Dacian Gold Limited

DCN Details

Key Updates for Investors Consideration:  Dacian Gold Limited (ASX: DCN) is involved in the exploration and mining of gold. As announced on 11 November 2021, the company has completed all documentation and satisfied conditions precedent with respect to the ANZ debt facility term sheet, which was announced on 5 October 2021.

• The said $16.0 million corporate-level facility replaces its previous three-bank syndicated project facility.
• In addition, the company has also witnessed strong RC drilling results from Cameron Well’s Piccolo Star prospect at the structural intersection with the Mt Marven Shear Zone.
• The results underpin its regional and local structural interpretation at Cameron Well with plans of further drilling.

Q1FY22 Financial Summary:

• During the quarter ended 30 September 2021, the company continued its investments into operations, and the total development capital spent on Doublejay pre-stripping and advancing the Redcliffe project stood at $18.5 million, and DCN spent $5.1 million on exploration.
• DCN recorded production of 15,819oz of gold at an AISC of $2,362/oz, which was generally in line with guidance weighted to 2HFY22.
• The company completed 19,000m total exploration and growth drilling during the quarter, and mineral resources stood at 2.45Moz, and the ore reserves were 0.4Moz. DCN has appointed Mick Wilkes as a Non-Executive Director to the Board during the quarter.

FY21 Financial Summary:

• Revenue from Gold Sales: For the year ended 30^th June 2021, the company recorded sales revenue of $241.62 million against $270.04 million in FY20. The sales revenue was generated from the sale of 108,270 ounces of gold at an average price of $2,226 per ounce in FY21.
• Improvement in Bottom Line: During the year, the company witnessed improvement in net losses to ~$7.5 million against ~$116.46 million in FY20. As a result, loss per share also improved to -1.2 cents from -40.6 cents in the previous year.
• Rising Net Cash Inflow: The company recorded increased net cash inflow from operating activities to ~$55.47 million against ~$22.95 million in FY20.

Revenue & NPAT Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Commodity Price Risk: The company’s operational and financial health could be impacted by any adverse movement in the prices as it generates a major portion of revenue from the sale of gold.
• Climate Risk: DCN is exposed to risks arising from the uncertainties in relation to change in climate, which could suspend its mining operation temporarily.

Outlook:

• For FY22, the company anticipates gold production in the range of 100,000-110,000oz at an AISC of $1,550- $1,700/oz.
• DCN believes that quarterly production is likely to increase for the remainder of the financial year as the open-pit strip ratio reduces and underground mines begin stope production

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 company closed Q1FY22 with cash and gold on hand of $33.2 million. The company is trading below its 52-week low-high average of $0.195 - $0.565, respectively. The stock of DCN has been corrected by ~4.99% and ~30.14% in the past one and six months, respectively. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers’ median EV/Sales multiple, considering the COVID-19 disruptions and losses in business. For the purpose of valuation, peers such as Westgold Resources Ltd (ASX: WGX), Aurelia Metals Ltd (ASX: AMI), Resolute Mining Ltd (ASX: RSG), and others have been considered. Considering the expected upside in valuation, continuous investment into operations, improved bottom line, increasing net cash inflow from operating activities, low debt to equity ratio, decent long-term outlook, current trading level, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.235, as on 16 November 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

DCN 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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