Stocks’ Details

Orocobre Limited

Cash Balance at Q1FY20 Stands at US$223.5 Mn:Dynamic global lithium carbonate supplier, Orocobre Limited (ASX: ORE) is involved in the exploration, development and production of lithium at its flagship Olaroz lithium facility.

Recently, the company’s Director, Martín Pérez de Solay acquired 132,818 Ordinary Shares in terms of US$250,000 of performance rights vesting based on the share price on the first anniversary of employment, i.e., 12 November 2019 related to Commencement and Retention rights. He also acquired 87,524 FY19 performance rights under Orocobre Limited Performance Rights and Option Plan, along with US$250,000 performance rights vesting and based on the share price on the second anniversary of employment, i.e., 12 November 2020 related to Commencement and Retention rights.

Key Highlights of September Quarter 2019: Revenue for the quarter came in at US$22.1 million, down 21% and 30%, sequentially and pcp, respectively. Sales quantity for the period increased by 45% on pcp. Average price received fell by 52% on pcp. Gross cash margin for September quarter of 2019 (excluding export tax) was down by 78% on pcp. Company’s cash balance at the end of the period stood at US$223.5 million.


Quarterly Combined Product Sales Volumes (Source: Company Reports)

What to Expect:Full-year FY20 production is expected to be at least 5% higher than FY19. For 2QFY20, the company expects average sales price to be in the range of US$6,200-6,500/tonne.

Industry Outlook:Lithium chemical prices are well below incentive pricing for green-fields projects but are expected to recover in the medium-term with the production ramp-up in EV segment. Whilst the company has decreased its price guidance for the quarter, operational and cost improvements are expected to limit the impact on its operating margin.

Valuation Methodology: EV/Sales Multiple Approach

EV/Sales Multiple Based Valuation (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months, *1 US$=1.45 A$

Stock Recommendation: ORE’s share generated a negative YTD return of 14.20%, while in the span of three months, the stock gained 4.21%. The Company is one of the lowest-cost producers of lithium chemicals in the world. Its profitability margins have improved over the previous year. Gross margin and net margin for FY19 stood better than the industry median, implying decent fundamentals for the company. Its current ratio for FY19 stood at 3.27x, better than the industry median of 1.81x. Considering the company’s strong business model, balance sheet and decent EV outlook and current trading levels, we have valued the stock using a relative valuation method i.e., EV/Sales multiple approach and arrived at a double-digit growth (in %). Hence, we recommend a “Speculative Buy” rating on the stock at the current market price of $2.610, down 4.044% on December 23, 2019.

Resolute Mining Limited

Positive Cashflow Anticipation from Ravenswood Gold Mine:Resolute Mining Limited (ASX: RSG) is a gold mining company, engaged in the development of resource projects, and prospecting and exploration for minerals. On December 23, 2019, the company informed the market that Stage 1 of the Ravenswood Expansion Project (REP), Queensland, Australia, has been completed. With this, the annual production from Ravenswood is expected to reach around 80,000oz of gold at All-In Sustaining Costs of A$1,600/oz in 2020, based on the processing of the beneficiated LGMS at 5Mtpa. The company is now generating positive operating cash flows, which is expected to continue during further REP development stages. Moreover, full REP is expected to be developed over 24 months and deliver around 200,000oz of gold annually for 15 years from 2022.

On December 20, 2019, the company informed the market that the sulphide roaster at its Syama Gold Mine in Mali (Syama) has been successfully brought back online and is operating at nameplate capacity. Due to the detection of a crack in the main external shell, it was taken offline in early October.


September Quarter Cash, Bullion and Listed Investments Data (Source: Company Reports)

In another update, RSG reduced its substantial holding in the company Mako Gold Limited (ASX: MKG) from 16.98% to 15.13%, effective from December 19, 2019.

Key Highlights of September’19 Quarter: Gold production at Syama for the period was reported at 45,804 ounces (oz) at an AISC of A$2,224/oz (US$1,523/oz). Total borrowings came in at A$528 million, comprising the US$150 million revolving credit facility, the US$130 million acquisition bridge facility provided by Taurus, US$58m Mako project loan also provided by Taurus, and the net balance of the Company’s unsecured overdraft facility with BDM and in-country receivables.

Valuation Methodology: Price to CashflowMultiple Approach

Price to Cashflow Multiple Based Valuation (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
Stock Recommendation:The stock gave a negative YTD return of 4.80% and is currently trading towards its 52-week low of $0.965. Resumption of the sulphide roaster at Syama Gold Mine in Mali along with an increase in plant capacity at Ravenswood, Queensland are expected to deliver positive cashflows and profitable mining operation. Its gross margin, EBITDA margin and net margin for H1FY19 stood at 21.3%, 24.1% and 12.0%, better than the previous quarter. Considering the company’s management change, resumption in operation at Shyama, positive outlook for Ravenswood, we have valued the stock using a relative valuation method, i.e., Price to Cashflow multiple, and arrived at a target price of double-digit upside (in percentage terms). Hence, we recommend a “Buy” rating on the stock at the current market price of $1.110, up 1.835% on December 23, 2019.

