Tietto Minerals Limited

TIE Details

Recent Business Update: Tietto Minerals Limited (ASX: TIE) is a West African gold developer, and explorer focused on fast-tracking the development of its Abujar Gold Project, which comprised of three contiguous tenements, namely Abujar South, Abujar Middle, and Abujar North.

• TIE Hit High-Grade Gold: On December 2021, TIE announced hitting high-grade gold at 150 meters below AG South pit 4. Infill drilling aims for the first two years of gold production in Abujar. TIE is awaiting assays for 84 drill holes expected in January 2022. Six diamond on-site drill rigs are active, seeking for next resource update by Q1CY22.

Q1FY22 Quarterly Activity

• Increased Gold Production: Abujar gold production increased relative to Pre-Feasibility Study. 260k ounces of gold production forecast for the first year (a 30% uptick over PFS) at an AISC of US$651 per ounce.
• Ore Reserve: Open Pit Probable Ore Reserves surged from 1.45Moz to 34.4Mt at 1.3g/t Au using US$1,407 per ounce. Life of Mine (LOM) mining inventory included ore reserves of around 44.9Mt at 1.2g/t Au for a strip ratio of 6:1.
• Financial Results: Life of Mine (LOM) revenue clocked US$2.87 billion. LOM free cash flow (pre-tax) was registered at US$1.28 billion with an EBITDA of US$1.52 billion. Pre-tax net present value (at 5%) stood at US$959 million or A$1.3 billion.

Cash Flow Metrics, Analysis by Kalkine Group

Key Risks and Challenges

The company’s business is susceptible to the adverse price movement of gold, affecting operational and financial health. TIE is exposed to the risks from climate change, posing a temporary suspension of mining and drilling activities.

Outlook

Definitive Feasibility Study (DFS) of Abujar illustrated robust financial outcomes with an estimation of 260k ounces of gold production in the first year and subsequent 200k ounces of production for the next six years. TIE is now funded to gold production with construction work underway aiming for first gold by Q4CY22.

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 TIE gave a positive return of ~26.191% in the past one year. The stock is currently trading higher than the 52-weeks’ average price level band of $0.285 - $0.550. The stock has been valued using the Price/Book Value multiple-based illustrative relative valuation method and arrived at a target price with a downside of mid-single-digit (in percentage terms). The company might trade at some discount to its peers, considering a long period of negative shareholders’ return and increased threats from a labour shortage. For valuation, few peers like Mincor Resources NL (ASX: MCR), Alkane Resources Ltd (ASX: ALK), Chalice Mining Ltd (ASX: CHN) and others have been considered. Given the trend of the adverse operating profile, constantly spreading cash balance, no recent inflow from financing activities, trading levels reaching close to 52 weeks’ high, and downside indicated by valuation, we suggest investors to book profits to give a “Sell” recommendation on the stock at the current market price of $0.535, as of 06 January 2022, 11:57 AM (GMT+10), Sydney, Eastern Australia.

TIE Daily Technical Chart, Data Source: REFINITIV

Mount Gibson Iron Limited

MGX Details

Q1FY22 Operating Activities: Mount Gibson Iron Limited (ASX: MGX) is an Australian based iron ore producer with operations in the Mid-West and Kimberley regions of Western Australia.

• Ore Sales Standing: MGX ore sales stood at 0.4 million wet metric tonnes (Mwmt) for the quarter, incorporating 0.1 Mwmt from the Shine operation in Mid-West and 0.3 Mwmt from Koolan Island.
• Ore and Mineral Reserves: The ore reserves at Koolan Island as of 30 June 2021 comprised 17.5 million tonnes at 65.3% iron. Total mineral resources stood at 67.4 Mt graded at 61.7% iron, a shortfall of 4% over the previous year.
• Financial Results: MGX booked a profit after tax of $64 million for FY21. Group cash outflow for the quarter stood at $111 million, reflecting capital project investments and Koolan waste stripping. Cash and investments were registered at $250 million as of 30 September 2021, with no debt.

FY21 Financial Snapshot, Analysis by Kalkine Group

Key Risks and Challenges

The recent downfall in iron ore prices from the highs of 2021 has substantially affected the iron ore business in Australia. Rising disruption in the global supply chain from the aftermaths of the COVID-19 disorder has presented high freight costs for the industry.

Outlook

MGX is keen to deliver sustainable cost and operational improvements across its existing exploration activities of Shine operation in Mid-West and Koolan Island. The waste to ore stripping ratio is forecasted to contract substantially at around 6:1 in H2FY22. MGX predicts a total sale of circa 2.0 Mwmt in FY22.

Valuation Methodology: Price/Earnings 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 MGX gave a negative return of ~54.839% in the past one year. The stock is currently trading lower than the 52-weeks’ average price level band of $0.350 - $1.010. The stock has been valued using the Price/Earnings multiple-based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in percentage terms). The company might trade at some discount to its peers, considering potential downfall in iron ore prices and global supply chain constraints. For valuation, few peers like Mincor Resources NL (ASX: MCR), Alkane Resources Ltd (ASX: ALK), Macmahon Holdings Ltd (ASX: MAH) and others have been considered. Given the current trading levels, operational improvements across existing exploration sites, decent cash financial position, stabilised operating cash flows in FY21, and upside indicated by valuation, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.415, as of 06 January 2022, 01:11 PM (GMT+10), Sydney, Eastern Australia.

MGX 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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