Stocks’ Details

Red River Resources Limited

Commencement of Drilling at the Hillgrove Gold Project: Red River Resources Limited (ASX: RVR) is a mining company, with the Thalanga Base Metal Operation in Northern Queensland being its foundation asset, which started producing copper, lead and zinc concentrate in September 2017. Recently, the company has acquired the high-grade Hillgrove Gold-Antimony Project in New South Wales, which will enable the company to achieve its objective of building a multi-asset operating business focused on base and precious metals. Gold production at this operation is expected to commence in the current calendar year. In a recent update on 22^nd July 2020, the company notified that drilling has commenced at the Hillgrove Gold Project, with initial 14 holes with a depth of 1,310 meters, targeting high-grade gold mineralisation in Eleanora Uppers and Curry’s Block.

Q4FY20 Production: During the quarter ended 30^th June 2020, the company produced 4,544 tonnes of high-quality zinc concentrate and 1,133 tonnes of high-quality lead concentrate. The company produced record levels of 2,697 tonnes of high-quality copper concentrate, backed by an increase in copper grade of ore milled (to 1.0% Cu) and a record copper recovery to copper concentrate of 84.7%.

Q4FY20 Production Summary (Source: Company Reports)

Outlook: The company has invested an amount of ~$200 million in the Hillgrove project. Stage one restart involved a small capital of ~$5 million, with gold production to commence in 2020. Estimated life of production is ~12 months. Stage two restart expects processing to commence end 2021 on Bakers Creek Stockpile completion, with an aim to produce 30-50koz Au equivalent per annum.

Key Risks: Risks and challenges that can hinder the achievement of targets include, price fluctuations, actual demand, currency fluctuations, geotechnical factors, drilling and exploration results, development progress, loss of market, and industry competition.

Stock Recommendation: The stock of the company is currently quoting at $0.100. The stock is currently trading at a P/E multiple of 40.38x with a market capitalisation of $54.21 million. In the last 3 months, the stock gave positive returns of 72.13%. In 1HFY20, gross margin of the company came down to 31.3%, from 55.6% in the previous half, i.e., 2HFY19. Considering the ongoing business developments, a high P/E multiple, price movements in the last 3 months, reduction in gross margin, and risks associated with business operations, we give a “Sell” rating on the stock at the current market price of $0.100, down 4.762% on 22^nd July 2020.

Kingston Resources Limited

Update on Commencement of Drilling Program: Kingston Resources Limited (ASX: KSN) is a metals exploration company that is focused on exploring and developing the world-class Misima Gold Project in Papua New Guinea. In addition, Kingston owns 75% of the high-grade Livingstone Gold Project in Western Australia. The company recently commenced a ~5,000m resource definition Reverse Circulation drilling program at the Livingstone Gold Project. Drilling is aimed at defining shallow oxide mineralisation that will contribute towards an initial Joint Ore Reserves Committee (JORC) compliant Mineral Resource estimation for the Kingsley Prospect. The company also notified that it has secured co-funding for a further ~1,000m of deep RC drilling at the Stanley Deeps prospect, which will commence after completion of the Resource definition program at Kingsley. Initial results from the Kingsley drilling are expected later in August.

Share Purchase Plan: In July, the company completed the $2 million Share Purchase Plan, which closed more than 50% oversubscribed, marking the completion of its highly successful $8.4 million capital raising. Under the SPP, the company will issue 12,500,000 new fully paid ordinary shares at 16 cents per share. Proceeds from the SPP will be used for advancing its key projects.

Update on Misima Gold Project: In June 2020, the company secured a 100% interest in the 3.2Moz Misima Gold Project, PNG, by agreeing to pay a consideration of $2 million in two tranches. Misima Gold Project Pre-Feasibility Study is underway, with a number of key appointments already made and work now underway for several key streams. Results from the PFS are expected by the end of 2020.

