Mount Gibson Iron Limited

MGX Details

Change in Shareholding: Mount Gibson Iron Limited (ASX: MGX) is engaged in crushing, transporting, and selling iron ore through its two segments: Mid-West and Koolan Island. Director, Lee Seng Hui, increased his shareholding from 431.81 million shares to 435.76 million ordinary shares in MGI after an-on market trade as per Section 608(3) of the Corporations Act.

Final Dividend Declared & DRP Amended:

• The company has confirmed a Dividend Reinvestment Plan (DRP) price of A$0.5081 for the registered shareholders in Australia, New Zealand, Singapore, Hong Kong, and the UK. MGX declared a fully franked final dividend of $0.02 for FY21.
• MGX has changed the Dividend Reinvestment Plan (“DRP”) with effect from 24 August 2021.

FY21 Highlights:

• Lower Sales Revenue: The total iron ore sales from the Koolan Island and the Mid-West projects stood at $336.01 million in FY21 versus $452.29 million in FY20. Though the average realised price for all products post-FOB was $103/weight metric tonnes (wmt) in FY21 compared to $84/wmt in FY20, the ore mined and sold was lower in FY21 vs FY20.
• Koolan Island Operations: MGX advances on completing the major waste stripping phase at Koolan Island to increase the ore quality and production in 2HFY22.
• Higher Cashflow from Operations: The net cash flow from operations stood at $165.2 million in FY21 than $160.1 million in FY20 due to lower payments to suppliers and employees.

Total Revenue & Net Income from FY17-FY21; (Analysis by Kalkine Group)

Key Risks: The company faces the COVID-19 impact, especially on the interstate availability of labour and a freeze on their movement and recruitment. MGX also faces volatility in iron ore prices and production.

Outlook:

• For FY22, MGX plans to complete the open pit waste stripping phase and related activities to boost higher ore shipments from the FY21-end at the Koolan Island project.
• MGX plans to increase production & sales and progress its waste stripping program at the Shine project in FY22.
• MGX targets 3.0-3.2 Mwmt of total iron ore sales in FY22 (~2.0-2.2 Mwmt from the Koolan Island and ~1.0 Mwmt from the Shine project).
• The company estimates site cash operating costs at average $75-80/wmt FOB before royalties, waste stripping expenditure, and capital projects at the Koolan Island project.
• MGX expects the ore quality, cashflows, and sales volumes to weigh heavily towards the 2HFY22.

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 MGX gave a negative return of 21.37% in the past month and a negative return of 47.29% in the past three months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.395 - $1.010. 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 a slight discount than its peers’ median EV/Sales multiple, considering the decline in financial performance and ore mining for FY21 vs FY20 and the COVID-19 impact on the labour availability and mobility. For the purpose of valuation, few peers like BCI Minerals Limited (ASX: BCI), BlueScope Steel Limited (ASX: BSL), BHP Group Limited (ASX: BHP), and others have been considered. Considering the current trading levels, increase in net cash flows from operations, the low debt-to-equity ratio in FY21, valuation, decent outlook and associated business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.475, as on 27 September 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

MGX Daily Technical Chart, Data Source: REFINITIV  

Dacian Gold Limited

DCN Details

Issue of Options: Dacian Gold Limited (ASX: DCN) is a gold producer and miner with exploration project Morgans Gold Operation (MMGO) in Western Australia. On 15 September 2021, DCN notified regarding the issuance of 300,000 unquoted options to Director Mr Michael Wilkes on his recent appointment as the Non-Executive Director under the Listing Rule 10.11 exception 12 of ASX and not under the recently declared Employee Securities Incentive Plan.

Precious Metals Summit - Highlights:

• DCN has an estimated enterprise value of $175 million and a total debt of $16.2 million as of 30 September 2021. It has 2.5 Moz of mineral resources as of September 2021 versus 2.1Moz in 2020.
• The company has generated an updated five-year mine plan leading to average yearly gold production of 115,000oz at an AISC of $1,550/oz from the mining centres – Jupiter, Redcliffe, and Greater Westralia.
• The mine plan supports the preliminary investment with a cash flow profile growing through to FY26.
  

• FY21 Key Takeaways:
• The company delivered a lower production of 106,919oz at an AISC of $1,556/oz from its MMGO project in FY21.
• DCN earned lower sales revenue of $241.62 million in FY21 versus $270.04 million in FY20 at a lower AISC (All-In Sustaining Costs) and improved average gold price on pcp. However, the cost of sales was curtailed by 27% YoY to $153.00 million during the year.
• The net cash flows from operating activities increased by 142% YoY to $55.47 million in FY21.
• The net assets of DCN increased by 70% YoY ($277.03 million), and EPS rose to $(1.2) cents per share (up 94% YoY) in FY21.
  

