Dacian Gold Limited

DCN Details

Material Public Releases: Dacian Gold Limited (ASX: DCN) is a mid-tier gold producer. It undertakes gold production at the Mt Morgans Gold Operations (MMGO) and has multiple exploration targets including Phoenix Ridge, Transvaal, Craic, and Westralia Deposit.

• Proposed Equity Issue: On 06 December 2021, DCN proposed a securities issue to ASX. The company requested for a maximum of 117,647,059 number of securities issue.

Fund Flow from Equity Issue, Analysis by Kalkine Group

• Completion of Equity Raising Activity: As announced on 06 December 2021, DCN successfully raised $20.0 million via well assisted placement from new and existing institutional shareholders.
  • Proceeds from the placement are expected to support working capital requirements for completion of pre-stripping activities.
  • Upon placement settlement, DCN will have gold-on-hand and cash at value of $36.8 million.
  • Placement was made at a fixed placement price of $0.17/new share, which presents a discount of 17.1% to the closing price of $0.205/share as on 01 December 2021.

Q1FY22 Operational Update

• Continued Investments: Opertational investments continued during the quarter with inflow of development capital valuing $18.5 million on advaning Redcliff project and Doublejay pre-stripping, and $5.1 million spent on exploration activities.
• Exploration & Growth Activities: Drilling of beneath Jupiter open pits illustrated size and grade potential with 102.9m at 1.4 grams/tonne Au from 436.3m, untersected 160m below Heffernans. 44.5m at 1.1 grams/tonne Au from 247.1m was interesected 130m below Ganymede. Completion of total exploration and growth drilling stood at 19,000m with ore reserves of 0.4Moz and mineral resources of 2.45Moz.
• Production Levels: For the quarter, production stood at 15,819 ounces at an AISC of $2,362/ounce, typically in line with H2FY22 guidance.
• Corporate Finance Position: Cash and gold on hand stood at $33.2 million as on 30 Septembert 2021. Total debt clocked $16.0 million following the refinancing of project debt facility. Total forward hedge position was curtailed to 13,410 ounces at an average gold price of $2,236 per ounce.

Key Risks and Challenges

The company faces a shortage of labor because of buoyant mining sector in Western Australia and COVID-19 imposed mobility restrictions. The interstate travel ban affects the exploration deployment and activity of workforce underground.

Outlook

FY22 production guidance stands at 100k – 110k ounces at an AISC of $1,550 - $1,700 per ounce.

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 ~50.00% in the past one year. The stock is currently trading lower than the 52-weeks’ average price level band of $0.165 - $0.565. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price low double-digit (in percentage terms). The company might trade at a slight premium to its peers’ average, considering prudent financial position post equity raise and favourable exploration activities. For valuation, few peers like Regis Resources Ltd (ASX: RRL), Sandfire Resources Ltd (ASX: SFR), Aurelia Metals Ltd (ASX: AMI) have been considered. Considering trading levels close to 52-weeks’ low, shrunk debt to equity position, further expectations for debt reduction in FY22, updated resource estimates, and upside indicated by valuation, we give a “Speculative Buy” recommendation on the stock at the market price of $0.170, as of 08 December 2021, 11:37 AM (GMT+10), Sydney, Eastern Australia.

DCN Daily Technical Chart, Data Source: REFINITIV

Emmerson Resources Limited

ERM Details

Business Update: Emmerson Resources Limited (ASX: ERM) engages in exploring and evaluating gold, copper, and cobalt deposits. It holds interest in Tennant Creek Mineral Field and other five projects.

• Copper Drill ends in Mineralization: As announced on 08 December 2021, ERM’s 100% owned Hermitage Project intersects mineralization of 117m with 3.38% copper from 75m including 30m with 7.26% copper and 162m with 2.69g/t gold. HERC002 drilled in the outskirts of interpreted preccia pipe and contains high grade cobalt, homogenous to metal zonation.
• High Grade Gold Resource in Chariot Surged: Mineral Resource Estimate (MRE) at Tennant Creek for the Chariot gold deposit has expanded total ounces by 40% to 556,200 tonnes at 7.8 grams per tonne Au for 130,800 ounces Au. The new Chariot resource estimate assists a conceptual high grade 17.7 grams/tonne Au open pit and 6.3 grams/tonne Au underground operations.

Q1FY22 Operational Update

• Cash Position: As of 30 September 2021, ERM reported cash balance of $4.525 million, down from $5.485 million reported on 30 June 2021. Operating cash outflow stood at $321k, primarily driven by production and staff costs.
• Diamond Drilling: ERM announced extension of MTD010, diamond drill hole, at Mauretania which returned the foremost bonanza gold intercept. The gold zone statistics include 3.95m at 57 grams/tonne gold, 20.6 grams/tonne silver, 0.22% bismuth, and 0.23% copper from 207m.
• Extensional Drilling: Moreover, extensional drilling and geotechnical drill holes at Mauretania return assays in the oxide zone of 25m at 2.57 grams/tonne gold and 0.24% copper from 93m.

Key Financial Items from FY21 Results, Analysis by Kalkine Group

Key Risks and Challenges

• Expensive Geological Checks: ERM requires a regular quantity and quality checks from geologists. Regular monitoring stands expensive, and any negative report is over reflected in share prices.
• Project Delays: Mining industry in Australia is critically facing labor shortage challenges. Coupled with lockdown restrictions, ERM’s exploration activities can face timeline delays.

Outlook

Hermitage Project intersects mineralization, which is considered a major milestone achievement. The company further objectifies to extend the potential high-grade mineralization in both deeper gold zones at the Edna Beryl and shallow oxide.

Stock Recommendation

The stock of ERM gave a positive return of ~125.00% in the past one year. The stock is currently trading higher than the 52-weeks’ average price level band of $0.058 - $0.223. Considering the current trading levels, substantial price rally, uncertainties from new COVID-19 variants, labor supply shortage, expensive geological checks, key risks associated with the business, and current trading levels surpassing resistance we suggest investors to book profits and give a “Sell” recommendation on the stock at the market price of $0.195, as of 08 December 2021, 11:35 AM (GMT+10), Sydney, Eastern Australia.

Technical Overview

ERM's prices witnessed a sharp bullish movement and made a new 52-week high of AUD 0.2230. Prices also broke an important resistance level of AUD 0.1950 during the rally; however, unable to sustain above the same, indicating the possibility of a downside correction. On the daily chart, the leading indicator RSI (14-period) is trading in an extremely overbought zone at 91.65 levels, further supporting a downside correction. Now an important resistance level for the stock is placed at AUD 0.2250 while support is at AUD 0.1400 level.

ERM Daily Technical Chart, Data Source: REFINITIV 

Note: The purple line reflects the RSI (14-day period)

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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