Stocks’ Details

Evolution Mining Limited

Decent Production in Q1 FY21: Evolution Mining Limited (ASX: EVN) is involved in the exploration, mine development, mine operations and the sale of gold and gold/copper concentrate in Australia and Canada. The market capitalisation of the company stood at ~$8.33 billion as on 26^th November 2020. For the quarter ended 30^th September 2020 (Q1 FY21), the company recorded gold production of 170,021 ounces at an all-in sustaining cost (AISC) of $1,198 per ounce. The company reported a mine operating cash flow of $272.3 million and a net mine cash flow of $183.4 million. The company approved the development of the Galway exploration decline after the end of Q1. This may allow additional drilling to boost underground Ore Reserves and will also be used for future production.

Production and Sales Summary (Source: Company Reports)

Guidance: For FY21, the company is expecting gold production in the range of 670,000 – 730,000 ounces with AISC to be in the ambit of $1,240 – $1,300 per ounce. In addition, the company is likely to make an exploration investment in the vicinity of $70.0 – $100.0 million.

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

Price to Earnings 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 ended September 2020 quarter with a cash balance of $369.7 million and bank debt of $550.0 million. This follows the cash payment of the final FY20 dividend of $153.8 million. In the past one and three months, the stock of EVN has corrected 10.68% and 11.16%, respectively. On a technical analysis front, the stock has a support level of ~$4.76 and resistance of ~$6.46. We have valued the stock using the price to earnings multiple based illustrative relative valuation and arrived at a target price with an upside of low double-digit (in percentage terms). Therefore, considering the company’s decent production in Q1 FY21, guidance for FY21, and valuation we give a “Buy” recommendation on the stock at the current market price of $5.00 per share, up by 2.459% on 26^th November 2020.

Perseus Mining Limited

Rise in Gold Production: Perseus Mining Limited (ASX: PRU) is engaged in the gold production, mineral exploration and gold project development in the Republic of Ghana and the Republic of Côte d’Ivoire. The market capitalisation of the company stood at ~$1.03 billion as on 26^th November 2020. The two operating gold mines of the company Edikan in Ghana and Sissingué in Côte d’Ivoire showcased decent performance in the September 2020 quarter in spite of challenges associated with the COVID-19 pandemic as well as a very extreme wet season in Côte d’Ivoire. During September 2020 quarter, the company produced 68,772 ounces of gold, reflecting a rise of 6% as compared to the prior quarter. The AISC for the quarter stood at US$964 per ounce with an increase of 3% over the previous quarter.

Key Metrics (Source: Company Reports)

Guidance: For 1H FY20, the company expects gold production in the range of 125,500 to 139,000 ounces at an AISC of between US$940 to US$1,025 per ounce.

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 ended September 2020 quarter with a net debt position of US$2.6 million. This was comprised of the cash and bullion of US$147.4 million and corporate debt facility of US$150 million. On a technical analysis front, the stock of PRU has a support level of ~$0.91 and a resistance level of ~$1.55. 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). For the purpose, we have taken peers such Regis Resources Ltd (ASX: RRL), St Barbara Ltd (ASX: SBM), and Evolution Mining Ltd (ASX: EVN), to name a few. Therefore in light of the growth in gold production, guidance, improvement in net debt position, and valuation, we give a “Buy” recommendation on the stock at the current market price of $1.130 per share, up by 3.196% on 26^th November 2020.

Gold Road Resources Limited

Discretion to Declare Maiden Dividend: Gold Road Resources Limited (ASX: GOR) is a gold exploration company with a market capitalisation of ~$1.02 billion as on 26^th November 2020. During September 2020 quarter, the company recorded gold production of 55,919 ounces, which was in line with updated quarterly guidance of 53,000 to 57,000 ounces. The company produced gold at an AISC of $1,488 per attributable ounce. GOR sold 31,480 ounces of gold at an average price of $2,420 per ounce. During the same quarter, the company generated a free cash flow of $48.7 million while the underlying free cash flow (before sale of investment) for the quarter was $22.2 million. The company is likely to declare its maiden dividend in the six-month period ended 31 December 2020. However, this is subject to the discretion of the Board. During 1H FY20, the company recorded gold production of 131,460 ounces (100% basis) at an AISC of $1,186 per attributable ounce and revenue for the half-year amounted to $135.1 million.

Operational Summary (Source: Company Reports)

Guidance: For FY20, the company is expecting gold production in the range of 250,000 to 270,000 ounces at an annual AISC of between $1,250 to $1,350 per ounce. The company added that the December 2020 quarter is likely to be a stronger quarter.

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: During the quarter, the company increased its revolving corporate debt facilities to $250 million as a part of its ongoing capital management strategy to make sure a liquid and flexible balance sheet. GOR finished the quarter in a strong position with cash and equivalents of $103.0 million and no debt. On a technical analysis front, the stock of GOR has a support level of ~$1.07 and a resistance level of ~$1.67. 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). For the purpose, we have taken peers such Regis Resources Ltd (ASX: RRL), OceanaGold Corp (ASX: OGC), and Saracen Mineral Holdings Ltd (ASX: SAR), to name a few. Thus, in light of the decent production in September 2020 quarter, decent FY20 guidance, debt-free balance sheet, we give a “Buy” recommendation on the stock at the current market price of $1.220 per share, up by 5.172% on 26th November 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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