Stocks’ Details

AngloGold Ashanti Limited

Latest Contract Update: AngloGold Ashanti Limited (ASX: AGG) is engaged in gold mining activities. It also produces silver and sulfuric acid as by-products. The company mainly operates through three segments: Continental Africa, Australia, and Americas. The company has recently informed the market, that Perenti Global Limited’s (PRN) subsidiary African Underground Mining Services (AUMS) will undertake operations at AGG’s Geita Mine in Tanzania. AUMS has been providing underground mining services to AGG since the transition of Geita mine project. The two-year contract value stands at US$186mn, that will lead to increase in work in hand for PRN amounting to A$235mn (as per percentage of holding in AUMS).

FY20 Financial Highlights: The company has registered an increase in its revenue from product sales to US$4,427mn in FY20 as compared with US$3,525mn in FY19, on the back of robust performance from Geita project and steady performances at Kibali, Iduapriem, Siguiri, Sunrise Dam and AGA Mineracao. The company has posted a significant increase in Profits after Tax to US$964mn in FY20 as compared with US$369mn in FY19 on the back of higher gold price realisation in FY20. The cash position improved significantly with US$1,330mn as on 31 December 2020 as compared with US$456mn as on 31 December 2019. AGG has reported a jump of five-fold in its dividends in FY20 on the back of significant improvement in the profits.

Revenue and Gross Profits (Source: Company Report) 

Key Risks: The company is exposed to Covid-19 situation, due to which the business activities may see discontinuity, leading to financial losses for the company. The company is engaged in gold exploration activities. Thus, any fluctuation in the prices of gold may lead to financial losses for the company.

Outlook: AGG is expecting an average 2% CAGR in the production of gold over the next two years and growth of 5% CAGR over the next 5 years supported by various operational assets. The company expects a sustaining capital expenditure to be in a range of $720mn to $820mn. The company expects to operate with All-in Sustainable Costs (AISC) in a range of $900/oz-$1,150/oz in 2025. The company aims to grow production from 3.05mn ounces to between 3.2mn ounces – 3.6mn ounces by 2025. 

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative) 

Data Source: Refinitiv, Thomson Reuters, 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: In the last one month, AGG has increased by ~5.25% and decreased by ~1.85% in the last three months. The current market capitalisation of AGG stands at ~$10.72bn as of 21 April 2021. The stock is currently trading close to its 52-weeks’ low of ~$5.10. On the technical analysis front, the stock has a support level of ~$5.474 and a resistance of ~$5.925. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight discount as compared to its peer average, considering an increase in non-current borrowings and fluctuation in the gold prices. For this purpose, we have taken peers Regis Resources Ltd (ASX: RRL), St Barbara Ltd (ASX: SBM), to name a few. Considering an increase in free cash flow, decent long-term outlook, decline in adjusted net debt, increase in annual dividend, current trading level, and valuation, we recommend a “Buy” rating on the stock at the current market price of $5.81, up by ~3.749% as on 21 April 2021.  

Nickel Mines Limited

Latest Acquisition Update: Nickel Mines Limited (ASX: NIC) is engaged in mining of nickel ore and nickel pig iron in Australia. The company has announced on 21 April 2021 regarding its completion of further 20% acquisition in Angel Capital Private Limited (Angel). With further 20% acquisition, NIC is now holding 50% total interest in Angel. Angel owns 100% of the Angel Nickel project consisting of 380MW power station and four next generation RKEF lines. The project is under construction in Indonesia’s North Maluku province. NIC has plans to take 100% ownership in Angel by acquiring further 50% in two stages. At stage 1, payment of US$137.6mn will be made by 30 June 2021 for further 20% stake and at stage 2, payment of US$210.0mn will be made by 31 December 2021 for further 30% stake.

FY20 Financial Highlights: The company has registered a Sales revenue of US$523.49mn in FY20 with a net profit of US$153.69mn in the same period. The company has registered a significant increase in its cash and cash equivalent position at US$351.44mn as on 31 December 2020 as compared with US$49.82mn as on 31 December 2019.

Cash Position as on 31 December 2020 (Source: Company Reports)

Key Risks: The company is engaged in mining activities, so any adverse climatic conditions may lead to discontinuity of the business and further lead to financial losses for the company. The company requires regulatory approvals to carry out its business efficiently. Thus, any delay in regulatory approvals may lead to financial losses for the company.

