AngloGold Ashanti Limited

AGG Details

Update on Share Purchases: AngloGold Ashanti Limited (ASX: AGG) mines gold, produces silver and sulphuric acid as by-products. AGG operates via three key segments in Continental Africa, the Americas, and Australia. On 10 August 2021, Stewart Bailey, an authorised officer from AGG, bought 2,077 shares at R240.77 per share for R500,080.73 in an on-market purchase.

1HFY21 Dividend: On 10 August 2021, AGG announced to pay an interim dividend of R0.1740 to the shareholders for the six months period ended as of 30 June 2021. AGG has announced 27 August 2021 as the record date and 10 September 2021 as the payment date.

1HFY21 Highlights:

• Lower Production: AGG reported 1.2Moz of production across its projects Kibali, Cerro Vanguardia, Iduapriem, Sunrise Dam, Geita, and Tropicana in 1HFY21.
• Higher AISC: AGG incurred a higher All-In Sustaining Cost (AISC) of US$1,333/oz, up by 33% YoY in 1HFY21 due to the planned reinvestment, stockpile movements, COVID-19 impact, and lesser gold sold.
• Fall in Adjusted EBITDA: AGG posted an EBITDA of US$876 million in 1H1FY21 versus US$1,035 million in 1HFY20.
• The Decline in Adjusted Net-Debt: The Adjusted net-debt reduced by 41% YoY to US$850 million in 1HFY21. The adjusted net debt-to-adjusted EBITDA ratio enhanced from 0.73x as of 30 June 2020 to 0.37x as of 30 June 2021.
• 1HFY21 Dividend: AGG declared 6 US cents per share (cps) (or 87 ZAR cps) of interim dividend for 1HFY21.
• Ghana Arbitration Proceedings Update: In 1HFY21, AGG reported that the participant companies - Geita Gold Mining Limited and Samax Resources Limited have agreed to postpone the arbitration proceedings for 1.5 years and considered to amicably resolve the conflict.
• Tanzania Arbitration Proceedings Update: On 12 April 2021, AngloGold Ashanti (Ghana) Limited (AGAG) and Building Contractors Limited’s (MBC) entered a settlement contract to resolve their ongoing dispute at no cost to either of the companies.
• Obuasi Operations Update: AGG suspended the underground mining activities at the project after the sill pillar failure on 18 May 2021. However, the company is conducting a detailed third-party review of all underground work areas. AGG expects to resume the underground mining activities towards the close of 2021, will update post-completion of the mine review by its Board accurately. The company has also excluded further production contributions from Obuasi from its revised guidance for FY21.
  

Gold Production from Continuing Operations from 1HFY20-1HFY21; (Analysis by Kalkine Group)

Key Risks:

• Operating Headwinds: AGG faces the COVID-19 impact, higher employee turnover rate, rising commodity prices, and inflationary pressures. The company faces a shortage of skilled employees in Brazil and Australia.

• Higher Capex: In Brazil, AGG’s estimated capex increased due to converting the existing tailings storage facilities (TSFs) to dry-stacked structures. Hence, higher capex may impact the company’s liquidity margin.
  

Outlook:

• For FY21, the company estimates to produce 2.45Moz - 2.60Moz gold and incur the total cash cost in the range of $890 - $950/oz.
• AGG estimates AISC between $1,240 - $1,340/ oz and total capex between $1,030 - $1,190 million in FY21. AISC has been affected due to total cash cost impacts of $100/oz and further by $10/oz due to the Obuasi impacts relating to AISC in the 2HFY21.

Stock Update: The stock of AGG gave a negative return of ~26.89% in the past three months and a negative return of ~15.46% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $4.520 - $8.500. As mentioned above, AGG has suspended operations at the Obuasi gold mine and withdrawn guidance on the project as of now. AGG has not factored in Obuasi’s production in the guidance provided above for 2021. The company has recently submitted a proposal to acquire Corvus Gold Inc. for cash and will update once a definitive agreement has been signed. Given these latest developments, we suggest investors keep a close watch on these developments. The stock of AGG closed at the price of $4.810 per share as of 19 August 2021.

