Newcrest Mining Limited

NCM Details

Mineral Resource Update at Red Chris: Newcrest Mining Limited (ASX: NCM) is engaged in gold producing activities. The principal operations of the company are exploration, mine development, mine operations and the sale of gold and gold/copper concentrate. The company has recently informed the market regarding the update on mineral resources at Red Chris mine operated through NCM’s JV with Imperial Metals Corporation. The estimates for measured and indicated mineral resources consist of open pit mining and bulk block cave underground mining. Open pit mining measured and indicated mineral resources are estimated at 310 Mt @ 0.41 g/t gold and 0.34% copper for 2.7Moz contained gold and 1.0Mt contained copper. Bulk block cave underground mining was estimated at 670Mt @ 0.46 g/t gold and 0.40% copper for 10Moz contained gold and 2.7Mt contained copper.

Increasing Dividends: The company has been paying off its investors regularly through higher dividends every year. Despite Covid-19 led uncertainties, the company has announced an interim dividend of 15 US cents per share in 1HFY21 as compared with interim dividend of 7.5 US cents per share in 1HFY20. The company targets 30%-60% of pay-out of its free cash flow across the full year.

1HFY21 Financial Highlights: NCM has registered an increase in its total revenue to US$2,172mn in 1HFY21 as compared with US$1,790mn in 1HFY20. The company has seen a growth among all the revenue streams i.e., Gold, Silver and Copper. The company has registered a robust growth in the profits to US$553mn in 1HFY21 as compared with US$280mn in 1HFY20 on the back of higher price realisation for Gold and Copper. The company has seen a continuous decline in its net debt position. The company has registered a net debt of US$330mn as on 1HFY21, reduced from US$3,707mn as on FY14.

Net Debt Position (Source: Company Reports)

Key Risks: The company is engaged in mining and exploration of Gold, Silver and Copper, any fluctuation in the prices of these commodities may impact the profitability of the company. NCM always carry a risk related to climatic conditions, any adverse climatic conditions may result in discontinuation of business activities and may lead to financial losses for the company. 

Outlook: As per the company report, the initial mineral and ore reserve estimates for Red Chris mining are expected to be released by the end of September 2021. As per the management comments, the company will investigate early mining options to accelerate cash flows before the development of a block cave. 

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative)

Data Source: Refinitiv, Thomson Reuters, 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: In the last one month, NCM has decreased by ~0.16% and by ~5.82% in the last three months. The current market capitalisation of NCM stands at ~$20.13bn as of 31 March 2021. The stock is currently trading below the average 52-weeks’ price level range of ~$22.54-~$38.15. On the technical analysis front, the stock has a support level of ~$23.29 and a resistance of ~$25.23. We have valued the stock using an EV/Sales 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 the company is paying out higher dividends regularly and reducing its debt position over a period of time along with decent 1HFY21 top-line performance. For this purpose, we have taken peers Calidus Resources Ltd (ASX: CAI), IGO Ltd (ASX: IGO), Evolution Mining Ltd (ASX: EVN). Considering, NCM has posted increase in revenues and profits despite Covid-19 situation in 1HFY21, higher dividend to its shareholders, valuation, and current trading levels, we recommend a “Buy” rating on the stock at the current market price of $24.42, down by ~0.89% as on 31 March 2021.

NCM Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

West African Resources Limited

WAF Details

A look at FY20’s Key Financial Highlights: West African Resources Limited (ASX: WAF) is engaged in gold exploration activities. The company focus primarily on the Boulsa Gold project within Burkina Faso and Niger. The company's subsidiaries include Wura Resources Pty Ltd SARL and Swan Resources SARL. WAF has registered a net profit of $98.90mn in FY20 as compared with losses of $4.33mn in FY19, losses of $3.54 in FY18 and losses of $14.32mn in FY17. The average price realisation for gold stands at US$1,812 per ounce against WAF’s AISC of US$1,021 per ounce in FY20. The company’s Sanbrado project has commenced commercial production on 1 May 2020, adding to WAF’s top line. WAF has registered an increase in revenue in FY20 to $311.16mn as compared with $1.23mn in FY19. The company has seen an increase in its cash position to $95.02mn as on FY20 as compared with $83.58mn as on FY19. The company has repaid its debt on 6 November 2020 amounting to US$25mn.

Cash and Cash Equivalents Position (Source: Company Reports)

Key Risks: The company is engaged in exploration activities, any adverse change in climatic conditions may impact the business activities severely and may result in financial losses for the company. The company requires regulatory approvals, any delay in getting such approvals may result in business loss for the company. 

Outlook: The company expects gold production to be in a range of 250,000- 280,000 ounce of gold for 2021. company is expecting an All-in Sustainable Costs (AISC) in a range of US$720-US$800 per ounce. The company has provided 10-year (2021-2030) gold production outlook at above average of 200,000 ounces of gold per annum for Sanbrado Gold Project. 

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative) 

Data Source: Refinitiv, Thomson Reuters, 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: In the last one month, WAF has decreased by ~1.29% and by ~23.11% in the last three months. The current market capitalisation of WAF stands at ~$719.48mn as of 31 March 2021. The stock is currently trading below the average 52-weeks’ price level range of $0.405-$1.230. On the technical analysis front, the stock has a support level of ~$0.747 and a resistance of ~$0.846. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). Considering, the company has posted profits in FY20 as compared with losses during the past few years, significant growth in its FY20 revenues and positive outlook regarding its gold production in FY21. For this purpose, we have taken peers Silver Lake Resources Ltd (ASX: SLR), OceanaGold Corp (ASX: OGC), St Barbara Ltd (ASX: SBM). Considering, WAF has posted profits in FY20, commencement of Sanbrado Gold Project, decent long-term outlook, valuation, current trading levels, as well as key risks associated with the business, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.765, down by 6.13% as on 31 March 2021.

WAF Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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