Regis Resources Limited

Cash Balance at the end of Sep. Qtr. Stood at $147.4 Mn:Regis Resources Limited (ASX: RRL) is involved in the production of gold from the Duketon Gold Project; exploration, evaluation and development of gold projects in the Eastern Goldfields of Western Australia; and exploration and evaluation of the McPhillamys Gold project in New South Wales.

On December 19, 2019, the company announced the appointment of Mr Stuart Gula as Chief Operating Officer. Mr. Gula has experience of more than 30 years in operational and executive positions across a range of commodities and jurisdictions such as Africa, China, USA and Indonesia.

September’19 Quarter Key Highlights: Gold production for the quarter stood at 87,633 oz as compared to 90,966 oz in the previous quarter. Pre-royalty cash cost (CC) for the quarter stood at $914/oz and All-In Sustaining Cost of $1,234/oz as compared to CC of $949/oz and AISC of $1,189/oz in the previous quarter. Cash and bullion as on September 30, 2019 was reported at $147.4 Mn as compared to $205.3 Mn in the previous quarter.


September Quarter Operating Result Data (Source: Company Reports)

FY20 Guidance:The group has kept its full-year guidance unchanged for FY20 with a production range of 340,000 - 370,000 oz at an AISC range of $1,125-$1,195/oz, with an assumption of $0.70 exchange rate, diesel prices as on June 30, 2019 and gold price of $1,750/oz. Moreover, with a positive outlook fromRosemont underground, gold production over the next 3 years is expected to lift by around 10% above the current level to ~400,000 ounces by FY2022.

Valuation Methodologies:
Method 1: EV/SalesMultiple Approach

EV/Sales Multiple Based Valuation (Source: Thomson Reuters)

Method 2:EV/EBITDAMultiple Approach

EV/EBITDA Multiple Based Valuation (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock posted a negative YTD return of 13.47%, and currently it is trading close to its 52-week low level of $4.005, proffering an opportunity for accumulation. Its EBITDA margin and net margin for FY19 stood at 47.8% and 24.9%, better than the industry median of 28.7% and 10.9%, respectively, implying decent fundamentals for the company. ROE for FY19 stood at 24.1%, better than the industry median of 12.0%. Current ratio for FY19 stood at 3.03x, better than the industry median of 1.81x. Considering the company’s September quarter results, net cash position along with decent profitability margins for FY19, combined with a positive outlook, we have valued the stock using two relative valuation methods, i.e., EV/Sales and EV/EBITDA multiples approach and arrived at a target price of lower double-digit growth (in % term) Hence, we give a “Buy” recommendation on the stock at the current market price of A$4.080 per share, down 0.73% on December 23, 2019.

St Barbara Limited

Cash in Bank at the end of Sep. Qtr. Stood at $76 Mn:St Barbara Limited (ASX: SBM) is a gold producer and is engaged in mining and the trade of gold, mineral exploration and development in three countries, i.e., Western Australia, Papua New Guinea, and Nova Scotia, Canada. On December 13, 2019, SBM ceased to be a substantial holder in Prodigy Gold NL.

September’19 Quarter Key Highlights:Total production for the period was reported at 88 koz at an All-in Sustaining cost (AISC) of $1,421/oz. Operational cash flow for the period stood at $43 million, down from $58 million in the prior quarter. The company had $76 million of cash at bank and A$112 million of debt at the end of the quarter.


Quarterly Operational Highlights (Source: Company Reports)

Valuation Methodologies: EV/EBITDAMultiple Approach
 
EV/EBITDA Multiple Based Valuation (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

What to Expect:Gold production at Gwalia, Simberi and Atlantic are expected to be in the range of 175 to 190 koz, 110 to 125 koz and 95 to 105 koz. Production from the Simberi operations is expected to be in the range of 110 to 125 koz. AISC cost at Gwalia, Simberi and Atlantic are expected to be in the range of $1,390/oz to $1,450/oz, $1,285/oz to $1,450/oz and $900/oz - $955/oz, respectively.

Stock Recommendation: SBM’s stock is trading below the average of its 52-week low and high level of $2.430 and $5.152, respectively. The company is taking major steps to enhance its growth prospects through planned reserve expansion and regional drilling programs. Its gross margin, EBITDA margin and net margin for FY19 stood at 51.5%, 44.3% and 21.8%, better than the industry median of 38.9%, 28.7% and 10.9%, respectively. Considering the aforesaid facts, we have valued the stock using a relative valuation method, i.e., EV/EBITDA multiple based approach and arrived at a target price with double-digit upside (in % terms). Hence, we give a “Buy” recommendation on the stock at the current market price of $2.520, down 1.562% as on December 23, 2019.

 
Comparative Price Chart (Source: Thomson Reuters)

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