Aeon Metals Limited

AML Details

Testwork Update on Walford Creek Project: Aeon Metals Limited (ASX: AML) is a mineral exploration and development firm with a 100% ownership interest in the Walford Creek Polymetallic Project (copper and cobalt) in Queensland. On 13 October 2021, AML reported that the current results obtained from the metallurgical test work program are in line with the process inputs adopted in the Scoping Study completed on the Walford Creek project in June 2021.

• The process operating conditions have been firmed up during the testing and facilitate equipment selection decisions regarding the initial plant layouts.
• AML is undertaking further detailed estimation of operating and capital costs and estimates to complete the project PFS in Q1CY22.

Shareholding Change: OCP Asia (Singapore) Pte. Limited, OCP Asia (Hong Kong) Limited and all their associated entities increased their shareholding from 40.14% to 44.08%in AML.

FY21 Results Highlights:

• Updated MRE: The company has updated its MR estimates (Mineral Resource Estimates) for the Vardy and Marley zones, in line with the updated process flowsheet, and re-optimised its mining schedules. As a result, the project throughput scale increased to 3 Mtpa (up by 50%) and mine life got expanded to 14 years. AML also accelerated the release and completion of a revised Scoping Study in June 2021.
• Liquidity & Debt Position: The company held $527,000 cash and cash equivalents and $24.75 million debt (loans and borrowings) as of 30 June 2021.
• Debt Date Extension: The company recently sought a maturity date extension on its existing debt facility from OCP Asia, its major shareholder and debt provider. The new maturity date of 17 December 2023 is well past the estimated PFS completion date.

Net Loss After Tax Trend from FY17-FY21; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of exploration, health hazards, commodity price changes, and adequate funds at an effective cost to run the project activities smoothly. 

Outlook:

• AML targets to complete the Pre-Feasibility Study on the Walford Creek project in Q1CY22.
• Post the preliminary test work, AML plans to set up a pilot plant for a large-scale process and schedule the trials in 1HCY22 once the operating conditions and detailed process flowsheet have been formulated.
• AML has been reviewing multiple external growth avenues since last year. The company stays vigilant to explore new potential growth options complementing its project development on the Walford Creek Copper-Cobalt Project and conduct regional exploration work.

Stock Recommendation: The stock of AML gave a negative return of ~1.785% in the past three months and a negative return of ~32.92% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.051 - $0.165.  On a TTM basis, the stock of AML is trading at a price to book value multiple of 0.8x lower than the industry (Metals & Mining) median of 2.5x, thus seems undervalued. Considering the current trading levels, revised process flowchart improvements, plans for pilot plant trials and PFS completion, debt extension beyond the PFS date completion, exploration of inorganic growth avenues, valuation on a TTM basis, and associated business risks, we give a ‘Speculative Buy’ rating on the stock at the closing price of $0.055, down by ~3.509%, as of 22 October 2021.

AML Daily Technical Chart, Data Source: REFINITIV 

Note: Investors can consider exiting from the stock if the Resistance levels mentioned as per the technical analysis have been achieved and are subject to the factors discussed above.

Southern Gold Limited

SAU Details

Key Takeaways from FY21: Southern Gold Limited (ASX: SAU) is an explorer and producer of gold, nickel, and base metal minerals in South Korea. The company projects include Aphae & Neungju gold projects, Deokon & Beopseongpo gold-silver projects, and Hampyeong projects.

• Robust Liquidity: The company has strengthened its balance sheet position as of 30 June 2021. SAU undertook an institutional placement ($10.2 million), a drill for equity transaction for A$1.5 million and completed the sale of its JV assets to BMV (Bluebird Merchant Ventures Limited) for $13.7 million during the year. All these deals collectively added $25 million in liquid shares, cash, and receivables in FY21.
• Resignation of MD: SAU announced that MD, Simon Mitchell, has resigned and will no longer be with the firm effective 29 October 2021.
• Exploration Work: SAU undertook drilling activities at the Weolyu, Geum-Mar, Aphae, Deokon, and Dokcheon projects during the year.
• Booked NPAT: As a result of the divestment of Gubong and Kochang JV interests, SAU registered an NPAT (net profit after tax) of $4.34 million in FY21 compared to net loss after tax of $4.16 million in FY20.

Cash & Cash Equivalents Highlights; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of exploration, resources & reserve estimation, COVID-19 restrictions, and ongoing uncertainty.

Outlook:

• The company has appointed Robert Smillie in South Korea as the exploration manager in a move to augment the exploration team.
• SAU plans to reposition the expatriate technical team in South Korea to boost testing work and completion of fieldwork during the peak field season (March-November). For FY22, the company has a strong focus to identify and build up drill targets via exploration across its 5 project areas.
• The company will hold its AGM (Annual General Meeting) on 29 October 2021.

