Aurelia Metals Ltd

AMI Details

Aurelia Metals Ltd (ASX: AMI) is engaged in the mining and exploration business. It holds a highly strategic landholding and three operating gold mines in New South Wales.

Quarterly Activities Update (For the Quarter Ended 30 June 2021)

Gold Production at 22.9koz: The company has achieved gold production of 22.9koz at AISC of A$1,848/oz in Q4FY21, lower than the 34.9 koz at A$1,429/oz in Q3FY21 due to lower gold grade at all sites. The group’s gold production in FY21 stood at 104 koz at AISC of A$1,337 against the guidance of 100-113 koz at AISC of A$1,425 – 1,575/oz.

Generated Sales Revenue of A$105.4 million: The group has achieved sales revenue of A$105.4 million in Q4FY21 with 58% of  sales  generated from precious metals and the rest from the sales of base metals including, copper, lead and zinc.

Ore Throughput: The ore throughput grew by 21% to 156kt at peak mines in Q4FY21 compared to 128kt in Q3FY21. However, ore throughput remained steady at Hera mines at 113 kt compared to 111kt in Q3FY21. However, ore processed at Dargues mine declined by 13% QoQ to 74kt in Q4FY21 in line with  volumes mined.

Operating Cost:

While the underlying per tonne site operating cost reduced marginally at Peak mines, it stayed steady at Hera mines, however, it increased at Dargues mine, reflecting the volume of ore processed at each operation.

Operating Snapshot (Source: Company Reports)

Recent Update

Rise in Mineral Resource: The group’s mineral resource and ore reserve statement released on 23 July 2021, reported a 63% growth in its mineral resource tonnage to 27.0Mt due to extensive drilling programme at Federation, Great Cobar and Kairos as well as the benefit of the acquisition of the Dargues mine.

Outlook

The group has guided its production target to remain between 112 – 123 koz with AISC at A$1,500 – A$1,700 per ounce in FY22 compared to 104 koz at A$1,337/oz in FY21 driven by the benefits of Dargues mine acquisition and ramp-up. Further, it expects the group’s production of lead, zinc and copper in FY22 to remain in the range of 24.5 -27.0 kt, 31.0 – 34.5 kt and 3.5 – 4.0 kt, respectively. AMI is anticipating a substantial rise in ore reserve in FY22 with maiden ore reserves targeted for Federation and Great Cobar.

Besides, its balance sheet continues to remain strong with an overall cash reserve of A$74.5 million at the end of 30 June 2021.

Key Risks

Fluctuation in metal prices and other commodity prices would impact the financial prospects of the group. This along with the impact of higher production and capital costs would lead to its certain ore reserves become unprofitable. Further, the group is exposed to exploration risk, which may impact the business severely.

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

Technical Overview:

Chart:

Source: REFINITIV

Note: Purple Color Line Reflects RSI (14-Period)

Stock Recommendation

We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price that reflects a rise of low double-digit (in % terms). We have assigned a slight premium to EV/Sales Multiple (NTM) (Peer Average) considering the significant upgrade in mineral resource across asset portfolio along with the expectation of a substantial rise in ore reserve in FY22.

For the purposes of relative valuation, we have taken peers like Macmahon Holdings Ltd (MAH.AX), Regis Resources Ltd (RRL.AX), to name a few.

Considering the aforementioned factors, along with its strong balance sheet and liquidity position, we give a “Buy” recommendation on the stock at the current market price of $0.345 per share (Time: 11:07 AM (GMT+10), Sydney, Australia) on 9^th August 2021.

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.

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.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine do not hold interests in any of the securities or other financial products covered on the Kalkine website.