Dacian Gold Limited 

DCN Details

Completion of Share Purchase Plan: Dacian Gold Limited (ASX: DCN) is engaged in gold exploration and development. The company's principal activities include mineral exploration and development activities at its Mt Morgans Gold Project (MMGP) in Western Australia. Recently, DCN has informed the market on raising $3.7mn before costs by issuing 13,209,010 shares at $0.28 per share under its Share Purchase Plan announced on 26 May 2021. The issue of shares was in conjunction with $40mn institutional placement announced on 26 May 2021.

3QFY21 Highlights: DCN has reported gold production of 21,400oz at an AISC of $1,874/oz. The company has reported YTD production of 81,361oz at an AISC of $1,492/oz for YTD in March 2021. DCN has repaid a debt amounting to $2.0mn and reduced it to $21.4mn as on 31 March 2021. The company has completed +30,000m of exploration and resource definition drilling during the quarter. 

Terminated to be a Substantial Holder: DCN has informed the market on 28 June 2021, regarding the termination of a substantial holder. Regal Funds Management Pty Ltd is ceased to be a substantial holder in DCN from 24 June 2021.  

1HFY21 Financial Highlights: DCN has registered a decline in revenue to $133.97 in 1HFY21 against $142.10mn in 1HFY20. DCN has registered a profit of $13.62mn in 1HFY21 against a loss of $78.52mn in 1HFY21 on the back of lower operating costs. The cash balance declined to $28.19mn as of 31 December 2020 against $51.97mn as of 30 June 2020.

Revenue trend (Source: Analysis by Kalkine Group)

Key Risks: The company carries a risk of fluctuating gold prices that may severely impact the financials. In addition, the company is exposed to climatic risks. Therefore, adverse climate conditions such as floods, earthquake, etc. may impact the company's business.  

Outlook: The company has provided production guidance in a range of 110,000-120,000oz at an AISC of $1,400-$1,550/oz for FY21. The company has recently raised capital to accelerate a significant exploration investment across Mt Morgans and Redcliffe project. 

Valuation Methodology: P/E based Relative Valuation Method (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: The stock of DCN gave a return of ~-19.11% in the last three months and a return of ~-32.92% in the last six months. The current market capitalisation of DCN stands at ~$245.86mn as of 02 July 2021. The stock is currently trading below the average 52-weeks’ price level range of ~$0.255-~$0.565. We have valued the stock using the P/E multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in % terms). We believe that the company can trade at a slight premium as compared to its peer median, considering the company has registered a profit in 1HFY21 and reduction in total liabilities as on 31 December 2020. For this purpose, we have taken peers Alkane Resources Ltd (ASX: ALK), Regis Resources Ltd (ASX: RRL), Pantoro Ltd (ASX: PNR) to name a few. Considering the company has raised capital for exploration investments, debt reduction activities, decent outlook, current trading levels, valuation and key risks associated with the business, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.270, as on Jul 2, 2021, 10:48 AM (GMT+10), Sydney, Eastern Australia.

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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