Dacian Gold Limited

DCN Details

Maiden Ore Reserves:  Dacian Gold Limited (ASX: DCN) is involved in the exploration and mining of gold. As announced on 16 February 2022, the company experienced maiden ore reserve for Hub and GTS open pits of 490,000t @ 3.2g/t for 51,000oz at Redcliffe Gold Project, which took the total company ore reserves to 11.8Mt @ 1.1g/t for 436,000oz, before FY2022 depletion.

Q2FY22 Result Insights:

• During the quarter ended 31 December 2021, the company recorded production of 17,200oz at an AISC of $2,288/oz.
• DCN finished the placement of $20 million (before cost) to aid working capital requirements for finishing pre-stripping activities at the current stage of the Doublejay open pit as well as to accelerate exploration programs at Jupiter.
• The company closed the quarter cash and unsold gold of $30.2 million (cash of $26.9 million and gold of $3.3 million) and total debt of $16.0 million.

Cash & Gold (Source: Analysis by Kalkine Group)

Key Risks: DCN is exposed to risk arising from the adverse movement in the gold prices as it generates a major portion of revenue from the sale of gold. In addition, the business could also be affected by challenging labour conditions and the cost environment.

Outlook: For FY22, the company anticipates gold production in the range of 100,000-110,000oz at an AISC of $1,750-$1,850/oz.

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 DCN has a 52-week low and high range of $0.155 - $0.425, respectively. The stock has provided a return of ~6.41% in the past one month. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and arrived at a target price with a correction of high-single-digit (in % terms). The company can trade at a slight premium to its peers’ average EV/Sales multiple, considering the reserve update and record gold production in Q2FY22. For the purpose of valuation, peers such as Westgold Resources Ltd (ASX: WGX), Aurelia Metals Ltd (ASX: AMI), Resolute Mining Ltd (ASX: RSG), and others have been considered. Considering the expected correction, decent rally in the past few months, current trading levels, and key risks associated with the business, we give a ‘Sell’ rating on the stock at the current market price of $0.215, as on 18 February 2022, 10:30 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 decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and is subject to the factors discussed above alongside support levels provided.

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