AGG Daily Technical Chart, Data Source: REFINITIV  

Regis Resources Limited

RRL Details

Presentation Update: Regis Resources Limited (ASX: RRL) engages in evaluating, exploring, and developing gold projects in Australia. RRL owns and operates the Duketon project and the McPhillamys project. In a recent presentation at the Diggers and Dealers Forum, RRL updated on the following highlights to the investors:

• The company reported an increase of 35% in total resources to 10.4 Moz and 33% in total reserves to 4.8 Moz in 2021.
• RRL estimates active operations (working life) at the Duketon project till 2028. The company plans to expand the tenure of project operations by identifying considerable low-grade oxide resources. 
• RRL recorded 2.3Moz in Resources and 0.8Moz in Reserves at the Tropicana gold project, a JV between RRL (30%) and AngloGold Ashanti (70%). The resources and reserves at the Tropicana project support a ten-year plus production outlook.

Q4FY21 Key Takeaways:

• Higher Production: The company reported gold production of 114,145oz in Q4FY21 versus 85,748oz in Q3FY21.
• Growth in Revenue: The June 2021 quarterly revenue stood at $279 million versus $ 135.7 million in Q3FY21 due to higher average realised prices and gold sales.
• Higher Operating Cash Flows: The company generated $108.5 million of operating cash flowsin Q4FY21, higher than $67.2 million in Q3FY21.
• Change in Hedging Structure: In Q4FY21, RRL notified of a change in the hedging structure from spot deferred hedges to flat forward hedges held with the Macquarie Bank Limited. RRL will receive fixed revenue from its hedged production, not subject to market fluctuations per the revised hedging strategy.
• Improved Liquidity: RRL held $268.7 million in cash and bullion (including $43.7 million from the funds raised to acquire 30% interest in Tropicana) versus $202.3 million in Q3FY21.
• Tropicana Acquisition: On 31 May 2021, RRL acquired a 30% interest in the Tropicana gold project for a cash consideration of $888.6 million from IGO Limited.

Acquisition of Debt Facility Syndication: RRL is engaged with the Bank of America (BOA) to finalise the syndication process for a $300 million loan facility to acquire the Tropicana gold project. Post-the end of Q4FY21, RRL confirmed HSBC, Macquarie, NAB, and Westpac as the participants for the debt syndication. On 31 May 2021, BOA confirmed the $300 million drawn from the loan facility obtained from the Bank of America.

Production from FY19-FY20; (Analysis by Kalkine Group)

Key Risks:

• COVID-19 Impact: The company faces restricted site access for engineering and potential vendor inspections due to the COVID-19 impact.
• Gold Price Volatility: The adverse change in realised prices can affect the revenue and profit realisation for RRL for the given period.

Outlook:

• The company expects production in the range of 460,000 – 515,000 oz in FY22. The AISC is estimated between $1,290 - $1,365/oz. The company expects to spend $155 - $165 million on growth capital and $43 million on exploration in FY22.
• For the recently acquired Tropicana gold project in Q4FY21, RRL estimates 120,000 – 135,000 oz production at an AISC of $1,140 - $1,230 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 RRL gave a negative return of 5.40% in the past three months and a negative return of 21.77% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $2.360 - $5.628The stock has been valued using an Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). However, the company might trade at a slight discount than its peers’ average, considering the $300 million BOA loan facility drawn for the Tropicana acquisition, the impact of COVID-19 restrictions and the heated construction market on the development of the McPhillamys Gold Project. For the purpose of valuation, peers like Red 5 Limited (ASX: RED), St Barbara Limited (ASX: SBM), Western Areas Limited (ASX: WSA), and others have been considered. Considering the current trading levels, increase in FY21 production, higher revenue in Q4FY21, substantial increases in Mineral Resources and Ore Reserves reported, acquisition synergies, higher production outlook for FY22, valuation, we give a ‘Buy’ rating on the stock at the current market price of $2.450, down by ~2.391%, as of 19 August 2021.

RRL 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.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website.

Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.