St Barbara Limited

SBM Details

Change in Substantial Holdings: St Barbara Limited (ASX: SBM) is a producer and explorer of gold. Recently, L1 Capital Pty Ltd has made a change to their substantial holdings in the company with a voting power of 10.35% against the previous voting power of 8.96%.

Q1FY22 Financial and Operational Summary:

• For the quarter ended 30 September 2021, the company recorded total gold production of 67,000 ounces, which was comprised of 52,000 oz from Leonora and 15,000 oz from Atlantic. SBM posted gold sales of 58,000 oz against 66,000 oz in Q1FY21.
• Production for the quarter rose by 15% against the prior quarter, which was driven by higher stope grades. The company cemented its balance sheet through the extension of a syndicated debt facility of A$200 million and C$100 million.

Production (Source: Analysis by Kalkine Group)

Acquisition of Bardoc Gold:  As announced on 20 December 2021, SBM implemented an all-scrip scheme of arrangement for the acquisition of 100% of the shares in Bardoc Gold Limited.

Key Risks: The company’s operational and financial performance could be impacted by the adverse movement in gold prices globally. In addition, SBM is exposed to a more complex regulatory environment; any failure in the compliances could lead the business to fines, penalties, etc.

Outlook: For FY22, the company expects gold production in the range of 305 to 355 koz at an All-In Sustaining Cost (AISC) of between A$1,710 oz to A$1,860 oz.

Valuation Methodology: P/E 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 SBM is currently trading below its 52-week low-high average of $1.255 - $2.390, respectively. The stock has been corrected by ~5.10% and ~9.70% in the past one and three months, respectively. The stock has been valued using a P/E Multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers’ median P/E multiple, considering the COVID-19 Led uncertainties and fall in production, etc.  For the purpose of valuation, peers such as IGO Ltd (ASX: IGO), Western Areas Ltd (ASX: WSA), and Red 5 Ltd (ASX: RED) have been considered. Considering the expected upside in valuation, strengthened balance sheet, synergies from acquisition, decent outlook, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $1.365, as on 18 January 2022, 10:30 AM (GMT+10), Sydney, Eastern Australia.

SBM Daily Technical Chart, Data Source: REFINITIV  

Dacian Gold Limited

DCN Details

Decent Drilling Results:  Dacian Gold Limited (ASX: DCN) is involved in the exploration and mining of gold. Recently, the company announced a significant drill result below Doublejay, which confirms broad mineralisation in a third pipe within the syenite intrusive system beneath the Jupiter complex. The company identified an outstanding intersection of 203m @ 1.1g/t.

Q1FY22 Financial Summary:

• During the quarter ended 30 September 2021, the company continued its investments into operations, and the total development capital spent on Doublejay pre-stripping and advancing the Redcliffe project stood at $18.5 million.
• DCN recorded production of 15,819oz of gold at an AISC of $2,362/oz, which was generally in line with guidance weighted to 2HFY22.
• The company closed Q1FY22 with cash and gold on hand of $33.2 million as compared to $41.8 million as on 30 June 2021.

Cash & Gold (Source: Analysis by Kalkine Group)

Completion on Equity Raising: In the month of December 2021, DCN successfully raised $20.0 million through well-supported placement from existing and new institutional shareholders. DCN would use the funds to aid working capital to complete pre-stripping activities at the current stage of the Doublejay open pit by March 2022.

Key Risks: DCN is exposed to risk arising from the adverse movement in the gold prices as it generates a major portion of revenue from the sale of gold. The company is also exposed to risks arising from uncertainties in relation to change in the climate.

Outlook: For FY22, the company anticipates gold production in the range of 100,000-110,000oz at an AISC of $1,550- $1,700/oz.

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 company is trading below its 52-week low-high average of $0.155 - $0.540, respectively. The stock of DCN has been corrected by ~17.70% in the past three months, respectively. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers’ average EV/Sales multiple, considering the COVID-19 disruptions and losses in business. For the purpose of valuation, peers such as Westgold Resources Ltd (ASX: WGX), Aurelia Metals Ltd (ASX: AMI), Resolute Mining Ltd (ASX: RSG), and others have been considered. Considering the expected upside in valuation, continuous investment into operations, low debt to equity ratio, decent outlook, current trading level, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.1975, as on 18 January 2022, 3:00 PM (GMT+10), Sydney, Eastern Australia.

DCN Daily Technical Chart, Data Source: REFINITIV  

Resolution Minerals Ltd

RML Details

Expected Assay Results: Resolution Minerals Ltd (ASX: RML) is involved in the exploration of gold in Alaska (USA), copper, cobalt, and other battery metals in the Northern Territory and gold, vanadium, and iron ore in Alaska (USA). As announced on 24 December 2021, the company expects to receive assay results from the trenching program at the Tourmaline Ridge Prospect in early 2022. In addition, the company believes that the assays results will be available in time to prepare for the 2022 field season. 

Update on Benmara Project: With respect to Benmara Project, the company has finished a “proof of concept” 15-hole RC drilling program. The assay results affirmed anomalous Fe-Mn carbonate alteration and elevated thallium. The Benmara Project was acquired from Strategic Energy Resources Limited by paying $250,000 in RML shares or cash.

Q1FY22 Financial and Operational Summary:

• During the quarter ended 30 September 2021, the company finished trenching program at Tourmaline Ridge Prospect and added new tenements to Benmara Project, which increased land holding to 2,230km².
• Subsequent to the end of the quarter, the company closed a successful Share Purchase Plan (SPP), which raised $1.7 million.
• At the end of the quarter, the company had a cash balance of $2 million.

Key Risks:

• Gold Price Risk: Any adverse movement in gold prices could impact the financial and operational growth of the company.
• Regulatory Risk: The company is exposed to a more complex regulatory environment; any failure in the compliances could lead the business to fines, penalties, etc.

Outlook: The company is focused on battery metals in under-explored Northern Australia and precious metals on specific prospects at the 64North Gold Project in Alaska.

Stock Recommendation: The stock of RML is trading near to its 52-week low level of $0.015, offering a decent opportunity for accumulation. The stock has been corrected by ~27.27% in the past three months. The stock of RML is trading at a price to book value multiple of 0.6x against the industry median (Basic Materials) of 2.7x on a TTM basis. As a result, the stock seems undervalued. Considering the valuation on a TTM basis, capital raising, acquisition of tenements, decent outlook, deleveraged balance sheet, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of $0.016, down by ~5.883% as on 18 January 2022.

RML Daily Technical Chart, Data Source: REFINITIV 

 Note: The purple line reflects the RSI (14-day period)

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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