Emmerson Resources Limited

ERM Details

ERM to Undertake SPP: Emmerson Resources Limited (ASX: ERM) is a fast-tracking exploration company, which operates across five thrilling early-stage gold-copper projects in NSW. On 13 July 2020, the company stated that it has undertaken a share purchase plan of 10,000,000 fully paid ordinary shares and 10,000,000 free-attaching Options, for a consideration of $0.10 per share to raise $1 million. The proceeds from this capital raising will be utilised to hasten exploration across Emmerson’s NSW projects, support its emerging gold royalty business and grab on new opportunities under the strategic alliance with Longreach Minerals Exploration.

ERM Secures Commitments from Investors: Recently, the company stated that Robert Trevor Bills, a director of the company, has disposed 9,100 fully paid ordinary shares for nil consideration. On July 2, 2020, the company informed the market that it has secured commitments from investors to raise up to $3.5 million via a Placement, for a consideration of $0.10 per share with an unlisted option priced at $0.16 a share, exercisable before 8 July 2023. Under the Placement, the company will issue ~35 million fully paid ordinary shares.

Other Recent Updates: In another update, the company stated that the first phase of drilling at Kiola has been successful in offering new insights into the subsurface geology. The company expects drilling at Kadungle to begin in late 2020. The drilling project is partially funded by the NSW Government. ERM has also inked a strategic deal with Longreach Mineral Exploration to use new technology and fast track discovery of mineral projects in Australia. 

March 2020 Quarter Highlights: During the quarter, the company reported payments for administration and corporate costs of $82K and staff costs of $198K, while net cash used in operating activities stood at $272K. The company reported net cash used in investing activities at $173k. The company reported its cash and cash equivalents at the end of the quarter at $1.455 million.

Cash Flow Highlights (Source: Company reports)

1HFY20 Key Highlights: During the first half of FY20, the company reported revenues of $50,406, down from $84,116 reported in the year-ago period. Net loss for the period stood at $718,368, as compared to $719,921 loss reported in the year-ago period.

Growth Impetus: The company has been pro-active in responding to the COVID-19 crisis. In doing so, the company has executed number of measures to protect the health and wellbeing of its staff, contractors, and local communities. Drilling and dewatering activities are continuing as planned. The company’s planned exploration will enable more accurate and extensive underground drilling of the multiple subparallel known ironstones at Edna Beryl. 

Key Risks: The company is susceptible to certain risks such as credit risk, liquidity risk, and market risk, which includes currency risk, interest rate risk, etc. Further, the company is susceptible to fluctuations based on changes in global economic conditions and end-use markets.

Stock Recommendation: The stock of ERM is quoting at $0.115 with a market capitalisation of ~$48.6 million. The stock is trading higher than the average of its 52-week trading range of $0.06 to $0.16. As per ASX, the stock of ERM gave a return of 57.53% in the last three months. During Dec’19, debt to equity multiple of the company stood at 0.00x, as compared to the industry median of 0.21x. On the valuation front, the stock is trading at a P/BV multiple of 3x as compared to the industry median (basic materials) of 1.9x on TTM (Trailing Twelve Months) basis and thus, seems overvalued. Considering the current trading levels, attractive returns in the past three months, and outcome of economic impacts given the COVID-19 pandemic scenario, we suggest investors to book profit on the stock and recommend a ‘Sell’ rating at the current market price of $0.115, as on 13 July 2020.

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

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