Stocks’ Details 

Emmerson Resources Limited 

$4.5 Million Capital Raising: Emmerson Resources Limited (ASX: ERM) is a gold and copper exploration company with a market capitalisation of ~$45.09 million (as at 27 July 2020). The company is currently fast-tracking exploration across five exciting early-stage gold-copper projects in New South Wales (NSW). To accelerate its NSW exploration and support its emerging gold royalty business, the company recently announced a capital raising program to raise around $4,575,000 (Capital Raising) by way of an oversubscribed placement to raise $3,7575,000 and SPP to raise $1,000,000. The company has already received firm commitments from investors to raise $3.5 million (before costs) through a Placement priced at $0.10 a share with an unlisted option priced at $0.16 a share, exercisable before 8 July 2023. Under the SPP, the company allows eligible shareholders to apply for a maximum of $30,000 worth of Shares together with one SPP Option for each SPP Share subscribed for and issued. The proceeds of the SPP and Placement will be used to accelerate exploration across Emmerson’s NSW projects, support its emerging gold royalty business in Tennant Creek and evaluate new opportunities under the strategic alliance with Longreach Minerals Exploration.

SPP Key Dates (Source: Company Reports) 

Strategic Alliance with Longreach Mineral Exploration: On 24 June 2020, the company announced a strategic alliance with Longreach Mineral Exploration to share new technology and fast track discovery of gold-copper projects in Australia. This alliance complements Emmerson’s existing capabilities and will provide a further path to accelerating project generation and early stage exploration. 

Copper Sulphides Intersected in Kiola Drilling: The company recently completed First stage diamond drilling at one of its highest ranked, early stage gold-copper projects - Kiola Project. The drilling has provided new insights into the subsurface geology of the 15km² Kiola Geochemical Zone (KGZ). Visible copper sulphides were intersected in all drill holes at Kiola. Further, the drilling has extended the mineralisation associated with the Nasdaq skarn. The company now expects the Assay results from an initial four-hole program to come in the second half of July which will inform an updated geological model and further refine the next drill campaign in the second half of 2020.                               

Key Risks: The company is exposed to the risk of changes in market interest rates relates primarily to cash assets at variable interest rates. There is also a risk that the company will not be able to meet its financial obligations as they fall due. Further, the company is susceptible to fluctuations based on changes in global economic conditions and end-use markets.

Stock recommendation:  In the last one month, the stock of ERM has corrected by 18.33% on ASX and is currently trading slightly lower than the average 52 weeks price level band.  The company is currently well funded with cash and committed placement funds of $4.4 million and zero debt in its balance sheet. The company is going to hold its next General Meeting on 22 August 2020. The company has a debt to equity ratio of 0.0x compared to the industry median of 0.16x.  On Trailing twelve months (TTM) basis, the stock is trading at a price to book multiple of 2.5x, lower than the industry average (Metal and Mining) of 5.4x. This demonstrates that the stock might be undervalued at the current levels. Considering the aforesaid facts, the company’s recent capital raising, its strategic alliance with Longreach Mineral Exploration, its exploration progress and current trading levels, we give a “Speculative Buy” recommendation to the stock at the current price of $0.098 on 27 July 2020. 

Great Southern Mining Limited 

Junior Minerals Exploration Incentive: Great Southern Mining Limited (ASX: GSN) is a mineral exploration company with significant land holdings in the world-renowned gold districts of Laverton in Western Australia and the Mt Carlton Region of North Queensland. The company recently announced that it has participated in the Federal Government’s Junior Minerals Exploration Incentive Scheme (JMEI) for the year ended 30 June 2021. The scheme will encourage investment in exploration companies by generating a tax credit in lieu of tax losses for potential distribution to eligible shareholders. Under the JMEI, the company will be allocated $525,000 in JMEI tax credits for the year ending 30 June 2021. These credits will then be distributed to eligible investors as a tax offset and would serve to reduce eligible investors’ 30 June 2021 and/or 30 June 2022 tax liability.

Exploration Update: In an exploration update provided on 16 July 2020, the company stated that from recent mapping and geochemical sampling at its 100%-owned Edinburgh Park Project in north Queensland, it has discovered a significant, large geochemical soil anomaly at Leichhardt Creek prospect. The systematic soil geochemistry and mapping program has uncovered the anomilisation signature of a large Intrusive Related Gold System at Leichhardt Creek. The company is now focused on defining the full extent of this system by expanding the geochemical program and utilising geophysical methods to start defining this system in three dimensions. On 1 July 2020, the company had reported the occurrence of visible gold bearing mineralisation in diamond drill core from the Cox’s Find gold project. 

Well-Funded to Undertake Aggressive Exploration Programs: On 8 May 2020, the company announced that it has received firm commitments to raise $3,150,000 to fund an accelerated exploration program at Cox’s Find Gold Project in Western Australia. The proceeds from the placement will also be used to commence drill-out programs at the Mon Ami Gold Project in Western Australia, and to continue the targeting and field mapping programs at Edinburgh Park in North Queensland. The company is well funded to undertake aggressive exploration programs across all three projects during 2020. During the March quarter, the company spent $209k on operating activities.

Operating Cash Flow (Source: Company Reports)

Key Risks:  The company is subject to several risks that could potentially have an adverse impact on the performance of the company. These risks include commodity prices risk; currency risks; market risks; liquidity risks; and credit risks. Further, the company is subject to a number of operational risks including operational and costs; Tenement and title; exploration funding and capital; uncertainty around the future development of projects and exploration risk. 

