Stocks’ Details

Iluka Resources Limited

Demerger of Deterra Royalties Limited: Iluka Resources Limited (ASX: ILU) is engaged in the exploration, project development, mining operations, processing and marketing of mineral sands and rehabilitation. The market capitalisation of the company stood at ~$2.65 billion as on 21^st December 2020. Recently, the company announced that it has finished demerger of Deterra Royalties Limited from Iluka and the number of Dettera shares on issue stood 528,462,101, which commenced trading on ASX on 3^rd November 2020. As a result of this demerger, the mineral sands business of ILU has been separated from the royalty business. During Q3FY20, the company recorded total mineral sand production of 246.5kt as compared to 299.7kt in September 2019 quarter. In addition, sales for the quarter stood at 170.1kt against 167.1kt of Q3 FY19. The company earned mineral sands revenue of $210.2 million as compared to $252.9 million of Q3 FY19.

Key Financials (Source: Company Reports)

Outlook: For the second half, the company is focused on monitoring market conditions and optimise operational settings as required. In addition, the company would also make investments for business growth, which include key technology projects.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company reported net cash of $62 million at the end of 1HFY20. The stock of ILU is trading below its 52-week low-high average of $7.730, offering decent opportunity for accumulation. On a technical front, the stock has a support level of ~$5.191 and resistance level of ~$6.455. We have valued the stock using the price to earnings multiple based illustrative relative valuation and have arrived at a target price of low double-digit (in percentage terms). For the purpose, we have taken peers such as Fortescue Metals Group Ltd (ASX: FMG), South32 Ltd (ASX: S32), and Mineral Resources Ltd (ASX: MIN), to name a few. Hence, considering the rising sales, improved cash position, and current trading levels, we give a “Buy” recommendation on the stock at the current market price of $6.420 per share, up by 2.229% on 21^st December 2020.

Silver Lake Resources Limited

Divestment of Andy Well and Gnaweeda Projects: Silver Lake Resources Limited (ASX: SLR) is engaged in the production and exploration of gold with tenements in the Mount Monger goldfields of Western Australia. The market capitalisation of the company stood at ~$1.63 billion as on 21^st December 2020. Recently, the company announced the sale of the Andy Well and Gnaweeda projects in Western Australia to Latitude Consolidated Limited. The company would be receiving a sale consideration of A$8 million on completion of the transaction. SLR added that Latitude has agreed to pay a non-refundable $250,000 deposit. The sale is likely to be finished by early 2021.

Financial Highlights: For the quarter ended 30^th September 2020 (Q1 FY21), the company recorded gold production of 62,262 ounces and 424 tonnes of copper. The sales for the quarter stood at 67,598 ounces gold and 439 tonnes copper at a sales price of A$2,454/oz and an AISC of A$1,420/oz. During FY20, the company reported a rise of 64% in gold production to 273,071 ounces gold equivalent and sales for the year witnessed an increase of 54% in gold sales to 263,362 ounces gold equivalent at a realised price of A$2,132/oz. Normalised profit after tax for the year amounted to $133 million, indicating a rise of 699% on YoY basis.

Production Summary (Source: Company Reports)

Guidance: For FY21, the company expects gold sales in the range of 240,000 to 250,000 ounces and 1,100 tonnes of copper at an AISC range of A$1,400 to A$1,500 per ounce.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company ended September 2020 quarter with a rise of 13% in cash and bullion to $303 million and nil debt balance. The stock of SLR has provided positive returns of 1.32% and 1.59% in the last one and six months, respectively. The 52-week low-high range for the stock stands at $1.045 - $2.750, respectively. On a technical front, the stock has a support level of ~$1.6053 and resistance level of ~$2.3133. We have valued the stock using the price to earnings multiple based illustrative relative valuation and have arrived at a target price of low double-digit (in percentage terms). For the purpose, we have taken peers such as Ramelius Resources Ltd (ASX: RMS), Resolute Mining Ltd (ASX: RSG), and Perseus Mining Ltd (ASX: PRU), to name a few. Therefore, considering the decent performance in Q1 FY21, rising cash position, nil debt, and guidance for FY21, we give a “Hold” rating on the stock at the current market price of $1.915 per share, up by 2.956% on 21^st December 2020.

New Hope Corporation Limited

A Look at Q1FY21: New Hope Corporation Limited (ASX: NHC) is mainly engaged in coal exploration and project development in Queensland. The market capitalisation of the company stood at ~$1.14 billion as on 21^st December 2020. Recently, the company advised the market about the sale of 50,000,000 fully paid ordinary shares by Washington H. Soul Pattinson and Company Limited. For the quarter ended 31^st October 2020 (Q1 FY21), the company reported total saleable coal production of 2.11 million tonnes as compared to 3.32 million tonnes in Q1 FY20. The fall in production was mainly because of the planned Bengalla dragline shutdown and ramp down of operations at New Acland. Coal sales for the quarter stood at 2.3 million tonnes against 3.3 million tonnes in Q1 FY20. During FY20, the company reported revenue from operations of $1,084 million as compared to $1,306 million in FY19. Production for the year increased to 11.3 million tonnes and sold 11.5 million tonnes of coal. This growth was generated by the full-year interest of 80% in Bengalla Joint Venture.

Key Metrics (Source: Company Reports)

Outlook: For FY21, the company expects total production to reach record levels through continued operational improvements, owing to higher demand for industrial and domestic electricity generation on the back of future growth in Asia. Hence, the company is optimistic about its mid to long-term business outlook.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

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

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company is in a decent position to pass through the current global economic downturn and retain its position as one of Australia’s leading coal producers on the back of a suite of low cost, quality assets and strong balance sheet. In the last six months, the stock of NHC has corrected 1.94%, and as a result, the stock is trading towards its 52-week low level of $1.015, offering decent opportunities for accumulation. On the technical analysis front, the stock has a support level of ~A$1.0281 and a resistance level of ~A$1.649. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price, which is offering an upside of low double-digit (in percentage terms). Therefore, in light of the expected rise in production in FY21, strong balance sheet and current trading levels, we give a “Buy” recommendation on the stock at the current market price of $1.390 per share, up by 1.090% on 21^st December 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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