Stavely Minerals Limited

Significant Results from Drilling at Stavely Project: Stavely Minerals Limited (ASX: SVY) is involved in the exploration of minerals and operates 100%-owned Ararat and Stavely projects. As on 1^st March 2021, the market capitalisation of the company stood at ~$208.76 million. SVY announced further considerable results from the drilling program going-on at SMD121 hole within the high-grade Cayley Lode discovery at the Thursday’s Gossan (prospect) in Victoria. SVY aims to extend the Cayley Lode deposit to the north-west within the 1.5km-long zone. The resource drill out is advancing well, generating results, and leading to considerable extension of the Cayley Lode mineralisation. SVY drilled SMD135, SMD134 and other holes in the Cayley Lode position to expand resource definition area with the mineralisation being open both along strike and down-dip.

December 2020 Quarter (Q2FY21) Results: During Q2FY21, SVY continued the drilling at 4 diamond rigs at Cayley lode at the Thursday’s Gossan gold prospect. The drilling took place at SMD104 and SMD106 holes. At SMD106, shallow intercept of exceptionally high-grade gold mineralisation was exhibited. The company continued drilling operations during the lockdown and despite COVID-19 restrictions. On Ararat project, SVY planned drilling for testing the down-dip potential of the present Mt Ararat resource. The company did not undertake exploration at Yarram Park, Ravenswood, Tasmania, and Central Victoria projects during the quarter. For its Black Range JV, SVY has started discussions with CGG Multi-Physics for flying an airborne survey for complete Stavely project consisting of EL5425. During Q2FY21, SVY finished sale and divested of Stavely Tasmania Pty Limited, its wholly-owned subsidiary holding tenements in Northeast Tasmania and in Victoria to Nubian Resources Limited (NBR) for $100,000 cash deposit and 4.19 million shares in NBR.

The company received $11k of receipts from its customers and incurred $4,260k expenditure on exploration and evaluation of projects during Q2FY21. SVY held $26.53 million of cash and cash equivalents at the close of December 2020 quarter.

Cash Flows from Operating Activities, Q2FY21 (Source: Company Reports)

Outlook: The company will test additional exploration targets once it completes the mineral resource definition drilling on Thursday’s Gossan prospect. It expects to take up the same in the next couple of months. It also anticipates completing the testing of interpreted porphyry targets via deep drilling of 2 holes during Q3FY21. On Ararat project at RL2020, SVY anticipates drilling to test the down-dip potential of the existing Mt Ararat resource during the next quarter.

Stock Recommendation: The stock of SVY gave a positive return of 41.81% in the past six months and a positive return of 35.65% in the past nine months. The stock is currently trading above the 52-weeks’ average price band of $0.265-$0.96. The stock of SVY has a support level of ~$0.728 and a resistance level of ~$0.841. Considering the decent returns in the past 3 months and 6 months, low debt level in FY20, significant result update on Stavely project and prospects with further drilling in the upcoming quarter, decent cash position and associated risks with mining due to COVID-19 and government restrictions, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.780 on 1^st March 2021.

E2M Metals Limited

Update on Exploration on Conserrat Project: E2M Metals Limited (ASX: E2M) is involved in the mining and exploration of minerals in Argentina and Australia. As on 1^st March 2021, the market capitalisation of the company stood at ~$58.56 million. Recently, E2M notified the investors regarding the issue of 402k fully paid ordinary shares pursuant to the conversion of 402k unquoted options at an exercise price of $0.2204 each on 23 February 2021 under section 708 A(5)(e) of the Corporations Act 2001. It also notified investors regarding the issue of aforesaid shares without disclosure under Part 6D.2 of the Corporations Act. On 9 February 2021, E2M announced further assay results received from 7 diamond holes drilled at the Florencia, Emilia Este, Mia, and Patricia prospects in January 2021 at Conserrat silver and gold project in the Santa Cruz (80% interest), Argentina. The drilling at Mia prospect at holes CODD-67, CODD-071 and 073 has intercepted with gold and silver deposits. At Florencia prospect, results reported distinct mineralisation and wide zones of shallow gold mineralisation from the drilling. E2M undertook a geophysical survey and discovered 12 structures from Florencia to Ro and Malena with 2 probable prospects. It will test these targets over next 1 month along with the drilling at other prospects. At Emilia Este prospect, 2 holes were drilled and both intercepted wide zones of gold and silver without high-grade mineralisation. E2M resumed drilling on 1 February 2021 after a shut-down of 7 days due to impact of COVID-19 on its employees’ and contractors’ health.