Stock Recommendation: On YTD basis, the stock of GSN has increased by 142.86% on ASX. In the past six months, the stock has increased by 226.92%. It is currently trading near to its 52 weeks high price level. On Trailing twelve months (TTM) basis, the stock is trading at the price to book multiple of 11.8x, higher than the industry average (Metal and Mining) of 5.4x. Hence, we suggest investors to wait for price correction and give an “Expensive” rating to the stock at the market price of $0.170 on 27 July 2020.

S2 Resources Ltd

Raised $7.75 million through Placement: S2 Resources Ltd (ASX: S2R) is gold and base metals exploration company with a market capitalisation of $32.23 million. On 20 July 2020, the company announced that it has completed the bookbuild for a placement to domestic and international institutional and sophisticated investors, raising $7.75 million. The placement was strongly supported by institutional and sophisticated investors. This placement will strengthen the company’s position and will enable it to vigorously pursue its various gold and base metal exploration opportunities in Australia and Finland. The settlement of the Placement is scheduled to occur on 27 July 2020, with the New Shares to commence trading on 28 July 2020. Post completion of the Placement, the company will have a cash balance of around $14 million. 

Exploration Update: In an exploration update provided on 13 July 2020, the company informed that it is advancing on several fronts on its 100% owned gold and nickel-copper-PGE targets in Australia and Finland. At the company’s 100% owned Aarnivalkea East gold base, the first two holes (FPAD0002 and 0003) of its initial reconnaissance drilling program have successfully confirmed the presence of a zone of intense deformation and hydrothermal alteration in bedrock beneath the BOT gold anomaly identified earlier this year. 

June Quarter Update: During the June quarter, the company undertook necessary measures to ensure it could recommence its exploration activities in Finland despite the Covid-19 enforced constraints on international travel. The company undertook a detailed aeromagnetic survey over its Aarnivalkea East gold target. Over the quarter, the company spent A$0.55 million, comprising A$0.37 million exploration and evaluation costs, $0.16 million corporate costs, business development costs, overheads and payments for fixed assets, and $0.02 million staff costs. At the end of June quarter, the company had a cash balance of $6.42 million.

Cash Outflow from Operating Activities (Source: Company Reports)

Key Risks: The company’s activities expose it to a variety of financial risks; market risk (including fair value interest rate risk and price risk), credit risk, liquidity risk and cash flow interest rate risk. The company is also exposed to foreign currency risk as it holds foreign currency cash in Euro, US Dollar and Swedish Krona to operate in Finland, Sweden, and the United States. 

Stock Recommendation: In the last three months, the stock of S2R has provided a return of 23.81% on ASX. The stock is trading below the average 52 weeks price level range.  The stock has a debt to equity ratio of 0.03x in 1HFY20, lower than the industry average of 0.16x. On a TTM basis, the stock is trading at a price to book multiple of 2.0x compared to the industry average of 5.4x. This demonstrates that the stock might be undervalued at current levels. Considering the company’s recent capital raising, its exploration progress and current trading level, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.120, down by 7.692%, on 27 July 2020.

Mont Royal Resources Limited

Exploration Ceased at Edjudina Project:  Mont Royal Resources Limited (ASX: MRZ) is a mineral exploration company pursuing various mining opportunities in the resources sector designed to add shareholder value by acquiring, exploring, evaluating, and exploiting mineral resource project opportunities. The company has acquired a 100% interest in four exploration licences in Western Australia comprising the Edjudina Project which is considered to be prospective for Archaean lode style gold deposits. During the March quarter, the company conducted comprehensive desktop analysis and technical review of the results of its air core drill program for the purpose of determining whether any follow-up exploration work or activities are required at the Edjudina Project. The results do not justify any further expenditure on the project. Hence, the company has ceased any further exploration program at Edjudina. 

Decent Financial position: The company follows strict cost controls protocols and has no large general and administrative (G&A) expenses. The company’s Board and management fees continue to be well below many peer companies, putting the company in a stronger financial position. During the March quarter, the company spent $143k on operating activities. The company remains well-funded with ~$3.8 million in cash as at 31 March 2020.

Cash Outflow from Operating Activities (Source: Company Reports)

H1FY20 Results: During H1FY20, the company reported basic and diluted loss per share of 0.72 cents, compared to the loss per share of 3.4 cents in pcp. During the period, the company incurred a loss of $271k. At the end of H1FY20, the company had total assets of $4.54 million.

H1FY20 Income Statement (Source: Company Reports)

Key Risks: The company is exposed to contractual risk as its ability to achieve its stated objectives may be materially affected by the performance by the parties of their obligations under the acquisition agreement. Mineral exploration and development is a high-risk undertaking. There can be no assurance that exploration of the Projects or any other exploration properties that may be acquired in the future will result in the discovery of an economic resource.

Stock Recommendation: In the past six months, the stock of MRZ has corrected by 20.83% on ASX. The stock is currently trading slightly lower than the average 52 weeks price level band. The stock has a debt to equity ratio of 0.0x in 1HFY20, as compared to the industry median of 0.34x. Considering the fact that the company has ceased its operations at its Edjudina Project and is now assessing various advanced exploration opportunities in the precious and base metals sector, we suggest investors to keep an eye on the stock and give a watch stance on the stock at the market price of $0.190 on 27 July 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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