Dacian Gold Limited

DCN Details

Completed Capital Raising for Business Growth: Dacian Gold Limited (ASX: DCN) is engaged in gold exploration and development. The company's principal activities include mineral exploration and development activities at its Mt Morgans Gold Project (MMGP) in Western Australia. DCN has informed the market of successful completion of equity raising amounting to $40mn at an offer price of $0.28per share on 27 May 2021. With the support of domestic and offshore existing and new institutional investors, DCN were able to successfully place equity to raise capital. The proceeds from the placement are likely to be utilised to fasten the ~300,000 m drill program at Mt Morgans and Redcliffe. Moreover, underground production is likely to get restarted from the Greater Westralia Mining Area along with meeting working capital requirements.

1HFY21 Financial Highlights: DCN has registered a decline in its sales revenue to $133.97mn in 1HFY21 against $142.10mn in 1HFY20. The company has registered a profit of $13.62mn in 1HFY21 against a loss of $78.52mn in 1HFY20. DCN has witnessed a decline in its cash balance to $28.19mn as on 31 December 2020 against $51.97mn as on 30 June 2020.

Key Financial Snapshot (Source: Analysis by Kalkine Group)

Key Risks: The company is engaged in exploration of gold. Any severe fluctuation in gold prices may impact the financials of the company. The company deals in multiple currencies. Thus, any fluctuation in the foreign currency may impact the financials of the company.

Outlook: DCN has provided production guidance of 110k-120koz at an All-In Sustainable Costs (AISC) of $1,400-$1,550/oz for FY21.

Valuation Methodology: EV/EBITDA based Relative Valuation Method (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 gave a return of ~-21.79% in the last one month and a return of ~-17.56% in the last three months. The current market capitalisation of DCN stands at ~$247.46mn as of 27 May 2021. The stock is currently trading below the average 52-weeks’ price level range of ~$0.285~$0.565. We have valued the stock using the EV/EBITDA multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight premium as compared to its peer average, considering an increase in profits in 1HFY21 and raising equity for business growth. For this purpose, we have taken peers Gascoyne Resources Ltd (ASX: GCY), Sandfire Resources Ltd (ASX: SFR), St Barbara Ltd (ASX: SBM) to name a few. Considering the company has registered a profit in 1HFY21, raising capital for business growth, associated business risks, current trading levels and valuation, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.29, down by ~4.919% as on 27 May 2021.

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 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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