St George Mining Limited

SGQ Details

Nickel Sulphide Discovery at the Mt Alexander Project: St George Mining Limited (ASX: SGQ) is an explorer, miner, and producer of uranium, gold, copper, nickel in Australia. Mt Alexander project in Western’s Australia’s goldfields is the company’s flagship project. As of 4 June 2021, the market capitalisation of SGQ stood at ~$48.31 million. On 27 May 2021, SGQ announced the intersection of nickel-copper sulphides in the MAD199 and MAD201 holes. The mineralisation is opened in all directions at the MAD201. SGQ has identified three electromagnetic (EM) conductors from the downhole EM survey in the MAD201 hole. All the conductors assessed indicate a massive sulphide source. In addition, SGQ recently conducted a ground gravity survey over West End and Investigators and identified sulphide-nickel targets. The survey has started drilling of Bulls-Eye gravity anomaly at West End and drill testing MAD202 hole for this large gravity target.

Private Placement Completion & $7 Million Raised: On 11 May 2021, SGQ completed a private share placement to institutional investors. It issued 85.36 million fully paid ordinary shares at $0.082 per share. SGQ will deploy these proceeds for drill testing a robust pipeline of nickel-sulphide targets at the Mt Alexander project. It is also planning its first drilling at the Paterson project to test gold and copper targets.

Shares Issued for Advisory Services: On 11 May 2021, SGQ also declared the issue of 281,707 new shares at $0.82 per share (deemed price) as payment for advisory services availed by the company. In total, SGQ issued 85.64 million shares at $0.082 per share. Post-issue, it held 589.19 million listed shares on issue.

Q3FY21 (March) Quarter Results: The company reported a nickel-copper sulphide intersection at the MAD199 hole at the Mt Alexander project. It confirmed all holes drilled intersected sulphide and indicated further discovery at the project. In addition, the DHEM survey identified EM anomalies and created a pipeline of high-priority drill targets at the project. SGQ undertook the drilling of seven diamond core holes at Stricklands deposit at the Cathedrals Belt. The samples from the drilling have been sent for metallurgical test work in Canada.

SGQ is also conducting a heritage survey at the Paterson project to set the ground for its first drill programme. The company has generated a strong pipeline of gold and copper targets for the project.

SGQ incurred a net cash outflow of $1.15 million from the operating activities during Q3FY21. It held a cash and cash equivalents balance of $2.23 million as of 31 March 2021. 

Cash Flows from Operating Activities in Q3FY21 (Source: Company Reports)

Key Risks: The company faces border restrictions in Western Australia and other places affecting its rig personnel’s movement and rig availability. It faces delay in the receipt of test results due to air travel restrictions and lockdowns in parts of Canada. It coordinates closely with the drill contractors and service providers to ensure continuity of drilling and testing services.

Outlook: The company is progressing with a scoping study for a potential starter mine at the Stricklands deposit. It has alternative open-pit shells and mine plans under evaluation. At the Paterson project, SGQ targeted to complete the heritage survey by May 2021. It has scheduled to commence the drilling on the pipeline targets in the Q4FY21 (June 2021 quarter).

Stock Recommendation: The stock of SGQ gave a negative return of 12.76% in the past month and a negative return of 10.86% in the past three months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.071-$0.175. Considering the current trading levels, low debt levels, pipeline of drilling targets at the Mt Alexander project, the commencement of drilling program on Paterson project in Q4FY21, and associated risks of the pandemic restrictions and project delays, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.082 on 4 June 2021.

SGQ Daily Technical Chart, Data Source: REFINITIV 

TZ Limited

TZL Details

Trading Halt & Update on Share Placement: TZ Limited (ASX: TZL) is a developer and provider of SMArt Device™ technology with locking devices and intelligent fastening with its remote software control. It provides protection solutions for security and control applications for various market segments. TZL delivers solutions to the data centre industry and serves the automated parcel locker and e-commerce market. As of 4 June 2021, the market capitalisation of TZL stood at ~$17.65 million. On 26 April 2021, TZL announced a trading halt on its shares pending the release of a capital raising announcement. On 28 April 2021, TZL announced the receipt of ~$2.58 million firm commitments for placement of 21.5 million new shares at $0.12 per share, a discount of 25% to TZL’s 30-day volume-weighted average price (VWAP) of ~$0.16. On 29 April 2021, TZL declared the issue of 21.50 million fully paid ordinary shares at $0.12 per share (Placement) to institutional investors raising $2.58 million.