Stock Recommendation: The stock of SAU gave a positive return of ~10.93% in the past month and a positive return of ~12.69% in the past three months. The stock is currently trading towards lower than the 52-weeks’ average price level band of $0.061 - $0.135. On a TTM basis, the stock of SAU is trading at a price to book value multiple of 0.6x lower than the industry (Metals & Mining) median of 2.5x, thus seems undervalued. Considering the current trading levels, higher current ratio, low debt levels, well capitalisation, valuation on a TTM basis, and plans to deploy exploration team in South Korea, and associated business risks, we give a ‘Speculative Buy’ rating on the stock at the closing price of $0.071, up by ~4.411% as on 22 October 2021. Investors can consider exiting from the stock if the Resistance levels mentioned as per the technical analysis have been achieved and are subject to the factors discussed above.

SAU Daily Technical Chart, Data Source: REFINITIV  

Note: Investors can consider exiting from the stock if the Resistance levels mentioned as per the technical analysis have been achieved and are subject to the factors discussed above. 

Gold Road Resources Limited

GOR Details

Takeover Proposal Highlights: Gold Road Resources Limited (ASX: GOR) is an explorer, project developer, and producer of alumina, aluminum, coal, and manganese in Australia. 

• On 20 October 2021, Gold Road Resources Limited Group held 19.9% voting shares in Apollo Consolidated Limited (Apollo) and became the largest shareholder in the firm.
• On 21 October 2021, GOR announced an acquisition proposal to Apollo Consolidated Limited to acquire 100% share capital of Apollo for $0.56 cash per share.
• The unconditional off-market offer is estimated at $166 million and outbids the recent conditional offer of Ramelius Resources Ltd to Apollo.
• GOR plans to fund the proposal with a drawdown of its $250 million Revolving Corporate Facility and $116 million cash (existing).
• Strategically, the acquisition fast-tracks the development of a second mining operation and complements GOR’s strategy of growing the pipeline with low risk & high-quality opportunities in tier one jurisdictions.
• Apollo plans to draft a formal response with its Board recommendation concerning the GOR’s offer.

CFO Appointment: Mr. John Mullumby will join GOR as the CFO (Chief Financial Officer) from 15 December 2022.

Initial Results for the September 2021 Quarter (Q3FY21):

• Higher Production Recorded: The Gruyere Gold Mine produced ~59,371 ounces of gold during the Q3Y21 versus 53,132 ounces of gold in Q2FY21 (June 2021 quarter). GOR updated that the ball mill at the Gruyere gold mine has been repaired and serviced properly. As a result, the plant throughput rates have progressively ramped up.

1HFY21 Results:

• A Decline in Sales Revenue: The company reported $129.62 million in sales revenue in 1HFY21 versus $135.11 million in 1HFY20.
• Liquidity & Debt Position: The company held $124.4 million cash and cash equivalents as of 30 June 2021. The company held $112.0 million as of 30 June 2021 versus $116.0 million as of 31 December 2020.
• Interim Dividend: The company declared a fully franked dividend of 0.5 cents per share for 1HFY20.
• Operating Cash Flows: The operating cash flows for 1HFY20 stood at $46.3 million in 1HFY21 compared to $59.6 million during 1HFY20.

Total Revenue & Net Income Trend from 1HFY19-1HFY21; (Analysis by Kalkine Group)

Key Risks: The company faces changes in the gold price, demand, and production, accrual of synergies from the ongoing acquisitions. GOR faces regulatory delays and geological risks on project advancements. 

Outlook:

• The company has lowered the previously stated production guidance of 260,000 - 300,000 ounces to 250,000 - 260,000 ounces for FY21 due to lower production rates in Q2FY21 and Q3FY21.
• The December quarter guidance stands between 71,000- 81,000 ounces due to the expected increase in the production rates & grade for the quarter.
• GOR is reviewing the FY21 AISC guidance and provide it in the Q3FY21 report.

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 GOR gave a positive return of ~3.52% in the past month and a positive return of ~7.75% in the past nine months. The stock is currently trading lower than the 52-weeks’ average price level band of $1.040 - $1.563. The stock of GOR has a support level of ~$1.270 and a resistance level of ~$1.410. The stock has been valued using the P/E multiple-based illustrative relative valuation method and arrived at a target price of single-digit upside (in % terms). The company might trade at a slight discount than its peers’ average P/E multiple, considering its narrowed production guidance for FY21 and expected increase in debt due to the ongoing acquisition deal for Apollo. For this purpose of valuation, few peers like OceanaGold Corp (ASX: OGC), Regis Resources Limited (ASX: RRL), Dacian Gold Limited (ASX: DCN), and others have been considered. Considering the current trading levels, increase in Q3FY21 production, decent exploration progress at the Yamarna project, a positive 3-year production outlook for the Gruyere Project, production increase expected in December 2021 quarter, prospects of operating another mine with the acquisition of Apollo, valuation upside, we give a ‘Hold’ rating on the stock at the closing price of $1.320, down by ~0.752%, as of 22 October 2021.

GOR 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.

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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