Q2FY21 Results: During Q2FY21, E2M completed a 7,331 meters diamond and RC drill at its Conserrat project at prospect Mia. It discovered new high-grade silver and gold at 4 holes, including a new deeper zone. E2M undertook preliminary drilling identifying 3 new mineralised structures at DRC-FL20-016 and DRC-FL20-019. It awaits silver and gold assay results from the 16 holes drilled at Florencia and Emilia Este at the end of Q2FY21. At Rio Negro projects in Argentina, E2M did not undertake any field work during Q2FY21. During Q2FY21, E2M incurred $2.46 million on exploration and drilling activities, and obtained $1,131k of net income from sales of Argentine CCL bonds. This income is transferred to the Argentine subsidiary of the Group for exploration activities as the operating working capital. E2M, recently completed a share placement to raise $12.29 million at $0.73 per share to investors. Post share placement of capital, E2M holds a cash balance of $15.5 million.

Cash Flows from Operating Activities, Q2FY21 (Source: Company Reports)

Outlook: For March 2021 Quarter, E2M has planned additional drilling of 7500 metres of diamond and lesser reverse circulation at Conserrat project and continue drilling at Mia to explore known extensions of high-grade mineralised shoots. For Rio Negro projects in Argentina, E2M has planned reconnaissance mapping and sampling.

Stock Recommendation: The stock of E2M gave a positive return of 193.10% in the past nine months and a positive return of 240% in the past 1 year. The stock is currently trading towards its 52-weeks’ low level of $0.06. The stock of E2M has a support level of ~$0.404 and a resistance level of ~$0.468. On a TTM basis, we have valued the stock using the price to book value multiple of ~12.2x as compared to industry median of ~5.3x and is thus overvalued. Considering the significant returns for the past 9 months and 1 year, valuation on TTM basis and negative net income during FY16-FY20, we give an ‘Avoid’ rating on the stock at the current market price of $0.425 up by 13.333% on 1^st March 2021, owing to news of conversion of options to shares.

Xantippe Resources Limited

Completion of Sale of 77.5% Interest: Xantippe Resources Limited (ASX: XTC) is an explorer and miner in Western Australia at the Southern Cross Gold project. As on 29^th February 2021, the market capitalisation of the company stood at ~$8.14 million. On 9 February 2021, XTC announced completion of sale of interest (77.5%) in Korean Resources Pty Limited to MGM O’Connor Corporate Advisory Pty Limited. XTC now holds 22.5% free carried interest in Korean Resources Pty Limited subject to certain occurrences as agreed upon. Mr. Young Yu, a Non-Executive Director in XTC is also a Director and shareholder of MGM O’Connor. 

December 2020 Quarter Result Highlights: During Q2FY21, the company announced fire assay analysis from the drilling at Alpine/Roma, Xantippe and Glendower North and Boodarding prospects. It confirmed intersections of shallow gold across these tenements. During Q2FY21, XTC undertook drilling at 14 reverse circulation (RC) holes across the Axehead, Battler North, Glendower North and Xantippe prospects. XTC has received the preliminary assay results of 4m composite assays to be further assessed. It also undertook drilling at 3 holes at Boodarding prospect in Q2FY21. During the quarter, XTC voted early on to acquire a complete package of 26 tenements in the Southern Cross region of Western Australia via exercise of options. The payment involves $200,000 of cash to West Australian Prospectors Pty Limited (WAPPL) and Mr. Vernon Strange and a 2% gross smelter return royalty (GSR) to be paid to WAPPL.  

