Stanmore Resources Limited

SMR Details

Acquisition Update: Stanmore Resources Limited (ASX: SMR) is involved in metallurgical coal production in Queensland, Australia. SMR recently updated on the recently acquired Millennium and Mavis Downs Mine project via MetRes Pty Limited (MetRes), a 50:50 joint venture between the company and M Resources.

• SMR will provide up to $30 million of secured finance facility to its joint venture arm – MetRes. The facility has two parts- a $15 million working capital debt facility under Facility A and a further $15 million debt facility to aid rehabilitation surety obligations under Facility B.
• The companies have temporarily changed the terms of Facility B until 30 June 2022 and raised the Facility B commitment from $15 million to $35 million for working capital, general corporate needs, etc.

Contract Awarded for Millennium & Mavis Downs Mine: SMR recently contracted PIMS Mining for the underground mining services on the MetRes JV. The contract is for five-years, and the Underground mining will begin in July 2022. SMR estimates production of over 1.2 million tonnes run of mine per year from July 2022 from the project.

1HFY21 Results:

• Revenue Decline: The company reported a decline of 57% YoY in revenue to $93.70 million in 1HFY21 due to lower sales and production of coal.
• Rise in Net Loss: SMR registered a net loss of $15.45 million in FY21 versus an NPAT of $7.98 million in FY20.
• No Dividend Declaration: SMR declared no dividend for FY21.
• Rise in Cash Inflows: The company generated $3.55 million of cash inflows from operations in FY21 versus $12.47 million of cash outflows in FY20.
• Grant of Mining Leases: SMR recently obtained the mining lease from Queensland State to commence the Isaac Downs project operations.

Cash & Cash Equivalents Highlights; (Analysis by Kalkine Group)

Key Risks: The company faces forex headwinds, commodity price fluctuations, exploration related risks, and project partnership issues.

Outlook:

• At the Isaac Downs Project, SMR will establish civil construction activity on-site in 1HFY22. The company has undertaken more debt from Golden Energy and Resources Limited via its existing facility for the rapid development of the Isaac Downs project.
• MetRes, the JV, plans to recommence the auger and open-cut mining operations at the Millennium and Mavis Downs project during 2HFY21.

Stock Recommendation: The stock of SMR gave a positive return of 62.96% in the past three months and a positive return of 52.77% in the past year. The stock is currently trading towards its 52-weeks’ high-level of $1.150. The stock of SMR has a support level of ~$1.04 and a resistance level of ~$1.37. On a TTM basis, the stock of SMR is trading at a price-to-book value multiple of 1.7x, higher than the industry (Coal) median of 1.4x, thus seems overvalued. Considering the current trading levels, decent returns in the past three months and the past year, valuation on a TTM basis, we suggest investors book profit and give a ‘Sell’ rating on the stock at the current market price of $1.150, as on 5 October 2021, 11:15 AM, (GMT+10), Sydney, Eastern Australia.

SMR 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.

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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