Outlook: As per the company’s report, NIC has successfully undertaken developmental activities at Hengjaya mine in Indonesia Morowali Industrial Park. The company has plans to enhance the capacity of its Jetty while establishing operations at the Central pit and other developments. NIC has enabled itself to produce significantly higher levels of nickel laterite resource through Hengjaya mine. The company is positive with the establishment of RKEF assets for the development of its project, going forward. 

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative)

Data Source: Refinitiv, Thomson Reuters, 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: In the last one month, NIC has decreased by ~7.74% and by ~1.96% in the last three months. The current market capitalisation of NIC stands at ~$3.19bn as of 21 April 2021. The stock is currently trading above the average 52-weeks’ price level range of ~$0.460-~$1.535. On the technical analysis front, the stock has a support level of ~$1.219 and a resistance of ~$1.331. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of high single-digit upside (in % terms). We believe that the company can trade at a slight premium as compared to its peer average, considering decent cash position at the end of 31 December 2020, and the recently completed buyout of an additional 20% stake in Angel Capital Private Limited. For this purpose, we have taken peers Rio Tinto Ltd (ASX: RIO), Western Areas Ltd (ASX: WSA), to name a few. Considering development program at Hengjaya mine in Indonesia, reducing its debt position, increasing production through acquisitions, valuation, and current trading levels, we recommend a “Hold” rating on the stock at the current market price of $1.25, down by 1.575% as on 21 April 2021. 

Syrah Resources Limited

Latest Update on Q1 2021: Syrah Resources Limited (ASX: SYR) is engaged in supplying of graphite products. It operates through two segments: Balama and Corporate. On 21 April 2021, the company reported its first quarter 2021 activities. As per the company reports, Balama Graphite Operations has seen a positive grades and recoveries and is progressing well as per the company plans. The production at Balama has been recommenced ahead of the schedule, under which 5kt has been produced and 2kt has shipped in the quarter. Furthermore, Vidalia AAM project has installed and commissioned furnace to deliver on-specification AAM to potential customers. The company has completed FEED project for expansion of production capacity to 10ktpa. At the end of the quarter, cash balance stood at US$78 million.

AAM Production Volumes Growth (Source: Company Reports)

FY20 Financial Highlights: The company has registered a decline in its revenues to US$10.78mn in FY20 as compared with US$72.18mn in FY19. The company has posted net losses after tax of US$60.87mn in FY20. The company has registered a decline in cash and cash equivalents to US$74.99mn as on 31 December 2020 as compared with US$80.57mn as on 31 December 2019.

Key Risks: The company is engaged in exploration activities and operates in multiple countries. Hence, any severe movement in foreign exchange prices will lead to financial losses for the company. The company carries an insurance risk as it has insured its business by paying a premium against any losses.

Outlook: Looking forward, SYR will be focusing on the development of its Balama project through driving the demand for natural flake graphite. Moreover, the company is strengthening its position of Balama in natural graphite market, as the company is expecting an increase in demand for graphite with a growth in Electric Vehicle market. The company is targeting an average product fixed carbon (FC) grade of 95%, keeping it in line with its target range of 95%-97% FC. 

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative)

Data Source: Refinitiv, Thomson Reuters, 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: In the last one month, SYR has increased by ~2.21% and decreased by ~3.74% in the last three months. The current market capitalisation of SYR stands at ~$527.76mn as of 21 April 2021. The stock is currently trading above the average 52-week price level range of ~$0.200-~$1.375. On the technical analysis front, the stock has a support level of ~$1.022 and a resistance of ~$1.235. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of high single-digit upside (in % terms). We believe that the company can trade at a slight premium as compared to its peer median, considering higher demand for graphite, positive grade and recoveries for graphite and decent liquidity position. For this purpose, we have taken peers Mineral Resources Ltd (ASX: MIN), Galaxy Resources Ltd (ASX: GXY), to name a few. Considering the company’s decent position in Balama project to meet higher demand for graphite, positives grades in Balama Graphite Operations, capital raising program, valuation, and current trading levels, we recommend a “Hold” rating on the stock at the current market price of $1.155, up by ~8.962% as on 21 April 2021.  

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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