During Q2FY21, XTC inked an agreement for mineral rights with Yilgarn Iron Pty Limited (YIPL) for grant of iron ore rights on P77/4414 & P77/4415- prospecting licences and E77/2584 – exploration licence. This involves $275,000 of cash payment on a quarterly basis, and a 2% GSR to be paid to XTC for taking product from tenements. Under the agreement, XTC holds the rights to mine and explore minerals on the tenements other than iron ore. During Q2FY21, XTC notified of the change in the principal place of business and registered office to the investors. The company received $307k of receipts from the customers during Q2FY21. It held cash and cash equivalents of $967k as on 31 December 2020.

Cash Flows from Operating Activities, Q2FY21 (Source: Company Reports)

Outlook: The company awaits results from the drilling at Boodarding, Axehead, Battler North, and other prospects. It has planned further RC drilling to begin in the coming weeks and remains well-funded to undertake further drilling programme. For new tenements, XTC immediately wants to create a geological model deploying the newly processed relational dataset to prioritise drilling targets. 

Stock Recommendation: The stock of XTC gave a negative return of 42.85% in the past six months. The stock is currently trading below the 52-weeks’ average of $0.001-$0.005. The stock of XTC has a support level of ~$0.001 and a resistance level of ~$0.003. On a TTM basis, we have valued the stock using price to book value multiple of ~4.6x as compared to industry median of ~3.1x and is thus overvalued. Considering the negative return in the past 6 months, low cash position, negative ROE and margins, and valuation on TTM basis, we give an ‘Avoid’ rating on the stock at the current market price of $0.002 on 1^st March 2021.

Key Petroleum Limited

Contract for Purchase & Sale of Interest to TEG: Key Petroleum Limited (ASX: KEY) is an explorer and explorer of gas and oil projects. As on 1^st March 2021, the market capitalisation of the company stood at ~$7.87 million. KEY recently announced entering a sale and purchase contract and royalty deed with Triangle Energy (Global) Limited (ASX: TEG). Through its subsidiaries, KEY will sell 50% remaining interest of KEY (Australia) in Production Licence L7(R1) and combined 86.94% interest of Key Petroleum Limited and Key Midwest Pty Limited’s in exploration permit-EP 437. A WOS (wholly owned subsidiary) of TEG will hold the relevant interests acquired under the contract. The completion of agreement will be subject to regulatory approvals, execution of a covenant deed, TEG’s receiving binding commitments for a minimum $1 million capital and approval of KEY’s shareholders if need be.

December 2020 Quarter (Q2FY21) Result Highlights: During Q2FY21, KEY planned activities on L7 (Mount Horner) for a Bookara 3D Seismic Survey to cover most of L7 and include EP 437 to be carried out in 2021. Post Q2FY21, the JV undertook survey design, botanical survey, and aerial photo survey for seeking environmental approvals. KEY and TEG hold 50% interest each on Bookara Shelf Oil Project. At Northern Perth Basin, KEY completed sale of 40% interest in WA-481-P on 17 December 2020 to Pilot Energy Limited (PEL, operator). KEY received two tranches of 21 million ordinary fully paid shares in PEL as consideration for the deal. By the end of Q2FY21, KEY drew $50k out of its loan fund of $250k. Together with the loan facility, and return on deposits expected, KEY believes it has funds available to meet more than two-quarters cash requirements. The company incurred gas and oil exploration spend of $27,000 and undertook no substantive production or development activities for Q2FY21. On 31 December 2020, KEY held $130k of cash on hand.

Cash Flows from Operating Activities, Q2FY21 (Source: Company Reports)

Outlook: For Q3FY21 quarter, the company continues to engage in discussions with potential JV partners for its Cooper Eromanga Basin exploration portfolio. For Bookara Shelf oil project, TEG and KEY will plan again and estimate budget to comprise extension of the Bookara 3D Seismic Survey. It will also monitor COVID-19 situation continuously to revisit previously planned operational schedules as the situation stabilises.

Stock Recommendation: The stock is currently trading towards above 52-weeks’ average price level of $0.003-$0.004. The stock of KEY has a support level of ~$0.0035 and a resistance level of ~$0.0047. Considering the current trading levels, volatility in the stock price recently, loss-making business and no revenue from core projects, weak cash balance, we give a ‘Avoid’ rating on the stock at the current market price of $0.004, up by 14.285% on 1^st March 2021. The fall in price can be attributed to the recent news regarding the sale of interest in the aforesaid holdings in on shore Perth Basin.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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