SSR Mining Inc.

SSR Details

SSR Receives Approval for Normal Course Issuer Bid (NCIB): SSR Mining Inc. (ASX: SSR) is engaged in gold mining activities. Its exploration projects encompass Marigold Mine, Copler mine, Seabee mine and Puna mine. On 16 April 2021, SSR receives approval of its Notice of Intention to render an NCIB, geared towards purchase of up to 10 million common shares over a twelve-month horizon.

A Robust Operating and Financial Performance in Q1FY21: During the period, SSR reported increased revenue to ~US$366.48 million relative to ~US$164.46 million in Q1FY20. The favourable revenue outcomes were attributed to ~US$151.5 million sales at Copler mine, coupled with higher gold sales at Marigold and higher silver sales at Puna. Further, Net Income escalated from ~US$59.76 million compared to ~US$23.98 million in Q1FY20. SSR performed at higher operational efficiency as reflected by increased gross margin levels from 27% in Q1FY20 to 40% in Q1FY21. Despite recent COVID-19 turmoil, free cash flow upgrades substantially from ~US$10.23 million FCF in Q1FY20 to ~US$76.64 million in Q1FY21. This would enable SSR to fund growth across the project portfolio and hedge any forthcoming risks.

Strong Quarterly Financial Results (Source: Company Reports)

Key Risks: Operations in the mining & exploration industry present SSR with high regulatory & political risks and an array of financial risks. The company is exposed to the risk related to fluctuations in commodity prices.

Outlook: For FY21, SSR expects 75% of FCF generation to be weighted to H2FY21 due to cash flow timings. Consolidated gold equivalent production is anticipated to range between 720 – 800 thousand ounces with cash cost to range between US$660 – 715 per ounce. The total growth in capital expenditure and exploration & development expenditure is estimated to be ~US$33 million and ~US$54 million, respectively. SSR strives to align FCF yield with capital returns yield for FY21, way beyond competitors. However, COVID-19 uncertainties must not be ignored as it poses substantial economic and political distress.

Free Cash Flow Leader (Source: Company Reports)

Valuation Methodology: EV/EBITDA Value 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: Over the last month, the stock of SSR went up by ~8.88%. The stock made a 52-weeks’ low and high of $17.500 and $33.520, respectively. The stock has a support level of ~$20.985 and a resistance level of ~$25.852. We have valued the stock using the EV/EBITDA multiple based illustrative relative valuation method and arrived at a target price of a low double-digit upside (in percentage terms). We believe that the company can trade at a slight premium as compared to its peer’s average considering better liquidity position and higher anticipated production levels supported by corresponding capital expenditure. We have taken peers like Resolute Mining Ltd (ASX: RSG), OceanaGold Corp (ASX: OGC), Gold Road Resources Ltd (ASX: GOR), to name a few. Considering the current technical analysis, decent performance in Q1FY21, appropriate alignment of FCF yield and capital return yield with sustainable growth expectations, and valuation, we give a ‘Hold’ rating on the stock at the current market price of $23.410, down by 1.015% as on 24 May 2021.

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

Resolute Mining Limited

RSG Details

Sale Agreement of Advanced Gold Projects: Resolute Mining Limited (ASX: RSG) is engaged in gold exploration activities in Australia and Africa. On 21 May 2021, RSG entered into a sale agreement with Manas Resources Limited (ASX: MSR) to sell exploration interests in Cote d’Ivoire covering 6,194km² which includes multiple recent gold discoveries.

Update on Sale Agreement of Bibiani Gold Mine to Chifeng: As announced on 20 April 2020, Chifeng Jilong Gold Mining Co. (Chifeng) drafter a notice to terminate the sale agreement for Bibiani Gold Mine on the grounds of mining lease being revoked or terminated. This agreement was entered in December 2020 pursuant to which Ghanaian Honourable Minister for Lands and Natural Resources terminated Mining Lease for the Bibiani Gold Mine, as announced on 24 March 2021, later restored as per the announcement of 14 April 2021. RSG is expected to refund the US$5 million towards the initial payment of the agreement. The transaction was to enable RSG to simplify current operational and development opportunities and build strategic focus on core operating assets, i.e. Syama and Mako mines. As per FY20 reports, Bibiani’s estimated total reserves stood at 6,400 tonnes out of total estimated ore reserves of 57,300 tonnes.

Highlights of quarterly operating activities of Q1FY21: During the quarter, RSG reported 85,668 ounces of Syama Sulphide Gold Production, down by 5% q-o-q. Realized gold price decreased from US$1,800/ounce to US$1,729 per ounce. All-in sustaining cost (AISC) stood at US$1,239 per ounce, down 24% relative to Q1FY20. During the period, Gold Sales stood at 83,400 ounces, down 9% relative to Q1FY20 and average realized price stood at US$1,729, up by 1% relative to Q1FY20. Furthermore, Syama’s sulphide gold production of 37,217 ounces was the highest since 2016 and Syama oxide production was 44% up relative to Q4FY20. Despite industry-wide turmoil due to COVID-19, RSG maintained its liquidity position with cash and bullions amounting to ~US$106.0 million relative to ~US$106.5 million in Q4FY20.

Total Cash, Bullion and Liquid Assets (Source: Company Reports)

Key Risks: With operations in gold exploration, RSG runs into high risk of commodity market volatility. Further, the company is exposed to high regulatory risks and approvals. Hence, any delay in regulatory approvals or any regulatory misconduct may materialize to financial losses.

Outlook: Glance for 2021 is affirmed with gold production to range between 350,000 – 375,000 ounces at a range bound AISC of US$1,200 – US$1,275 ounces, inclusive of corporate overheads. The three-fold focus of 2021 remains to be operational consistency, cash generation and debt repayment. Moreover, Syama Hybrid Power Station is approaching completion with contributing 90% power generation through its new facility, which may deliver electricity cost savings of up to 40% while curtailing carbon emission by ~20%. RSG has maintained a discretionary hedging policy which hedges a minimum of 30% forecasted production (18 months). With consistent production and cash generation, RSG has high growth expectations along FY21. However, COVID-19 uncertainties must also be factored in as they have posed unprecedented economic and political distress.

Committed Hedging Forward Sales in USD (Source: Company Reports)

Valuation Methodology: EV/Sales Value 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: Over the last month, the stock of RSG went up by ~29.58%. The stock made a 52-weeks’ low and high of $0.415 and $1.497, respectively. The stock has a support level of ~$0.571 and a resistance level of ~$0.674. We have valued the stock using the EV/Sales multiple based illustrative relative valuation method and arrived at a target price of a modest upside of high single-digit (in percentage terms). We believe that the company can trade at some discount as compared to its peer’s average, as a result of trading at a historical premium, volatile commodity market and exploration uncertainties. We have taken peers like St Barbara Ltd (ASX: SBM), OceanaGold Corp (ASX: OCG), Westgold Resources Ltd (ASX: WGX), to name a few. Considering the current trading level, positive rebound in gold prices since April 2020, divestiture of non-core projects to pivot cash flows to higher revenue generating explorations, decent performance in Q1FY21, valuation and key risks associated with the business, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.635, up by ~2.419% as on 24 May 2021.

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

Note: 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.

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