Stocks’ Details

New Century Resources Limited

Completion of Entitlement Offer: New Century Resources Limited (ASX: NCZ) is involved in the exploration and development of minerals. The market capitalisation of the company stood at ~$320.63 million as on 8^th January 2021. On 27^th November 2020, the company finished a 1 for 12 pro-rata non-renounceable entitlement offer and raised around $14.4 million, which was strongly supported by eligible shareholders. During the quarter ended 30^th September 2020, the company recorded zinc metal production of 33,633t at C1 costs of US$S0.85/lb payable zinc basis. Operating cash margin and EBITDA for the period amounted to $12.8 million and $13.2 million, respectively. For the year ended 30^th June 2020, the company recorded a loss amounting to $8,107,272 as compared to $21,502,018 in FY19.

Production and Cost Summary (Source: Company Reports)

Outlook: Looking forward, the company is focused on a strategy of value creation from continued utilisation of more than $2 billion in sunk capital infrastructure.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: The company closed September 2020 quarter with cash and cash equivalents of $34.31 million. In the last three and nine months, the stock has moved up by 79.74% and 73.75%, respectively. As a result, the stock is trading towards its 52-week high level of $0.279. Considering this, we have valued the stock using the price to earnings multiple based illustrative relative valuation and arrived at a target price with correction of mid-single-double-digit (in percentage terms). On a technical analysis front, the stock has a support level of ~$0.114 and a resistance level of ~$0.41. Therefore, in light of the steep price movement in the past months, current trading level and valuation, we are of the view that most of the positive factors have been discounted at the current trading level and give an “Expensive” rating on the stock at the current market price of $0.260 per share, down by 1.887% on 8^th January 2021. We further suggest investor to wait for better entry levels.

Red Mountain Mining Limited

Sale of Shareholdings: Red Mountain Mining Limited (ASX: RMX) is in the exploration of gold/cobalt and project acquisitions in Asia. The market capitalisation of the company stood at $20.36 million as on 8^th January 2021. Recently, the company announced that it has divested around 2 million shares in Bluebird Merchant Ventures (LON: BMV) for a consideration of ~A$192,500. This transaction is likely to provide additional capital to the RMX balance sheet, and balance of BMV shares held by Red Mountain stands at ~3.6 million. During September 2020 quarter, the company raised $800,000 through a placement to sophisticated and professional investors. The company recorded net cash outflow from operating and investing activities of $389K and $426K, respectively. During the year ended 30^th June 2020, the company reported revenue amounting to $51,384 as compared to $92,026 in FY19. Loss for the year stood at $1,960,519 against $1,164,964 in FY19.

Key Financials (Source: Company Reports)

Outlook: The company has engaged drill contractors and active explorers in the Mt Maitland Gold Project and expects sharing a rig with one of these to support rapid mobilisation and decrease costs.

Stock Recommendation: As on 30^th September 2020, the cash balance of the company stood at $1.676 million. The stock of RMX has surged by 216.66% and 533.33% in the last six and nine months, respectively. As a result, the stock is inclined towards its 52-week high level of $0.022. In addition, the stock is trading at a price to book value multiple of 11.1x as compared to the industry median of 3.1x on TTM basis. Thus, it seems that the stock is overvalued at the current trading level. On a technical analysis front, the stock has a support level of ~$0.011 and a resistance level of ~$0.022. Therefore, considering the price movement in the past months, current trading level and valuation, we are of the view that most of the positive factors have been discounted at the current trading level and give an “Expensive” rating on the stock at the current market price of $0.019 per share, up by 5.555% on 8^th January 2021.

Lion Energy Limited

Completion of Survey: Lion Energy Limited (ASX: LIO) is engaged in the exploration, development and production of oil and gas. The market capitalisation of the company stood at $8.71 million as on 8^th January 2021. Recently, the company notified the market that its 100% owned subsidiary, Balam Energy, has finished the acquisition of 664 km of high-resolution 2D data offshore Seram Island in the East Seram PSC. In addition, a survey started on 1 November 2020 and was wrapped up on 9 November 2020 as scheduled. The company added that it has obtained good data quality from the survey and the processing and interpretation are expected to be finalised by early 2021.

During the quarter ended 30^th September 2020 (Q3 FY20), the company made decent progress towards conducting marine seismic operations in the East Seram PSC. LIO recorded steady production from the Oseil oil field in the Seram (Non-Bula) PSC. The company recorded net cash outflow from operating and investing activities of US$159k and US$76k, respectively. During 1H FY20, the company recorded a loss amounting to US$627,411 as compared to US$363,630 in 1H FY19.

Cash Flow (Source: Company Reports)

Outlook: Looking forward, the company would be focused on partnerships with well-funded strategic regional players. For 2020/2021, the company would create value step by step, which includes extracting maximum value from 2.5% working interest in Seram Non-Bula.

Stock Recommendation: As on 30^th September 2020, the cash and cash equivalents of the company stood at US$774k. The 52-week low-high range for the stock stands at $0.014 - $0.092, respectively. The stock of LIO has moved up by 150% and 135.29% in the last one and three months, respectively. In addition, the stock is trading at a price to book value multiple of 3.4x against the industry median (Oil & Gas) of 1.8x on TTM basis. On a technical analysis front, the stock has a support level of ~$0.025 and a resistance level of ~$0.060. Thus, considering the low market capitalisation, loss-making business and valuation on TTM basis, we advise investors to avoid the stock at the current market price of $0.040 per share, down by 4.762% on 8^th January 2021.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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