Dacian Gold Limited 

DCN Details

Positive Drilling Results from The Piccolo Star Prospect: Dacian Gold Limited (ASX: DCN) is an Australian gold mining company with a highly prospective land package in Western Australia. In an exploration update provided on 4 November 2011, the company notified that the RC drilling results from the Piccolo Star Prospect has identified numerous significant intercepts over 750m of strike within the Piccolo Star structural zone which remains open along strike.

Q1FY22 Result Highlights: Over the September 2021 quarter, the company completed the 19,000m of exploration and growth drilling. Further, the company also made the investment into the operation with total development capital spend of $18.5 million on Doublejay pre-stripping and advancing the Redcliffe project.

• Production Update: For the quarter ending 30 September 2021, the company reported total gold production of 15,819 ounces at an AISC of $2,362/oz.
• Processing Update: Over the quarter, the company processed a total of 686,671t of ore at an average feed grade of 0.79g/t Au containing 17,343oz.
• Cash and Debt Scenario: As at 30 September 2021, the company had total cash of $31.0 million and gold on hand of $2.2 million. Further, the company had total debt of $16 million.

FY21 Result Highlights: For FY21, the company has reported total gold revenue of $241.1 million, down by ~11% on the previous year. Further, the company reported adjusted EBITDA of $54.84 million, up 52% on FY20. Net loss for FY21 stood at $7.5 million vs loss of $116.46 million in FY20.

Net Loss Trend (Source: Analysis by Kalkine Group)

Positive Exploration Results at Jupiter: In an exploration update provided on 25 October 2021, the company announced that the exploration drilling results at the Jupiter mining complex have intersected mineralisation at depth in the Jupiter syenite intrusive system, at the limit of, and below the Mineral Resource estimate.

Key Risks:

• Commodity Price Risk: DCN is exposed to the risks related to the fluctuations in commodity prices and exchange rates, specifically the USD denominated gold price and the AUD / USD exchange rate.
• COVID-19 Uncertainties: The potential supply chain disruptions resulting from the transmission COVID-19 in the community and measures implemented by governments around the world to limit the transmission of the virus could impact the company’s operations, financial position, prospects, and ability to raise capital.

Outlook: Looking ahead, the company expects the quarterly production to increase for the remainder of FY22 as open pit strip ratio reduces and underground mines begin stope production. For FY22, the company expects its gold production to be in the range of 100,000-110,000oz with AISC of between $1,550- $1,700/oz. The company is set to conduct its annual general meeting on 25 November 2021.

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: Over the last six months, the stock has been corrected by 34.84% and is trading lower than the average 52-week price level band of $0.195 - $0.565. The stock has been valued using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price of a low double-digit upside (in % terms). The company can trade at slight discount to its peers, considering the uncertainty surrounding the COVID-19 pandemic and fluctuations in gold price. For the valuation purpose, peers such as Westgold Resources Ltd (ASX: WGX), Resolute Mining Ltd (ASX: RSG), and Gascoyne Resources Ltd (ASX: GCY), have been considered. Considering the positive exploration drilling results at the Jupiter mining complex, decent production performance in September 2021 quarter, modest outlook, current trading level, valuation, and key risks associated with the business, we give a “Speculative Buy” rating on the stock at the closing price of $0.215 as on 4 November 2021.

 DCN 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.

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