March Quarter Highlights: During the quarter, resource drilling at the Misima Gold Project delivered positive results and structural review delivered new targets at the Livingstone Project in WA. Operating cash outflow during the period amounted to $231k. At the end of the period, the company had cash and cash equivalents amounting to ~$1.98 million.

Operating Cash Flow (Source: Company Reports)

Key Risks: The Group’s principal financial instruments include receivables, payables, fair value through profit or loss (FVTPL) financial assets, cash and short-term deposits and a finance lease, which expose it to interest rate risk, credit risk and liquidity risk. Credit risk arises from cash and cash equivalents, trade and other receivables and FVTPL financial assets. Any failure in estimating the Group’s short, medium, and long-term funding and liquidity requirements can impact the operations. The risk of changes in market interest rates relates primarily to cash assets rates. 

Stock Recommendation: The stock of the company gave positive returns of 50% and 104.55% over the last one and three months, respectively. Currently, the stock is inclined towards its 52-week high of $0.275. On a trailing twelve months (TTM) basis, the stock is trading at a price to book value multiple of 2.5x, higher than the industry median (Basic Materials) of 1.9x. Looking at the current trading levels and price movements, we presume that most of the positive business developments are factored in the current trading levels. Considering the backdrop of the above factors, we give a “Sell” recommendation on the stock at the current market price of $0.230, up 2.222% on 22^nd July 2020.

Firefly Resources Limited 

Entitlement Offer to Raise ~$1.03 Million: Firefly Resources Limited (ASX: FFR) is primarily engaged in mineral exploration. The company recently invited shareholders to participate in a non-renounceable pro-rata 3- for-7 entitlement offer at an issue price of $0.03 per share to raise up to approximately $1.03 million. Proceeds from the offer will be applied towards planned exploration programs at the recently secured Yalgoo Gold Project, progressing the next phase of gold-focused exploration activities at existing projects and general working capital purposes.

Offer Timetable (Source: Company Reports)

Acquisition of the Yalgoo Gold Project, WA: In June 2020, the company entered a landmark agreement to acquire the Yalgoo Gold Project, located in the Murchison region of Western Australia, from Aurum Minerals Pty Ltd. The acquisition cost amounts to $2.91 million, payable entirely in Firefly shares. In CY20, the company has planned for ~5,000m of RC drilling, ~3,000m of auger drilling and a ground-based Sub-Audio Magnetic (SAM) geophysical survey on the project. 

March Quarter Highlights: During the period, the company continued its review of potential strategic project acquisitions, with a focus on expanding its gold portfolio in Western Australia. The company took several initiatives to reduce expenditure, including further reductions in peripheral ground holdings at Forrestania to reduce tenement holding costs, complete suspension of in-field exploration expenditure apart from permitting costs, and recovery of funds through the sale of a work vehicle and additional surplus equipment. At the end of the period, the company had cash and cash equivalents amounting to $1.235 million.

Key Risks: The company is raising funds to progress the development of its key projects. Moreover, it has cut down expenditure to ensure continuity of operations and is targeting financial support from the Government as well. Uncertainty regarding the duration of COVID-19 impacts exposes the business to the risk of continuity in operations. Going forward, a dearth of capital or other essential resources can significantly impact operations. 

Stock Recommendation: The stock of the company is currently quoting at $0.071, with a small market capitalisation of $5.74 million. Over a period of last 3 months, the stock gave positive returns of 210.98%. Due to the impact of COVID-19, the company announced several cuts in expenditure to continue its exploration and corporate activities. Moreover, it is also looking forward to government assistance to support the business. On a trailing twelve months (TTM) basis, the stock is trading at a Price to Book Value multiple of 4.5x, higher than the industry median (Basic Materials) of 1.9x. Considering the high returns in the past 3 months, we presume that most of the positive factors are priced in the current trading levels. Hence, considering the uncertainty regarding COVID-19 impacts, price movements, and valuation on TTM basis, we give a “Sell” rating on the stock at the current market price of $0.071 as on 22^nd July 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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