29Metals Limited

29M Details

Key Positives:

Rise in Current Ratio (1.76x in FY21 Vs. 1.63x in FY20), Higher Net Margin (20.1% in FY21 Vs. Industry Median of 15.6%)

Key Negatives:

Higher Debt-to-Equity Ratio (0.30x in FY21 Vs. Industry Median of 0.19x), Rise in Capex (~$29 million in Q1FY22 Vs. ~$21 million in Q1FY21)

Key Investment Risks:

Exploration Risk, Tight Labour Market, Adverse Weather Conditions, Supply Chain Disruptions, etc.

Material Updates: 29Metals Limited (ASX: 29M) is an explorer and producer of copper, gold, silver metals. Capricorn copper and Golden Grove are two of its main operating projects.

Latest Material Updates; (Analysis by Kalkine Group)

Highlights of Q1FY22 (Ended 31 March 2022):

• Gross revenue rose from ~$119.8 million in Q1FY21 to ~$232.0 million in Q1FY22, due to increased quarterly production of zinc and its competitive commodity prices.
• Zinc production increased from ~7.7kt in Q1FY21 to ~12.2kt in Q1FY22. Copper production rose from ~7.2ktin Q1FY21 to ~9.3kt in Q1FY22.

Cost Summary from March 2021 to March 2022; (Analysis by Kalkine Group)

Key Risks: The company faces the risks of a tight labour market, supply chain challenges due to weather conditions, lower grades due to mining improvements, and exploration risk.

Outlook: 29M plans to produce ~39k – 46kt of copper, ~55 – 65kt of zinc, and ~27 – 34k ounces of gold 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 29M gave a negative return of ~17.84% in the past three months and a negative return of ~19.04% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $1.900 - $3.350. 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 a slight discount than its peers’ average EV/Sales multiple, considering a higher debt-to-equity ratio than industry median, metal price volatility, and a tight labour market. For this purpose of valuation, a few peers like Sandfire Resources Ltd (ASX: SFR), OZ Minerals Ltd (ASX: OZL), Copper Mountain Mining Corp (ASX: C6C) have been considered. Considering the current trading levels, robust metal prices of zinc, cost control at project operations, continuous growth in investments and exploration at the identified targets, 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 $2.210, down by 1.339%, as of 15^th June 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.

29M 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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