Dacian Gold Limited

DCN Details

Dacian Gold Limited (ASX: DCN) is engaged in the exploration, mining, and production of gold. Recently, the company announced that Perennial Value Management Limited, a substantial shareholder, has increased its voting power from 5.14% to 6.17%.

A Quick Look at June 2021 Quarter Update:

• Increase in Production: DCN reported 25,558oz of gold production in the June 2021 quarter (Q4FY21) versus 21,400oz of gold produced in the March 2021 quarter (Q3FY21).
• Lower AISC: The company incurred an AISC (All-in Sustaining Costs) of $1,742/oz in Q4FY21 versus an AISC of $1,874/oz in Q3FY21.
• Debt Repayment: DCN repaid $5.2 million of debt in Q4FY21 and had an outstanding balance of $16.2 million on 30 June 2021.
• Capital Raise: DCN raised $40 million via a two-tranche placement and $3.7 million from a share purchase plan (SPP) to fast track Redcliffe project development and resume ore processing in the Westralia mine area.
• Decent Liquidity Position: DCN held $41.8 million gold and cash on hand as of 30 June 2021 (before the SPP & tranche II placement proceeds) versus $28.3 million gold and cash balance held as of 31 March 2021.

Cash Highlights; (Analysis by Kalkine Group)

Key Risks: The company faces various financial risks such as liquidity, market risk, forex and interest rate changes, and commodity price changes, impacting DCN’s financial performance. Mining and exploration-related risks and environmental health hazards associated with gold production and extraction also add to the woes.

Outlook: In FY22, DCN expects 100,000-110,000 oz of gold production at an AISC of $1,550-$1,700/oz. Embarking on a substantial growth investment, DCN intends to spend $20.4 million of exploration expenditure and $66.5 million for Doublejay pre-stripping activities.

Valuation Methodology: Price/Earnings 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 gave a negative return of ~7.55% in the past month and a negative return of ~19.67% in the past three months. The stock is currently trading lower than the 52-weeks’ average price level of $0.22 - $0.565. The stock has been valued using the Price to Earnings multiple-based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). The company can trade at some premium than its peers’ average, considering the higher cash and gold balance, debt reduction in Q4FY21, upgraded mineral resource estimate at the Redcliffe project, etc. For the purpose of valuation, peers like Resolute Mining Limited (ASX: RSG), Ramelius Resources Limited (ASX: RMS) and others, have been considered. Thus, taking into account the low trading levels, upgraded mineral resource estimate at the Hub deposit, debt repayment, reduced hedging obligations in Q4FY21, valuation, and key risks associated with the business, we give a ‘Speculative Buy’ rating on the stock at the market price of $0.240 as on 24 August 2021, 10.35 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 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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