St Barbara Limited

SBM Details

Q1FY22 Financial Performance Highlights: St Barbara Limited (ASX: SBM) engages in gold and silver mining, exploring developing and commercialisation activities.

• The company has delivered a decline in production to 67,000 oz in Q1FY22, compared to 72,990 oz in pcp, impacted by the Atlantic production performance during the quarter.
• The company has reported total cash operating costs of A$1,071/oz in Q1FY22, a decline from A$1,203/oz in Q1FY21.
• In addition, the group has posted All-in Sustaining Costs of A$1,492/oz in Q1FY22, down 8% QOQ.
• It has recorded a decline in underlying NPAT of A$81 million, down by 26% YOY. The earnings were impacted due to an impairment charge at Atlantic operations.

Current Trade and other receivables (Source: Analysis by Kalkine Group)

Key Risks:

• Gold Price The company is also exposed to the risks related to the fluctuations in gold price as it could impact its financial results.
• COVID-19 Uncertainty: SBM is exposed to the uncertainties and risks related to the COVID-19 pandemic and its associated restrictions as it could impact the productivity of the company’s operations.

Outlook:

• The management guided the FY22 production between 305-355 koz with All-In Sustaining Cost of A$/1,710-1,860 oz, group exploration at A$27-32 million and group capex in the range of $70-95 million.
• The company focuses on completing Simberi DSTP engineering and design works. Further, it will commence the processing plant work in Q2FY22.
• The company's focuses on a new open pit at Trevor Bore by 2024, which has the potential for a satellite open pit to provide ore to Gwalia mill.

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: During the year, the board approved pre-investment work of US$13 million for the Sulphide Project and for the further final investment decision scheduled for March 2022. The stock of SBM is currently trading below its average 52-weeks' levels of $1.255-$2.970. The stock of SBM gave a positive return of ~13.84% in the past one month and a negative return of ~34.80% in the past nine months. 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 might trade at a slight discount to its peers’ average EV/Sales multiple, considering the delays in the permits, increase in operational cost and price volatility, etc. For the purpose of valuation, peers such as Regis Resources Ltd (ASX: RRL), Ramelius Resources Ltd (ASX: RMS), Silver Lake Resources Ltd (ASX: SLR) and others have been considered. Considering the current trading levels, indicative upside in valuation, increased production at Leonora, strategic partnership, optimistic outlook, we recommend a 'Buy' rating on the stock at the closing price of $1.450, down by ~4.919% as of 27 October 2021.

SBM Daily Technical Chart, Data Source: REFINITIV

Emmerson Resources Limited 

ERM Details

Exploration Update: Emmerson Resources Limited (ASX: ERM) engages in exploring and evaluating gold, copper, and cobalt deposits. It holds interest in the Tennant Creek Mineral Field and other five projects. In an exploration update provided on 26 October 2021, the company notified that maiden reverse circulation drilling at Hermitage project in Tennant Creek has intersected native copper, malachite and chalcopyrite.

FY21 Financial Performance:

• The company has posted a decline in total revenue and other income from ~344k in FY20 to ~262k in FY21, impacted due to an increase in management and consulting fees.
• The company has recorded an increased exploration and evaluation assets of $16.10 million in FY21, compared to $16.14 million in FY20.
• However, there is an increase in net loss after tax to $1.57 million in FY21 against a loss of $1.48 million in FY20. This is due to increase in expense during the year.
• The cash position of the company stood at $5.48 million as of 30 June 2021 vs $1.28 million as of 30 June 2020.

Total Current Asset Highlights (Source: Analysis by Kalkine Group)

Key Risks:

• Geological Risk: The company requires a regular quality and quantity check from a geologist. Therefore, any negative report could impact its operations.
• Production Risk- The company is exposed to production risk due to labour shortfall and lockdown restriction during the COVID -19 pandemic, and if the uncertainty prevails might impact the company’s financials.

Outlook:

• The company continues to drill at the Hermitage project and expect its first assay results in December of FY21.
• The management has announced an Annual General Meeting on 25 November 2021.
• The company aims to extend the potential high-grade mineralisation in both the shallow oxide and deeper gold zones at the Edna Beryl.

Stock Recommendation: Recently, the company has commenced its 2500m drill program at high-grade Edna Beryl gold mine and Hermitage gold-copper in Tennant Creek. The stock of ERM is trading above its average 52-weeks' levels of $0.058-$0.105. The stock of ERM gave a positive return of ~18.57% in the past one week and a positive return of ~25.75% in the past one month. On a technical analysis front, the stock of ERM has a support level of ~$0.060 and a resistance level of ~$0.099. Considering the current trading levels, recent rally in the stock price, uncertainty of COVID-19 pandemic, gold price fluctuations, geologist risk and the key risks associated with the business, we suggest investors to book profit and give a 'Sell' rating on the stock at the current market price of $0.088, up by ~11.39% as on 27 October 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

ERM Daily Technical Chart, Data Source: REFINITIV 

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 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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