Red 5 Limited

RED Details

Red 5 Limited (ASX: RED) deals in gold mining and mineral explorations. . The market capitalisation of the company as of 21^st July 2021 stood at ~$410.60 million.

Q4FY21 Update:

The company reported gold production for Q4FY21 of 15,251 ounces against the previous quarter of 19,047 ounces. Gold sales for Q4FY21 stood at 14,552 ounces against the previous quarter of 19,011 ounces. Consolidated all-in sustaining costs (AISC) for Q4FY21 stood at A$2,461 per ounce of gold sold against A$2,402 per ounce in the previous quarter.

Full-year gold production for FY21 stood at 76,104 ounces which was well within the guidance  of 74,000 – 78,000 ounces.  The total gold sales for the full-year FY21 came at 75,907 ounces at an AISC of A$2,273 per ounce of gold sold against the guidance of A$2,240 – A$2,290 per ounce.

At the end of the quarter, the company’s cash on hand and bullion stood at $49.8 million of which $28.5 million was allocated to reserve accounts and bank guarantees for the KOTH Project. Around $39.1 million was spent on construction activities at KOTH.

Key Data (Source: Company Reports)

Result Performance (Half-Year Ended 31 December 2020 – H1FY21)

Sales revenue for the interim period stood at $97.71 million underpinned by gold sales of 42,344 ounces which contributed to gross profit from operations of $6.85 million.  The underlying EBITDA for the period came at $11.89 million. Thus, lower sales and lower underlying EBITDA contributed to a net loss for the period of $1.78 million. Net cash flow from operating activities was $17.08 million. Cash and metal accounts at period end was at $98.5 million.

Recent Update:

The company, on 20 July 2021, acknowledged that Macmahon Holdings Limited (ASX:MAH) has now signed the contracts for three previously announced projects as stated below:

Key Data (Source: Company Reports)

The signing of contracts will add about $1.35 billion to the company’s order book. In addition to these projects, MAH is well progressed in finalizing the commercial arrangements for Phase 8 of its Batu Hijau copper-gold project in Indonesia.

Outlook:

The company continued to make strong progress with the construction of its 2.4 Moz, 16-year life-of-mine king of the Hills (KOTH) Gold project. The company’s new flagship goldmine currently under construction in Australia is progressing well. Further, the signing of projects by Macmohan Holdings will be a big boost to the earnings of the company.

The KOTH Mining Proposal has got approval from the Department of Mines, Industry Regulation and Safety (DMIRS) and expected work approval from the Department of Water and Environmental Regulation (DWER) for the Power Station construction in June.  

Key Risk: 

The labour availability, shortage of machine operators and truck drivers have  impacted the mining activities and could lead to a delay in delivering products. Therefore, the company should look to secure skilled resources for operating underground and open-pit mines. 

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

Technical Overview:

Chart:

Source: REFINITIV 

Stock Recommendations:

The company’s current ratio for H1FY21 stood at 1.85x, better than the H1FY20 result of 0.81x, implying that the company possesses better capabilities to meet its short-term obligations. Its Debt-to-Equity ratio for H1FY21 stood at 0.07x, lower than the H1FY20 result of 0.37x, depicting a reasonable leverage position of the company.

We have valued the stock using a EV/Sales multiple-based illustrative relative valuation and have arrived at a target price that reflects a rise of low double-digit (in % terms). We have assigned a slight discount to EV/Sales Multiple (NTM) (Peer Average) considering fall in sales revenue.

Considering the current trading levels and indicative valuation, healthy balance sheet, gas supply contracts and agreements, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.175 per share on 21^st July 2021. 

Core Lithium Ltd

CXO Details

Core Lithium Ltd (ASX: CXO) targets to be Australia’s next lithium producer. The company has a market capitalisation of ~$270.04 million as on 21^st July 2021.

Q3FY21 Update:

During Q3 FY 2021, the company received commitments for $40 million in additional capital through the Placement of 160 million new shares to institutional investors (Placement). Net cash used in operating activities stood at -0.656 Mn; net cash used in investing activities stood at -$1.95 million; Net cash from financing activities stood at $39.03 million. Cash and cash equivalents at end of period stood at $40.95 million.

Key Data (Source: Company Reports)

Result Performance (Half-Year Ended 31 December 2020 – H1FY21)

The company’s interest income and grant income for the period stood at $25,393 and $249,006, as compared to $38,413 and $40,000 in H1FY20.

Total comprehensive loss for the period attributable to owners of the parent stood at $0.914 Mn as compared to loss of $1.65 million in H1FY20.

Outlook: 

During the third quarter period, the company produced battery grade lithium hydroxide from Finniss concentrate; was awarded Major Project Status for Finniss by the Federal Government; was granted a Mineral Lease for the BP33 Deposit by the NT Government; and found gold mineralisation beneath the newly discovered Far East Belt at the company’s Bynoe Gold Project in the NT through scout RAB drilling. These developments are expected to help the company in the long run.

In the release dated 20^th July 2021, the company signed two-year Power and Water Corporation (PWC) Grid Connection Agreement, where the agreement allows CXO to connect the Finniss Lithium Project to the PWC power grid network securing enough electricity for the project. Core is preparing to start construction of the Finniss Lithium Project in 2021, targeting first exports of lithium in 2022.

Key Risks:

Any fluctuations in the prices of Gold or other related commodities could influence the financials of the company.

Stock Recommendation:

The company’s current ratio improved from 4.02x in H2 FY 2020 to 4.86x in H1FY21, therefore, it could be said that CXO is possessing decent liquidity position which could help the company in tackling challenges. The stock has made a 52-week low and high of $0.035 and $0.420, respectively.

Thus, we recommend a “Hold” on the stock at the current market price of $0.245 per share, up by 6.521% as on 21^st July 2021.

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

Note 2: Investment decisions 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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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