Update on Rights Issue: On 28 April 2021, TZL announced a non-renounceable rights issue at $0.12 per share to raise $7.06 million. Under the rights issue, one new share will be issued for every two existing shares held by the eligible shareholders. The shareholders with a registered address in New Zealand or Australia and holding shares as of 7 pm (Sydney time) on the Record Date of 4 May 2021 are the eligible shareholders. TZL expects to raise $4.5-$5 million from the rights issue, given the indications from large shareholders. In addition, it has received indicative offers from institutional investors for more than $1.5 million in case of shortfall placement post the rights issue.

The company has now extended the closing date for the offer to 7 June 2021 and will issue shares under the rights issue on 11 June 2021.

Funds’ Utilisation: TZL plans to raise ~9.64 million from the combined capital raise and will deploy the combined proceeds from placement and rights issue to repay debt, costs of the capital raising, and for working capital needs.

New Deal with DSV: On 26 May 2021, TZL announced the finalisation of terms for a hosting and services contract for three years with DSV South Africa for $1 million. TZL will cater to DSV’s network of 450 locker banks and engage with Ricoh South Africa, DSV’s local partner, for the execution. TZL is increasing its services deal, growing its US pipeline to grow its annuity service offerings, installing a user base, and widening the market via new distribution partnerships.

Key Takeaways from Q3FY21: TZL reported cash receipts of $3.06 million and an improved net cash outflow from operating activities for Q3FY21 of $0.4 million. Its net cash outflow for YTD21 stood at $0.9 million versus $3.5 million for YTD20. In addition, TZL posted YTD21 revenue growth ~10% higher than YTD20. It reported growth in its recurring daily revenue to over $2.5 million an annum. It held a cash balance of $505,000 as of 31 March 2021.

Cash Flows from Operating Activities in Q3FY21 (Source: Company Reports)

Key Risks: The company risks raising sufficient capital to execute its growth strategy, reducing debt and financial risks. It is exposed to the risk of COVID-19 uncertainties and potential supply chain disruptions.  

Outlook: TZL has updated its recurring annuity revenue for FY22 to ~$3 million versus $2.5 million in previously stated outlook owing to new contracts. Its US business purchase order book is progressing well to cross US$9 million for FY21, and most of it will be recognised and completed in FY22. It expects a robust business in Australia for FY22 subject to two projects in final contract discussions. These contracts are for the supply of Electronics, SMArtt Locks, and Software for over 6,000-day lockers. It expects a revenue generation of more than $2 million for the collective hardware sales and current annuity services in aggregate over ~$150,000 per year for at least three years. With the combined capital proceeds, TZL will restructure the balance sheet, repay the debt to First Samuel, a major shareholder, and drive growth. Based on the proceeds via the rights issue, TZL will reduce its current yearly interest cost of ~$0.9 million.

Stock Recommendation: The stock of TZL gave a positive return of 42.85% in the past three months and a positive return of 57.89% in the past six months. The stock is currently trading lower than the average 52-weeks’price level band of $0.030-$0.360. On a TTM basis, the stock of TZL is trading at an EV/Sales value multiple of 2.7x lower than the industry (Technology) median of 5.4x, thus seems undervalued. Considering the low trading levels, YTD21 revenue growth vs YTD20, updated outlook for recurring annuity revenue for FY22, new deals in FY21, increasing US purchase order book in FY21, valuation on a TTM basis, we give a ‘Speculative buy’ rating on the stock at the current market price of $0.150 on 4 June 2021.

TZL 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.

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