Jupiter Mines Limited

JMS Details

Tshipi Dividend Declaration: Jupiter Mines Limited (ASX: JMS) undertakes the sale of manganese ore and operates the Tshipi Manganese Mine in South Africa. JMS holds a 49.9% share in Tshipi é Ntle Manganese Mining (Proprietary) Limited (“Tshipi”), which is the mine operator.

• The Board of Tshipi é Ntle Manganese Mining Proprietary Limited (Tshipi) recently announced a dividend of ZAR88 million for 1HFY22, out of which JMS will receive ~A$3.8 million (ZAR41.7 million). JMS will also get ~A$3 million (ZAR33 million) share in marketing profits.

Q1FY22 Highlights:

• Growth in Mining Volume: JMS reported an increase in the mining volume from 2.36 million bcm in Q1FY21 to 3.95 million bcm in Q1FY22. The company’s shipping, road, and rail volumes for Q1FY22 were ahead of schedule.
• Lower COP: Tshipi recorded 32.66 ZAR/ dmtu of average FOB cost of production (COP) in Q1FY22 for its high-grade lumpy ore versus 33.44 ZAR/dmtu in Q4FY21. The average FOB COP was also lower on a pcp basis.
• Liquidity Position: JMS held $51.47 million cash reserves inclusive of Tshipi’s share of cash as of 31 May 2021.

Growth in Tshipi Sales Revenue from Q1FY21 to Q1FY22; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of depressed manganese prices as it produces and exports the mineral overseas. It is also prone to forex headwinds due to operations in South Africa.  

Outlook: Looking ahead, the company is focused on expansion of the Tshipi mine and consolidation within the Kalahari manganese region. The company will declare the 1HFY22 results on 29 October 2021 and consider the dividend declaration along with the results. MLD has set 18 November 2021 as the Payment date and 4 November 2021 as the Record date for the 1HFY22 dividend.

Valuation Methodology: Price to Earnings 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 JMS gave a negative return of 19.60% in the past month and a negative return of 30.50% in the past three months. The stock is currently trading close to its 52-weeks’ low level of $0.205. The stock has been valued using Price to Earnings Per Share based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ median, considering its lower NPAT, net cash from operating activities and cash at bank balance in Q1FY22 on a pcp basis and the risks associated with price, production, and regulatory changes. For the purpose of valuation, few peers like Rio Tinto Limited (ASX: RIO), BHP Group Limited (ASX: BHP), IGO Limited (ASX: IGO), and others have been considered. Considering the growth in Tshipi’s mining volume, nil debt to equity ratio, current trading level, and associated key risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.205 as on 20 September 2021, 11:29 AM, (GMT+10), Sydney, Eastern Australia.

JMS Daily Technical Chart, Data Source: REFINITIV  

MACA Limited

MLD Details

Upcoming AGM: MACA Limited (ASX: MLD) provides contract mining services and mineral processing services. MLD will hold its upcoming Annual General Meeting (‘AGM’) on 18 November 2021 at 2:00 PM. Besides, the company will provide a separate Notice of Meeting to shareholders, including the election of directors.

Contract Option Exercised:

• MLD recently exercised its 12-month option and extended the mining services agreement with Pilbara Minerals for the next 12 months at the Pilgangoora Lithium Project.
• MLD estimates to deliver ~$70 million in revenue from the extended 12-months through to November 2022.
• The company has $3.1 billion of work in hand as of September 2021.

FY21 Financial Highlights:

• Rise in NPAT: The NPAT from total operations (both ordinary and discontinued) increased from $17.4 million net loss in FY20 to $20.7 million net profit in FY21.
• Operating Cash Flows: The operating cash flows rose by 3% YoY to $118.8 million during FY21.
• Increased Borrowings: The net debt during FY21 rose to $180.2 million, indicating an increase of 146% YoY as of 30 June 2021. Following the debt increase, MLD invested $146.7 million into the plant and equipment of new projects such as Atlas Sanjiv Ridge, Capricorn Karlawinda, etc.
• Cash Balance: MLD held $122.3 million of cash as of 30 June 2021.

Revenue & Net Income Increase from FY20 to FY21; (Analysis by Kalkine Group)

Key Risks: MLD is prone to foreign exchange and interest-rate changes, impacting its financial position and liquidity stance.

Outlook:

• MLD has an unsecured pipeline opportunity of $11 billion from all its divisions for FY22. The Mining Division has ~$1.2 billion secured work in hand while exiting FY21 and is well placed to grow the order book further.
• The company expects $1.4 billion in revenue in FY22, with 90% revenue already secured.

