air-core drilling and has sent extracted samples for testing to the lab in Perth and Adelaide. It expects lab test results to arrive in February 2021. Also, drilling completion will lead to JORC resource definition in Q3FY21. For Yarara Gold Project (YGP) in NSW, LRS has started the exploration work and is analysing the historical data sets and targeting new areas for testing in future. It will commence geological examination including mapping and sampling on YGP in early January 2021. On Manildra Gold project, LRS has sought an exploration licence for 280 km square in NSW Lachlan Fold Belt and has purchased a new tenement on the Burdett Gold project in NSW. For its lithium projects in Argentina, LRS has a JV with Integra Capital to undertake exploration and development (upto $1.4 million) of the Catamarca projects. During the quarter, LRS has raised $5 million capital through placement of 166.67 million shares at $0.03 per share of issue price. It will use these funds for exploration work on the projects and working capital needs. LRS held $4.5 million of cash at bank as on 31 December 2020.

Net Cash Used in Operating Activities, Q4FY20 (Source: Company Reports)

Outlook: LRS anticipates commencement of field work on the Catamarca concessions in Q1FY21. In FY1, the company would look for better opportunities within Latin America and Australia, which is likely to create value for its shareholders.

Stock Recommendation: The stock of LRS gave a positive return of 245% in the past three months and a positive return of 527.27% in the past six months. The stock is currently trading towards its 52-weeks’ high level of $0.085. The stock of LRS has a support level of ~$0.46 and a resistance level of $0.09. Considering the current trading levels, significant returns of 3 months and 6 months, and repayment of debt to Lind Partners, we are of the view that most of the positives of the company have been factored in at the current price levels. Hence, we suggest investors to wait for better entry levels and we, therefore, give an ‘Expensive’ rating on the stock at the current market price of $0.069, down by ~6.757% on 17^th February 2021.

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

Disclaimer  

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as personalised advice.