SSR Mining Limited

SSR Details

FY21 (ended 31 December 2021) Results in Spotlight: SSR Mining Limited (ASX: SSR) is involved in the exploration and development of gold and silver projects with four mines in operations in the USA, Canada, Argentina, and Turkey.

• Delivered Top-End of the FY21 Guidance: The FY21 production of ~794,456 gold equivalent ounces (oz) closed near the top end of the provided guidance range of ~720,000- ~800,000 gold equivalent ounces. The AISC amounted to ~$955 per gold equivalent ounce for FY21, even lower than previously reduced AISC guidance of ~$1,000 - ~$1,040 per ounce.
• Updated Mineral Resources & Reserves: The total gold equivalent Mineral Reserves rose by ~1.0 million oz to ~10.0 million ounces in FY21 due to contributions from the initial Mineral Reserve exploration at the Gap Hangingwall (Seabee) and Çöpler’s Çakmaktepe Extension (Ardich).
• Growth in Operating Cashflows: SSR generated ~US$608.98 million operating cash flows in FY21 compared to ~US$307.09 million in FY20.
• Rise in Bottom-Line: SSR booked a net profit of ~US$425.92 million in FY21 versus ~US$157.16 million in FY20.
• Higher Dividend Distribution: The Board announces a quarterly cash dividend of ~US $0.07 per common share, up by ~40% on the Q3FY21 dividend. 7 March 2022 has been set as the Record Date with the dividend payable on 4 April 2022.

Improved Net Cash Position as of 31 December 2021; (Analysis by Kalkine Group)

Key Risks: SSR faces the risk of changes in production levels and cost estimates, successful implementation of its development plans. Fluctuations in the gold, silver, and other metal prices may affect the profitability of the company’s operations.

Roadmap Ahead:

• SSR has a pipeline of near mine targets (with high prospects) across its producing mines, successful past record of near mine exploration, and has substantially upped the spending on project exploration development in 2022.
• The company expects to maintain stable production guidance of ~700,000 - ~780,000 gold equivalent oz for FY22. For FY23 and FY24, it intends to sustain the production base above ~700,00 gold equivalent ounces to ensure a robust three-year operating outlook.
• SSR expects to incur AISC in the range of ~US$1,120 - ~ $1,180 per ounce in FY22 to ensure a robust free cash flow generation and return on capital.

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 SSR gave a positive return of ~16.30% in the past month and a positive return of ~25.04% in the past six months. The stock is currently trading towards its 52-weeks’ high level of $28.100. The stock of SSR has a support level of ~$23.90 and a resistance level of ~$32.50. The stock has been valued using the Price to Earnings per Share multiple-based illustrative relative valuation method and arrived at a target price with a correction of a single-digit (in % terms). The company might trade at a slight premium than its peers’ mean P/E multiple, considering the increased production across metals, updated life of mine plans, and increase in mineral reserves estimation. For this purpose of valuation, a few peers like St Barbara Ltd (ASX: SBM), Regis Resources Ltd (ASX: RRL), Newcrest Mining Ltd (ASX: NCM), and others have been considered. Considering the current trading levels, decent returns in the past months, and indicative downside in valuation, and associated key business risks, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the closing market price of $27.280, down by 2.572%, as of 25 February 2022.

SSR Daily Technical Chart, Data Source: REFINITIV 

Westgold Resources Limited

WGX Details

Financial Performance in 1HFY22 (Ended December 2021): Westgold Resources Limited (ASX: WGX) operates the gold mine, open pits, projects across the Central Murchison area. The area operations include Fortnum gold operations (FGO), Meekatharra gold operations (MGO), and Cue gold operations (CGO).

• WGX produced ~132,861 gold oz during 1HFY22 versus ~126,010 gold oz in 1HFY21, up by 5% YoY.
• The gold sales rose by ~5% YoY from ~125,197 oz (ounces) in 1HFY21 to ~131,917 oz in 1HFY22.
• From a medium to long-term perspective, WGX invested ~$15 million in building surface ore stocks and ~$5 million in building inventory for critical spare parts and key consumables. The company expects these investments to translate to cashflows in the mid-term.
• The revenue increased from ~$301.8 million to ~$311.0 million, up by ~3% on pcp in
• The NPAT declined by ~58% YoY from ~$47.5 million in 1HFY21 to ~$19.9 million in 1HFY22.
• WGX declared an unfranked cash dividend of ~2 cents per share (cps) in 1HFY22.

Improved Debt Position as of 31 December 2021; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of higher investment on account of reserves depletion, COVID-19 risks, mine life development, etc. Skilled labour shortages, regulatory changes, supply chain issues continue to pose risks to the business.  

Outlook:

• The company expects to produce ~270,000 plus of gold ounces in FY22 at an AISC of ~$1,500 – $1,700/oz.
• WGX plans to leverage the capital investments in inventory building, fleet & infrastructure, financial assets, etc. by generating cashflows in the mid-term.
• The company follows a prudent cost management approach to deliver cost improvements and increased profitability in 2HFY21.
• WGX intends to build a project pipeline for which it has studies underway and started drilling exploration at targets.

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 stock of WGX gave a positive return of ~32.37% in the past six months and gave a positive return of ~13.70% in the past year. The stock is currently trading towards its 52-weeks’ high level of $2.420. The stock of WGX has a support level of ~$1.990 and a resistance level of ~$2.650. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price with a correction of a single digit (in % terms). The company might trade at a slight discount than its peers’ median EV/Sales multiple, considering the decline in NPAT, net operating cash flows, increased capital reinvestments due to COVID-19 pressures on labour availability and cost and supply chain disruptions. For this purpose of valuation, a few peers like Resolute Mining Ltd (ASX: RSG), Regis Resources Ltd (ASX: RRL), St Barbara Ltd (ASX: SBM) have been considered. Considering the current trading levels, decent returns in the past months, indicative downside in valuation, and associated key business risks, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the current market price of $2.230, as of 25 February 2022, 1:03 PM (GMT+10), Sydney, Eastern Australia.

WGX 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.

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