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 MLD gave a negative return of 13.69% in the past month and a negative return of 33.48% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.710 - $1.515. The stock has been valued using an Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). However, the company might trade at some discount than its peers’ median, considering the increased net debt and interest-bearing liabilities in FY21, stiff competition and labour shortage experienced due to the continued impact of COVID-19 on the Mining and Construction industry. For the purpose of valuation, few peers like Aeon Metals Limited (ASX: AML), Mastermyne Group Limited (ASX: MYE), Macmahon Holdings Limited (ASX: MAH). Considering the current trading levels, decent financial performance in FY21, order book and revenue guidance for FY22, valuation and associated risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.725, down by ~9.376%, as on 20 September 2021.

MLD Daily Technical Chart, Data Source: REFINITIV 

Santos Limited

STO Details

CCS MOU with ANPM: Santos Limited (ASX: STO) is a gas supplier with a portfolio of high-quality LPG (liquified natural gas), oil assets, and pipeline gas. On 14 September 2021, STO inked a Memorandum of Understanding (MOU) with the Autoridade Nacional do Petróleo e Minerais (ANPM), a Timor-Leste regulator to advance Carbon Capture and Storage (CCS) at BayuUndan Joint Venture (JV) project in the Timor Sea. STO as the project operator of the Bayu-Undan project, holds 43.4% interest in the project.

Merger Scheme Highlights:

• On 10 September 2021, STO and OSH signed a Merger Implementation Deed (“MID”) to merge through an Oil Search Scheme of Arrangement (“the Merger”).
• As per the Scheme, each OSH shareholder will get 0.6275 new STO shares for each share held in OSH on the record date of the Scheme of Arrangement.
• STO shareholders will hold ~61.5% of the combined firm after the merger implementation, and OSH shareholders will own ~38.5%.
• The companies estimate ~$21 billion of Pro-forma market capitalisation, ~116 million barrels of oil equivalent (mmboe) of Pro-forma production for FY21, and 4,867 mmboe of 2P+2C (Pro-forma) resource base.
• The combined firm is estimated to have more than US$5.5 billion of liquidity, before-tax synergies of US$90-115 million per year (excluding costs).
• The merger will generate high quality and diversified portfolio footprint in Australia, Papua New Guinea, North America, and Timor-Leste.
• Both parties have set 16 December 2021 as the Implementation Date for the ongoing merger.

1HFY21 Results:

• Increase in Underlying Profit: STO reported a 50% YoY increase in the underlying profit to US$317 million in FY21.
• Rise in Free Cash Flows: The company generated higher free cash flows of US$572 million, depicting an increase of 33% on FY20.
• Improved Liquidity Position: STO held US$2,417 million of cash and cash equivalents as of 30 June 2021 versus US$1,319 million as of 30 June 2020.
  

Production Growth from 1HFY17-1HFY21; (Analysis by Kalkine Group)

Key Risks: The company faces changes in oil and gas prices, forex headwinds due to operations in multiple geographies, and regulatory hurdles for approvals from various authorities.

Outlook:

• The company maintains the sales volume guidance between 100-105 mmboe and production between 87 - 91 mmboe for FY21.
• STO is advancing on the Tanumbirini 3H Well (T3H) drilling ahead of plan. STO plans to continue drilling the current section. The company will fracture stimulate and flow test the T2H and T3H wells before the FY21-end.
• STO has taken a FEED-entry decision on the offshore Dorado field project in June 2021, which opens a new basin with the high possibility of permits where the company has a high equity stance.

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 STO gave a positive return of 3.20% in the past month and a positive return of 17.24% in the past year. The stock is currently trading lower than the 52-weeks’ average price level band of $4.640 - $7.840. The stock has been valued using an Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). The company might trade at some premium than its peers’ median, considering its revenue and NPAT growth, increased net operating cash inflows in FY21 and expected merger benefits, and growth projects. For the purpose of valuation, few peers like Cooper Energy Limited (ASX: COE), Woodside Petroleum Limited (ASX: WPL), Karoon Energy Limited (ASX: KAR), and others have been considered. Considering the current trading levels, decent financial results in 1HFY21, progress on the Dorado project in 1HFY21, new MOU with ANPM for the Bayu-Undan project, valuation, and ongoing merger developments & synergies expected with OSH, we give a ‘Hold’ rating on the stock at the current market price of $6.120, down by ~3.318%, as on 20 September 2021.

STO 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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