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Stocks’ Details
Magnetic Resources NL
Exploration Update: Magnetic Resources NL (ASX: MAU) is an Australian metal and mining company involved primarily in the exploration of gold and iron ore. The company has a market capitalisation of $299.52 million as at 24 July 2020. The company owns 252km2 of the area in the Laverton region where it has conducted various exploration activities. At Hawks Nest 9 (HN9), a part of the Laverton Region, the company has completed extensive drilling programmes including 496 RC holes totaling 23,274m, 5,826 2-5m composites and 4,159 1m splits. In the recently released June quarter report, the company informed that there are many new shallow intersections in the area with a total of 406 intersections greater than 0.5g/t Au. So far, a thickened porphyry has been delineated over a 400m strike length and is now being tested over a 700m length. The thickened zone is promising and is being followed up with a further 34 holes for 2610m over an enlarged 700m length and results are awaited.
Summary of Work Completed in the Laverton RegionTenement
Began Deeper Drilling on Lady Julie Area: On 29 June 2020, the company informed that after receiving promising intersections within the northern part of the Lady Julie area, it has started deeper drilling in the area with 13 RC holes totaling 1185m testing over a 1.5km distance. It is worth noting that Lady Julie tenements are strongly mineralised with 217 gold intercepts (1-19m) greater than 0.5g/t.
Growth Aspects: With the Australian gold price at high levels, the HN9 and Lady Julie Project being only 15km NW of the Granny Smith Operations owned by Gold Fields Australia Pty Ltd and only 10km NE of the Jupiter Operations owned by Dacian Gold Ltd at Laverton, WA, are shaping up and have the potential for a shallow large-scale mining centre.
Key Risks: The company is exposed to the interest rate risk as any future change in interest rates will affect future cash flows or the fair value of fixed-rate financial instruments. The company is also exposed to liquidity risk and manages it by monitoring forecast cash flows, cash reserves, liquid investments, receivables and payables.
Stock Recommendation: The stock of MAU has increased by 138.66% and 83.23% in the past six and three-months period, respectively. On YTD basis, the stock price has increased by 212.09% on ASX. The stock is trading close to its 52-week high of $1.47. At the end of June quarter, the company had a cash balance of $3.7 million. The company has an asset to equity ratio of 1.08x, lower than the industry median of 1.70x. The company has a debt to equity ratio of 0.01x, lower than the industry median of 0.16x. Considering the company’s future exploration plans, price performance and current trading levels, we advise investors to wait for better entry levels. Hence, we have a watch stance on the stock at the current market price of $1.430, up by 0.704% on 24 July 2020.
Kalamazoo Resources Limited
New Exploration Licence Granted: Kalamazoo Resources Limited (ASX: KZR) is an Australian gold and base metals explorer and developer with a market capitalisation of $100.36 million as at 24 July 2020. The company is focused on identifying commercial mineral deposits to explore at its Victorian Gold Projects, located at Castlemaine, South Muckleford and Tarnagulla and its two gold-base metals projects in Western Australia (WA). Recently, on 14 July 2020, the company informed that it has been granted Exploration Licence EL007112 adjoining the company’s Castlemaine Gold Project in the Bendigo Zone of Central Victoria. The Castlemaine Gold Project now covers 310km2. The company considers the new exploration licence area to be highly prospective due to its Fosterville style epizonal orogenic characteristics.
Acquisition of Ashburton Gold Project: On 23 June 2020, the company announced that it has acquired the 217km2 Ashburton Gold Project, located on the southern edge of the Pilbara Craton, WA from Northern Star Resources. Ashburton Gold Project has significant regional greenfields and brownfields exploration potential, a large drilling, geological, geochemical, and geophysical database, and numerous walk-up drilling targets. Hence, this acquisition is considered as an important addition to the company’s prospective portfolio of gold projects in the Pilbara.
March Quarter Update: During the March 2020 quarter, the company conducted several exploration activities on its Victorian Gold Projects and Pilbara Gold Projects. Over the quarter, the company finalized the placement of 20 million ordinary fully paid shares and 20 million attaching options to Canadian listed explorer Novo Resources Corp and investor Eric Sprott to raise $8 million. During the quarter, the company spent $234k on operating activities.
Cash Outflow from Operating Activities (Source: Company Reports)
Key Risks: The company is exposed to the risks and threats of Covid-19. Hence, it has developed systems and policies to ensure the health and safety of its employees and contractors. Due to the use of financial instruments, the company is exposed to interest-rate risk, credit risk, foreign currency risk, commodity risk and liquidity risk.
Stock Recommendation: In the last three months, the stock of KZR has increased by 52.48% on ASX and on YTD basis the stock has increased by 175%. The stock is currently inclined towards its 52 weeks high price of $1. The company is currently searching for the next Victorian world-class discovery utilising latest technologies. KZR is well funded with a cash balance of $12.2 million plus potentially $23 million on option exercise. The company has an asset to equity ratio of 1.07x, lower than the industry median of 1.7x. On a Trailing twelve months (TTM) basis, the stock is trading at a price to book value multiple of 12.5x, higher than the industry average (Metals & Mining) of 5.3x. This demonstrates that the stock might be overvalued at current trading levels. Hence, we give an “Expensive” rating on the stock at the current market price of $0.74, down by 3.896% on 24 July 2020.
