St Barbara Limited

SBM Details

Diggers and Dealers Forum Highlights: St Barbara Limited (ASX: SBM) is a gold exploration and production company with operations in Australia, Canada, and Papua New Guinea. At the recently held Diggers & Dealers conference, the company informed about its Building Brilliance program which is focused on growing the operating life of its assets.

• Under the Building Brilliance program, SBM plans to reduce its cost of operations while increasing throughput and recovery.
• SBM is focused on growing its portfolio through acquisitions, joint ventures, and exploration.
• SBM’s province plan is focused on adding 1.4 Moz on pathway to greater than 10 years.
• The company is also evolving to Sulphide processing to achieve greater than 10 years of operating life.

Restarting Mining at Simberi: In May 2021, due to a fatality at Simberi Operations in New Ireland Province, the mining operations at Simberi were temporarily suspended. The company has recently received conditional approval to restart mining operations at Simberi.  

Q4FY21 and FY21 Result Highlights:

• During the June quarter, the company reported gold production of 82,698 oz, taking the total FY21 production to 327,662 oz with an AISC of around A$1,616.
• SBM sold 95,535 oz of gold in Q4FY21 at $2,336 per ounce versus 71,329 oz sold at A$2,247 per ounce in Q3FY21.
• Due to increased gold production at Atlantic, the company’s total All-In Sustaining Costs for the June 2021 quarter were ~2% lower than the previous quarter at A$1,623 per ounce.

Production Summary (Source: Analysis by Kalkine Group)

Key Risks:

• Fluctuations in Gold Prices: SBM is exposed to the risk related to the volatility in the gold prices as it creates revenue uncertainty.
• COVID-19 Uncertainties: COVID-19 uncertainties and associated restrictions could disrupt the company’s operations and impact the cost of doing business.

Outlook: For FY22, the company expects its consolidated gold production to be in the range of 305 – 355 koz with AISC of between A$1,710 – 1,860. The production facility at Simberi operations is expected to be brought back into production by the end of Q2FY22.

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:  Over the last three months, the stock has corrected by ~20.48% and is trading lower than the average 52-week price level band of $1.595 and $3.60, offering a decent opportunity for accumulation. The stock has been valued using a P/E multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). The company might trade at a slight discount to its peers’ median P/E (NTM trading multiple), considering the loss of production during the temporary suspension of Simberi operations, uncertainty surrounding the impact of COVID-19 pandemic on the company’s operations, risks associated with the fluctuations of gold price. For the purpose of valuation, few peers like Regis Resources Ltd, Evolution Mining Ltd (ASX: EVN), Silver Lake Resources Ltd (ASX: SLR), have been considered. Considering the company’s continued focus on growing exploration portfolio, the expected benefits of the Building Brilliance program, modest outlook, current trading levels, and valuation, we give a “Buy” rating on the stock at the current market price of $1.605, down by ~0.620% as on 16 August 2021.

SBM Daily Technical Chart, Data Source: REFINITIV

Resolute Mining Limited

RSG Details

Sale of Bibiani Gold Mine: Resolute Mining Limited (ASX: RSG) is a gold mining company that operates multiple long-life, high-margin assets including the Syama Gold Mine in Mali and the Mako Gold Mine in Senegal. On 5 August 2021, the company announced that it has entered into an agreement to sell the Bibiani Gold Mine in Ghana to Asante Gold Corporation for US$90 million in cash. This transaction is expected to strengthen the company’s balance sheet and will allow it to focus on its core operating assets.

June 2021 Quarter Highlights:

• Decline in Production: For the June 2021 quarter, the company reported total production of 77,450 ounces (oz), down by 10% on the previous quarter.
• Rise in AISC: Due to the decline in production volume, the company’s All-In Sustaining Cost (AISC) during the June 2021 quarter was higher than the prior quarter at US$1,319/oz.
• Cash and Debt Scenario: At the end of June 2021, the company had a cash and bullion balance of US$88.8 million and total borrowings of US$308.6 million.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risk:

• COVID-19 Uncertainties: The COVID-19 pandemic has the potential to disrupt the company’s operations as it could cause temporary suspension at mines and could also result in added restrictions.
• Foreign Currency Risk: The company’s operations are located in South Africa. It exposes it to the risks of fluctuations in the foreign currency exchange rates.

Outlook: Looking ahead, the company is focused on using free cashflow to repay its debt obligations. For FY21, the company expects its total production to be in the range of 315,000oz from 340,000oz at an AISC between US$1,290/oz to US$1,365/oz.

Valuation Methodology: EV/EBITDA 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: Over the last three months, the stock has corrected by ~19.35% and is trading lower than the average 52-week price level band of A$0.415 -A$1.365, offering a decent opportunity for accumulation. The stock has been valued using an EV/EBITDA multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). The company might trade at some discount to its peers’ average EV/EBITDA (NTM trading multiple), considering lower production in June quarter, the impacts of COVID-19 pandemic, and forex headwinds. For the purpose of valuation, few peers like St Barbara Ltd (ASX: SBM), Regis Resources Ltd (ASX: RRL), OceanaGold Corp (ASX: OGC), have been considered. Considering the company’s strengthened balance sheet, ongoing focus on debt reduction, decent production targets, current trading levels, valuation, and associated key risks, we give a “Speculative Buy” rating on the stock at the current market price of $0.490, down by ~2.001% as on 16 August 2021.

RSG 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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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