OZ Minerals Limited

OZL Details

Prominent Hill Expansion Study Update: OZ Minerals Limited (ASX: OZL) is engaged in the mining and processing of ore containing copper, gold, and silver. As on 16 November 2020, the market capitalisation of the company stood at ~$4.91 billion. The company carried out the drilling program targeting extensions of the existing Mineral Resource at vertical depths of over 1100 metres below the surface and reported encouraging results. These results demonstrate further upside potential for Prominent Hill. The company, in a recent study update, shows the installation of a vertical hoisting shaft is technically and economically feasible to replace truck haulage. OZ Minerals will now invest ~$47 million to progress the study.

Quarterly Update: During the third quarter of FY20, the company produced 23,873t of copper and 66,746oz of gold at an AISC of US$41 c/lb. The Carrapateena mineral resource is on track to reach 4.25Mtpa by year-end and is progressively de-risking its block cave expansion opportunity. During the quarter, the company retained a positive net cash position at $18 million.

Quarterly Operational Highlights (Source: Company Reports)

Guidance: The company has provided guidance for FY20 and expects to produce 88,000-105,000 tonnes of copper and 242,000-259,000 ounces of gold. The company is likely to incur a sustainable capital expenditure of $55-70 million in mine development. The AISC costs are likely to be in the range of US60-75 c/lb.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company has strategic aspirations and is progressing towards growth through its pipeline. The company is maintaining a decent performance against market peers and is creating value for shareholders. As per ASX, the stock of OZL is trading close to its 52-weeks’ high levels of $16.5 but retains potential for further growth. The stock of OZL has given a return of 9.08% in the past three months and a return of 2.03% in the last one month. On a technical front, the stock of OZL has a support level of ~$13.39 and a resistance level of ~$15.71. We have valued the stock using the EV/Sales multiple based illustrative relative valuation and have arrived at a target upside of high single-digit (in % terms). For the said purposes, we have peers like IGO Ltd (ASX: IGO), Evolution Mining Ltd (ASX: EVN), Sandfire Resources Ltd (ASX: SFR), etc. Considering the current trading levels, decent guidance, growth pipeline and quarterly highlights, we recommend a ‘Hold’ rating on the stock at the current market price of $15.01, up by 1.077% on 16 November 2020, owing to its recent update of drilling results.

OZL Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Dacian Gold Limited

DCN Details

Merger between Dacian and NTM: Dacian Gold Limited (ASX: DCN) is engaged in the exploration and mining of gold. As on 16 November 2020, the market capitalisation of the company stood at ~$194.77 million. Dacian Gold Limited and NTM Gold Limited have agreed to a merger via NTM Scheme of Arrangement, under which, Dacian will acquire 100% of the shares in NTM. Under the terms of the agreement, NTM Shareholders will receive 1 Dacian share for every 2.7 NTM shares held at a record date of 25 February 2020. Following the transaction, the shareholders of Dacian and NTM will hold 68.4% and 31.6%, respectively, of the issued ordinary shares in the Merged Group. This merger is likely to create value with a diversified production base and increased operational flexibility.

Transaction Summary: Upon completion of the merger, the merged group will have ~813 million outstanding shares and will continue to trade as Dacian Gold Limited on ASX. Post the completion, DCN will have a market capitalization of ~$285 million, cash balance of $44 million and debt of $39 million. The strategic combination is likely to a highly prospective land position of over 1,300km² in the Leonora-Laverton District.

Pro-forma Merged Group Overview (Source: Company Reports)

Outlook and Guidance: The NTM shareholders will realize immediate value at an attractive premium. The company has provided guidance for FY21 and expects production in the range of 110,000-120,000oz at an AISC of $1,400-$1,550/oz. The company may also report a development capital of $55 million.

Stock Details: Following the merger, the shareholders will have exposure to potential improved market rating and enhanced liquidity of the merged entity. The stock of the company corrected by 9.21% in the last one month but gave positive returns of 2.98% in the past three months. Currently, the stock is inclined towards its 52-week low of $0.290. Based on the stock performance and other key updates covering the takeover update, we have kept a close eye on the upcoming developments with regards to the business and proposed takeover. The stock closed at $0.345, down by 1.429% on 16 November 2020.

DCN Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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