Lefroy Exploration Limited
Commenced Aircore Drilling at Lucky Strike Prospect: Lefroy Exploration Limited (ASX: LEX) is a gold exploration company focused on the discovery of multi-million-ounce greenfields gold deposits at its flagship Lefroy Gold Project. On 1 July 2020, the company informed that it has commenced an Aircore (AC) drilling program at the Lucky Strike Prospect, a part of Lefroy Gold Project. The program will investigate 700m of strike extent to potentially double the current 740m strike extent of the Lucky Strike gold system and deliver targets for follow up RC drilling. The final interpreted results of the drilling program are expected in early August.
Multiple Large Gold Anomalies at Western Lefroy JV: On 29 June 2020, the company provided an update on the results of additional 66 aircore drill holes drilled within the Westerm Lefroy tenement package, a Joint Venture with Gold Fields Limited which commenced on 7 June 2018. The results have reinforced and extended multiple large regolith gold anomalies in Lake Lefroy. The results include:
The company is now planning and preparing for a Reverse circulation (RC) drill program which will undertake a deeper test beneath the regolith gold systems by penetrating well into the fresh rock to search for the primary source.
March Quarter Update: During the March 2020 quarter, the company achieved decent operational progress with 7280m of RC drilling completed and 804 auger drill point samples collected at its flagship Lefroy Gold Project. Over the quarter, the company spent $115k on operating activities. As at 31 March 2020, the company had a cash balance of $1.633 million.
Operating Cashflow Update (Source: Company Reports)
Key Risks: The company’s activities expose it to a variety of financial risks including currency risk, interest rate risk and price risk, credit risk and liquidity risk. The company is also exposed to securities price risk on equity instruments it holds in other companies.
Stock Recommendation: The stock of LEX has increased by 37.84% in the past three months and is trading higher than the average 52-week price. The company has an asset to equity ratio of 1.03x, higher than the industry median of 1.7x. On a TTM basis, the stock is trading at a price to book value multiple of 2.3x, higher than the industry median of 0.9x. This demonstrates that the stock is overvalued at current levels. Hence, considering the current trading levels and recent price movement, we suggest investors to wait for price correction and have a watch stance on the stock at the current market price of $0.225, down 11.765% on 24 July 2020.
Southern Gold Limited
South Korean Drilling Operations Update: Southern Gold Limited (ASX: SAU) is involved in the exploration of gold, nickel and base metal minerals in South Korea. It is worth noting that South Korea has a long history of gold mining but very little modern exploration and is a first-world stable jurisdiction. The company owns 100% of a substantial portfolio of high-grade gold projects in South Korea that are largely greenfield epithermal gold-silver targets in the south-west of the country. SAU has a market capitalisation of $17.32 million as at 24 July 2020. In an update provided on 17 June 2020, the company informed that its operations are continuing at the Aphae and Deokon projects in South Korea and mineralised breccia has been intersected in all 3 planned holes at Aphae. Further, a wider than expected interval of sulphide-rich breccia zone in APDD003 at Aphae, has resulted in a fourth diamond drill hole targeting down dip of this zone.
March Quarter Update: During the March quarter, the company progressed with significant levels of field activity in South Korea with the continuation of diamond drilling programs and project generation reconnaissance rock sampling. On 23 March 2020, the company announced a re-structured equity placement with $4 million to be raised in 2 tranches. During the quarter, the company spent cash of $495 million on operating activities.
Cash Outflow for Operating Activities (Source: Company Reports)
Growth Aspects: The company’s drilling, field work activity and recent funding are expected to help it in transforming into a well-regarded exploration business. With around $4 million of cash (as at June 2020), the company is fully funded to complete its diamond drilling programmes across the portfolio in FY21.
Key Risks: The main risks that the company is exposed to through its financial instruments, are liquidity risk, credit risk, and interest rate risk. The company’s estimates of the resource base and statements regarding future exploration results are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from estimated results.
Stock Recommendation: In the last six months, the stock of SAU has corrected by 27.03% and is inclined towards its 52-week low of $0.086. The company has a current ratio of 2.19x, higher than the industry median of 1.85x, demonstrating that the company is well-equipped to pay its short-term obligations. Further, the company has a debt to equity ratio of 0.10x, lower than the industry median of 0.16x. On a TTM basis, the stock is trading at a price to book multiple of 2.0x, lower than the industry average of 5.3x. Considering the company’s liquidity on the financial books, its exploration progress and current trading levels, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.140, up by 3.704% on 24 July 2020.
Comparative Price Chart (Source: Refinitiv, Thomson Reuters)
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