Aeris Resources Limited

AIS Details

Capital Raising Highlights: Aeris Resources Limited (ASX: AIS) is engaged in exploring copper and gold with projects Tritton and Cracow, respectively, under its umbrella. As declared on 28 April 2022, AIS is raising capital to acquire the ~100% issued capital of Round Oak Minerals Pty Ltd, incur the placement and entitlement offer costs, and meet working capital needs. AIS announced the issuance of one new share in AIS for every ~4.42 shares held by the investors in the company under a non-renounceable entitlement offer.

• On 2 May 2022, AIS declared raising ~$74.0 million via a mix of an unconditional institutional placement (~$43.9 million) and an institutional Entitlement (~$30.1 million) offer both at ~$0.105 per share.
• Retail Offer Dates: It plans to raise ~$26 million under the retail proposal opened from 5 - 17 May 2022 for the eligible shareholders (as recorded on 2 May 2022).

Conditional Placement: AIS has obtained a binding commitment to raiser ~$17.1 million through a placement post shareholder approval and Round Oak Minerals’ acquisition.

Q3FY22 (Ended 31 March 2022) Results:

• AIS held ~$73.8 million in useable cash and receivables in Q3FY22 versus ~$77.8 million in Q2FY22 due to the impact of growth expenditure (~$21 million) incurred on the Tritton and Cracow projects.
• It undertook gold hedges with Australia and New Zealand Banking Group Limited for ~30,000 ounces at an average price of ~$2,635.57/ oz. The gold production from the Cracow project is hedged ~70% to the CY22 end and ~30% for 1HCY23.

Production Highlights; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of discovering new targets for gold and copper mineralisation, change in gold prices and production, regulatory delays, and acquisition risk.

Outlook:

• AIS maintains Tritton production guidance between ~18.5k - ~19.5k tonnes of copper for FY22 besides undertaking continuous exploration and mine life extensions.
• AIS has lowered its production guidance from ~64K – 66K oz to ~56k – 59k oz of gold from its Cracow operations in FY22. It plans to spend ~$13 million capex at the Cracow operations in FY22.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (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 AIS gave a negative return of ~26.82% in the past three months and a negative return of ~37.90% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.091 - $0.239. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount than its peers’ average EV/Sales multiple, considering the lower production of copper and gold, metal price volatility, and acquisition risks. For this purpose of valuation, a few peers like Sandfire Resources Ltd (ASX: SFR), AIC Mines Ltd (ASX: A1M), Aurelia Metals Ltd (ASX: AMI) have been considered. Considering the current trading levels, mine life extension projects, and expenditure being undertaken, higher grade improvements at Tritton, improved production and EBITDA profile post the Round Oak acquisition, an indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $0.100, down by ~4.761%, as of 4 May 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

AIS 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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