Stocks’ Details

Saracen Mineral Holdings Limited

Solid Start to FY21: Saracen Mineral Holdings Limited (ASX: SAR) is engaged in the production and exploration of gold. As on 22 October 2020, the market capitalization of the company stood at ~$6.74 billion. The company has recently reported results for the first quarter ended September 2020, wherein it reported gold production of 154,388oz at AISC $1,169/oz and sold 152,790oz of gold at an average price of $2,352/oz for sales receipts of $359 million. As at 30 September 2020, the company reported a cash and liquid balance of $467 million and a debt balance of $321 million. The decent financial and operational performance enabled the Board to declare a fully franked dividend of 3.8cps. 

Quarterly Group Production (Source: Company Reports)

Proposed Merger of Equals: Saracen and Northern Star agreed to a merger-of-equals via a Saracen Scheme of Arrangement under which Northern Star will acquire 100% of the shares in Saracen. The merger will generate $1.5 billion to $2 billion in synergies.

Guidance: The company has provided guidance for FY21 and expects production in the range of 600 - 640koz with an AISC in the range of $1300 to $1400/oz. The company’s growth capital and exploration budget of FY21 stood at $484 million.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company has a decent platform for further growth and is building a more sustainable gold company. As per ASX, the stock of SAR is trading close to its 52-weeks’ high level of $6.750 but retains further potential for growth. The stock of SAR gave a return of 42.05% in the past six months and a return of 20.63% in the last one month. On a technical front, the stock of SAR has a support level of ~$5.87 and a resistance level of ~$6.250. We have valued the stock using the EV/Sales multiple based illustrative relative valuation and have arrived at a target upside of higher single-digit (in percentage terms). For the said purposes, we have considered Northern Star Resources Ltd (ASX: NST), Evolution Mining Ltd (ASX: EVN) and Newcrest Mining Ltd (ASX: NCM) as peers. Considering the decent returns, merger with Northern Start and a decent start to FY21, we recommend a ‘Hold’ rating on the stock at the current market price of $6.08, down by 0.165% on 22 October 2020.

Resolute Mining Limited

Quarterly Activities (For the Period Ended 30 September 2020): Resolute Mining Limited (ASX: RSG) is engaged in the mining and development of resource projects and prospecting and exploration for minerals and gold. As on 22 October 2020, the market capitalization of the company stood at ~$1.03 billion. The company has recently released results for the quarter ended 30 September 2020, wherein it reported a fall of 19% (on QoQ basis) in total gold production to 87,303 ounces at an AISC of US$1,284/oz. The fall in production was mainly due to the impact of industrial action at Syama. During the quarter, the company reported cash and bullion of US$106 million with net debt of US$234 million.

Quarterly Operating Performance (Source: Company Reports)

Guidance: The company has provided guidance for CY20 and expects production in the range of 400,000oz to 430,000oz at an AISC between US$980 and US$1,080/oz. The company also expects CY20 capital expenditure of US$15 million.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Despite the period of COVID-19, the company’s safety performance has remained at consistently commendable levels. As per ASX, the stock of RSG is trading close to its 52-weeks’ low level of $0.605, proffering a decent opportunity for accumulation. The stock of RSG gave a negative return of 37.05% in the past three months and a negative return of 7.89% in the last one month. On a technical front, the stock of RSG has a support level of ~$0.723 and a resistance level of ~$1.1. We have valued the stock using the Price to Earnings multiple based illustrative relative valuation and have arrived at a target upside of lower double-digit (in percentage terms). For the said purposes, we have considered St Barbara Ltd (ASX: SBM), Saracen Mineral Holdings Ltd (ASX: SAR), Regis Resources Ltd (ASX: RRL), etc., as peers. Considering the current trading levels, decent guidance for CY20, and valuation, we recommend a ‘Buy’ rating on the stock at the current market price of $0.875, down by 6.418% on 22 October 2020.

Nickel Mines Limited

MOU to Acquire 70% of 4 New RKEF Lines at Weda Bay: Nickel Mines Limited (ASX: NIC) is engaged in the production of nickel pig iron and nickel ore. As on 22 October 2020, the market capitalization of the company stood at ~A$2.11 billion. The company has recently signed an MoU with Shanghai Decent Investment Co. Ltd to acquire a 70% interest in PT Angel Nickel Industry for US$490 million. The project will be a joint corporation with SDI and is subject to the execution of a binding Definitive Agreement and shareholder approval.

Half Yearly Results (For the Period Ended 30 June 2020): During the half year ended 30 June 2020, the company reported sales revenue of US$227.8 million as compared to US$56.8 million in the pcp. In the same time span, operating profit of the company increased to US$51.6 million from US$13.4 million in 1H19. During the half-year, the company generated net cash of US$78.7 million from operations.

Financial Highlights (Source: Company Reports)

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company is emerging as a pre-eminent global nickel company and has a unique exposure to global nickel growth. As per ASX, the stock of NIC is inclined towards its 52-weeks’ high level of $1.015 but retains potential for further growth. The stock of NIC gave a return of 67.79% in the past three months and a return of 45.58% in the last one month. On a technical front, the stock of NIC has a support level of ~$0.367 and a resistance level of ~$1.01. We have valued the stock using the EV/Sales multiple based illustrative relative valuation and have arrived at a target upside of lower double-digit (in percentage terms). For the said purposes, we have considered Western Areas Ltd (ASX: WSA), Mineral Commodities Ltd (ASX: MRC), Champion Iron Ltd (ASX: CIA), etc., as peers. Considering the current trading levels, returns in the past three months, and decent financial performance for 1H20, we recommend a ‘Hold’ rating on the stock at the current market price of $0.990, down by 0.503% on 22 October 2020.

Daily Comparative Chart (Source: Refinitiv, Thomson Reuters)

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