St Barbara Limited

SBM Details

Declared Dividend: St Barbara Limited (ASX: SBM) commercialises gold and silver deposits by exploring, developing, mining that operates in three operational business units, including Leonora Operations, Simberi Operations, and Atlantic Operations. The company has declared a fully franked final dividend of $0.02 per security, taking total dividends for FY21 to $0.06.

FY21 Financial Performance:

• The company recorded a decreased production of 328 koz in FY21 from 382 koz in FY20 at an AISC of $1,616/oz.
• The company has reported a decline in its EBITDA by 12% to $300 million in FY21, compared to $339 million in FY20. The lower production in Leonora and suspended Simberi production due to a tragic fatality at the site have impacted the financials.
• SBM contributed net operational cash of ~$208 million in FY21 due to higher sustaining capital investment at Leonora and Simberi during the year.
• Additionally, SBM has reported an underlying profit of ~$81 million in FY21, down by 26% from ~$108 million in FY20.
• The period ended with a cash balance of ~$133 million as of 30 June 2021.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Gold Price Risk- The fluctuations of gold prices in the global market have a direct impact on the company’ profitability.
• Impact of COVID-19 pandemic- The company has faced the challenge of delay in projects and lower productivity during the COVID-19 pandemic that has impacted its operations, and still, the uncertainty prevails.

Outlook:

• The company has provided its FY22 guidance for production in the range of 305-355koz at AISC $1,710-1,860/oz and net capital growth between $70-95 million.
• The company has strategised to deliver building brilliance in operations, execute brownfield expansion projects, acquire synergies, and invest in exploration activity.
• It expects exploration expenditure to be between $28 million and $32 million 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 realized gold price has increased to $2,215/oz in FY21 from $2,166/oz in FY20. The stock of SBM is trading below its average 52-weeks' levels of $1.405-$3.470. The stock of SBM gave a positive return of ~3.84% in the past one week and a negative return of ~56.83% in the past one year. The stock has been valued using EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount to its peers' average EV/Sales, considering a decrease in topline and bottom-line growth, and lower production in FY21. For the purpose of valuation, peers such as Regis Resources Ltd (ASX: RRL), Ramelius Resources Ltd (ASX: RMS), Silver Lake Resources Ltd (ASX: SLR) have been considered. Considering the current trading levels, indicative upside in valuation, decent balance sheet, projects in the pipeline and decrease in debt levels, we recommend a 'Buy' rating on the stock at the current market price of $1.475, as on 16 September 2021, 10:41 AM (GMT+10), Sydney, Eastern Australia.

SBM Daily Technical Chart, Data Source: REFINITIV

Norwest Minerals Limited

NWM Details

Business Update: Norwest Minerals Limited (ASX: NWM) engages in the exploration of gold and base metals includes iron oxide, nickel, zinc, and lead deposits in Western Australia. As per a recent announcement, the company has appointed Mr Sia Hok Kiang to the board. Mr. Sia has expertise in exploration and mining with an experience of over 40 years in the field of mineral resource work.

Response to ASX Query: The company has given a response to ASX with the information with regards to Appendix 3X which was lodged late. NWM pointed out that this occurred owing to an administrative error on behalf of the Company Secretary.

Q4FY21 and FY21 Financial Performance:

• The company reported net cash used in operating activities was $644k in FY21.
• The intercepts from the Bulgera open-cut deposit include 16m @ 7.3g/t Au (inc. 3m @ 30.3g/t Au) from 194m in BRC21015.
• During the quarter, the company decided to surrender 100% of four Ninghan projects and further final form 5 and surrender forms were lodged.
• The company's cash position stood at $1.1 million and was debt-free as of 30 June 2021.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Geological Risk: The company is exposed to geological risk where it needs to have a regular quality and quantity check from a geologist. Therefore, any negative report could impact its operations.
• Liquidity Risk- The company requires sufficient liquidity to meet the financial obligations, operational activity, clinical trials, and mitigate the working capital risks.

Outlook:

• The company has commenced planning for drill activities at 100% owned Bali Copper Project.
• The company has plans to collect soil samples across prospective areas within all six project tenements aimed to ‘drill ready’ targets for testing in 2022.

Stock Recommendation: The company has updated that it has received assay results from 5,600m aircore drilling program at Marymia East. The stock of NWM is trading below its average 52-weeks' levels of $0.065-$0.145. The stock of NWM gave a negative return of ~6.84% in the past one week and a negative return of ~34.85% in the past one year. On a TTM basis, the stock of NWM is trading at a Price/Book Value multiple of 0.1x, lower than the industry median (Basic Materials) of 2.7x, and thus seems undervalued. Considering the current trading levels and valuation on a TTM basis, decent balance sheet, planned drilling activities in Bali Copper Project, higher current ratio over the industry, and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $0.069, up by ~1.47% as on 16 September 2021. Investors with high-risk appetite should evaluate this stock in view of the technical support and resistance levels as well as taking into consideration associated risks in climate changes, geological related risks, and changes in mining technology.

NWM Daily Technical Chart, Data Source: REFINITIV

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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