Net Cash Flow from Operations Highlights; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of production and price changes of gold. The COVID-19 has led to a shortage of skilled labour and restrictions on its inter-state movement.  

Outlook:

• The company has open pits at Mt Morgans and Redcliffe and high-quality underground ore from Greater Westralia. DCN plans to enhance the mine plan and deposit base outside the mine plan to optimise production and decrease operating risk.
• The Redcliffe operations will start production in FY23 at the Hub, GTS and Nambi deposits. DCN will undertake a strategic approach to underground mining at these deposits based on the updated mineral resources report.
• DCN estimates to produce 100,000-110,000 gold ounces at an AISC of $1,550- $1,700/oz in FY22.
  

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 28.57% in the past three months and a negative return of 42.85% 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 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 a slight premium than its peers’ median EV/Sales multiple, considering the improved net loss position in FY21, updated five-year mine plan and mineral resources as of September 2021 and expected merger benefits from NTM Gold & Redcliffe project’s inclusion.  For the purpose of valuation, few peers like Sandfire Resources Limited (ASX: SFR), Resolute Mining Limited (ASX: RSG), Westgold Resources Limited (ASX: WGX), and others have been considered. Considering the low trading levels, increase in net cash flow operations, reduction in debt, revised mine plan and production plans from Redcliffe and Greater Westralia mines, valuation and associated key risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.200, as on 27 September 2021, 10:30 AM, (GMT+10), Sydney, Eastern Australia.

DCN Daily Technical Chart, Data Source: REFINITIV 

Northern Minerals Limited

NTU Details

Issue of Performance Rights: Northern Minerals Limited (ASX: NTU) is a principal supplier of ethically produced Rare Earth Metals and separated products. On 24 September 2021, NTU issued 40.41 million performance rights to the employees and executives as per a Performance Rights Plan and vested for achieving certain milestones on the Browns Range project and other conditions.

Substantial Shareholder’s Interest: On 23 September 2021, Africa Changcheng Mining Holdings Limited became a substantial shareholder in NTU, by purchasing 8.25 million fully paid ordinary shares, representing 5.19% voting rights.

Ore Sorting Initiative: On 13 September 2021, NTU completed the sample testing of 4,479 tonnes of ore from Wolverine at the Browns Range project. The results demonstrated an increase in the grade to the mill and more than 95% TREO recovery while feeding a TREO (0.9%) ore to the sorter circuit.

FY21 Results:

• Raised Funds: On 30 July 2021, NTU completed a $20 million placement with the issue of tranche 2 of 51.02 million unlisted options at an exercise price of $0.074, expiring on 27 July 2024.
• Reduced Net Loss: NTU registered a net loss after tax of $8.52 million for FY21 versus $54.3 million in FY20.
• Increase in Cash Receipts: The cash receipts from customers for FY21 were $22.1 million compared to $3.6 million in FY20.
• Lower Net Cash Outflows from Operations: NTU recorded lower net cash outflows of $885K in FY21 versus $31.75 million in FY20.
• Decline in Total Income: The total income declined from $28.42 million in FY20 to $12.10 million in FY21.
• Liquidity & Debt Position: NTU held higher cash and cash equivalents balance of $19.89 million as of 30 June 2021 ($6.66 million as of 30 June 2020). The total debt balance was $292,339 as of 30 June 2021.

Total Revenue & Net Income Trend from FY19-FY21; (Analysis by Kalkine Group)

Key Risks: The company faces changes in the prices of rare earth minerals, COVID-19 uncertainties, and exploration related risks.

Outlook:

• NTU will expand the ore sorting and testwork plan at the Browns Range project. The company expects improved sorting of the lower grade Banshee (ore) may increase the possibility to increase the Mineral Ore Reserve estimate on the project.
• NTU will hold an AGM (Annual General Meeting) on 25 November 2021 (Thursday) and conduct the re-election of directors.

Stock Recommendation: The stock of NTU gave a positive return of 56.25% in the past three months and a positive return of 78.57% in the past year. The stock is currently trading towards its 52-weeks’ average price level band of $0.027 - $0.070. On a TTM basis, the stock of NTU is trading at a price-to-book value multiple of 7.5x, higher than the industry (Metals & Mining) median of 2.5x, thus seems overvalued. Considering the current trading levels, decent returns in the past three months and the past year, and valuation on a TTM basis, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the current market price of $0.050, as on 27 September 2021, 10: 30 AM, (GMT+10), Sydney, Eastern Australia.

NTU 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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