Energy Resources of Australia Limited

ERA Details

Rehabilitation Update: Energy Resources of Australia Limited (ASX: ERA) is a uranium producer and explorer in Australia with operations in Ranger mine (100%) in the Northern Territory. ERA holds full ownership of the Jabiluka Mineral Lease. On 19 November 2021, ERA re-iterated that it is still in the process of re-estimating the cost and time schedule for the rehabilitation of the Ranger project area.

ERA now plans to appoint a global engineering firm to undertake the finalisation of the forecast.

Q3FY21 (Ended 30 September 2021): 

• The company reported nil production of uranium oxide in Q3FY21. The processing operations at the Ranger mine were suspended on 8 January 2021 by the Ranger Authority.
• ERA plans to continue selling down the stocks of uranium oxide and expects contract sales of ~1.37 million pounds in 2021. The remaining inventory is being progressively sold into the spot market.
• The firm is focusing on the progressive rehabilitation at the Ranger project area such as cleaning activities at the tailings storage facility (TSF), water treatment, and the completion of the final design of Pit 3 wicking.
• ERA is continuing with the housing rectification program on the Jabiru township lease project. It is currently working with Jabiru Kabolkmakmen Limited to begin the process of transferring properties to facilitate tenanting by external parties.
• ERA incurred no evaluation or exploration expenditure in Q3FY21, in line with the Q2FY21 (the June 2021 quarter).

Net Income Highlights; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of change in uranium prices and production, COVID-19 impact on labour shortage, regulatory delays from the mining authorities. Sufficient funds for working capital needs and exploration programs also pose threat to the business.

Outlook: ERA expects the re-estimation exercise on the Ranger mine project to continue till Q1FY22 and remains committed to successfully restoring the project in line with its environmental obligations.

Stock Recommendation: The stock of ERA gave a positive return of ~33.96% in the past three months and a positive return of ~54.34% in the past six months. The stock is currently trading near its 52-weeks’ average price level band of $0.150 - $0.580. On a TTM basis, the stock of ERA is trading at a price-to-book value multiple of 6.6x, lower than the industry (Uranium) average of 6.9x. Considering the current trading levels, ongoing refurbishment program on the Jabiru housing properties, nil debt levels in 1HFY21, valuation on a TTM basis, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $0.355, down by ~2.740%, as of 26 November 2021.

ERA Daily Technical Chart, Data Source: REFINITIV  

Dacian Gold Limited

DCN Details

AGM Presentation Highlights: Dacian Gold Limited (ASX: DCN) is a mid-tier gold producer. It undertakes gold production at the Mt Morgans Gold Operation (MMGO) and has multiple exploration targets including Phoenix Ridge, Transvaal, Craic, and Westralia Deposit. In a recently released AGM presentation on 25 November 2021, DCN highlighted the following points-

• As per the recently released five-year new mine plan including production from MT Morgans and Redcliffe projects, DCN is expected to deliver average yearly production of 115,000oz of gold at an AISC of $1,550/oz.
• This updated mine plan aids short-term capital investment with a cash flow profile growing through to FY26.
• Discoveries at Cameron Well Project Area: On 4 November 2021, DCN reported several significant intercepts from drilling at the Piccolo Star prospect at the structural intersection within the Mt Marven Shear Zone (MMSZ).
• The company plans to manage the balance sheet during its capital investment phase and expects to reduce the total debt to ~$2 million by the close of FY22.

Q1FY22 (30 September 2021) Results:

• The company continued to invest in operations during Q1FY22 with total development capital spend of ~$18.5 million on Doublejay pre-stripping activities and Redcliffe project development.
• DCN reported ~15,819oz of gold production during the quarter, slightly lower than planned at an AISC of $2,362/oz.
• During Q1FY22, DCN invested ~$5.1 million in exploration targets and growth initiatives across Jupiter, Mt Marven, Westralia, Cameron Well, and Redcliffe projects.
• DCN held ~$16 million total debt and ~$33.2 million of cash and gold on hand as of 30 September 2021.

Net Cash Flows from Operating Activities Highlights; (Analysis by Kalkine Group)

Key Risks: The company faces a shortage of labour due to a buoyant mining sector in Western Australia and COVID-19 imposed travel restrictions. The interstate travel ban impacts the exploration activity and deployment of the workforce underground.

Outlook:

• DCN provides gold production guidance of ~100,000-110,000oz at an All-In Sustaining Costs (AISC) of ~$1,550- $1,700/oz for FY22.
• DCN expects a tiered increase in the quarterly production during FY22 due to significant ore extraction planned at the Doublejay prospect.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: 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 negative return of ~10.41% in the past three months and a negative return of ~24.56% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.195 - $0.565. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ median EV/Sales multiple, considering its net losses in FY21 & FY20, negative ROE, labour scarcity, and COVID-19 travel restrictions. For this purpose of valuation, few peers like Resolute Mining Limited (ASX: RSG), Perenti Global Limited (ASX: PRN), Aurelia Metals Limited (ASX: AMI), and others have been considered. Considering the low trading levels, decline in debt-to-equity ratio in FY21, further expected debt reduction in FY22, revised mine plan for the next five years, and updated resource estimation, upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.205, as of 26 November 2021, 12:45 AM (GMT+10), Sydney, Eastern Australia.

DCN Daily Technical Chart, Data Source: REFINITIV  

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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