Perenti Global Limited

PRN Details

Cleared the Media Speculation: Perenti Global Limited (ASX: PRN) is a diversified mining services company providing underground mining, surface mining, and mining support services. PRN has operations and offices in 13 countries. On 9 November 2021, Director, Mark Alexander John Norwell acquired ~68,566 shares for nil cash and held ~528,956 ordinary shares in PRN. Recently, PRN clarified the recent media speculation regarding its potential merger and acquisition. The company confirmed not being a party to any recent acquisition or merger activity.

In a recent address to the shareholders, the MD and Chairman, Justine Passaportis, announced the following points:

• The company won strategic work in the tier-one mining jurisdictions of Botswana and North America in FY21. PRN’s Barminco secured a second contract at the Red Chris Mine in Canada. African Mining Services (AMS) obtained the contract for SFR’s (Sandfire Resources Limited) Motheo Project in Botswana.
• The company declared a final dividend of 2.0 cents per share for 2HF21, taking the unfranked dividend for FY21 to ~5.5 cps.
• In FY21, PRN was focused on the transformation of AMS, moving out of loss-making contracts, and reducing presence in West Africa, and increasing commitment to ESG.
• With the launch of idoba, a technology-driven mining services model, PRN advanced on its strategic technological growth.
• PRN witnessed excellent EBITDA to operating cash conversion of ~105% in FY21 versus ~96% in FY20.

Net Debt Highlights; (Analysis by Kalkine Group) 

Key Risks: The company faces the COVID-19 impact, forex rate impact of a stronger AUD in FY21, and a tight labour market in Western Australia.

Outlook:

• The company focuses on building robust capital management and liquidity to boost financial muscle.
• It aims to develop a robust opportunity pipeline in North America given its established underground mining expertise in Australia and Africa.
• PRN is building a strong pipeline of opportunities in North America given its established underground mining expertise in Australia and Africa.
• PRN has ~$6.6 billion of three years’ work in hand and a robust tender pipeline of $11.0 billion as of 30 June 2021. For FY22, revenue is expected to be between ~$2.0 - $2.2 billion and EBIT(A) between ~$165 - $185 million.

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: The stock of PRN gave a positive return of ~6.66% in the past three months and a positive return of ~33.33% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.625 - $1.555. The stock has been valued using the Enterprise Value to EBITDA multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ average EV/EBITDA multiple, considering its negative net margin, reduced cash balance, lower net cash inflows from operations in FY21, and continuing risk of labour shortage and forex rate changes. For this purpose of valuation, few peers like NRW Holdings Limited (ASX: NWH), MACA Limited (ASX: MLD), Emeco Holdings Limited (ASX: EHL), and others have been considered. Considering the current trading levels, work pipeline flowing in FY22, new contracts and extensions obtained in FY21, improved net debt position, expansion of footprint in North America, valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.870, as of 25 November 2021, 11: 06 AM (GMT+10), Sydney, Eastern Australia.

PRN Daily Technical Chart, Data Source: REFINITIV 

Mount Gibson Iron Limited

MGX Details

AGM Presentation Highlights: Mount Gibson Iron Limited (ASX: MGX) explores and produces high-grade iron ore products in the Koolan Island of the Kimberley region and at the Shine & Extension Mill mines in the mid-west region. As per a recently released AGM Presentation on 10 November 2021, the CEO highlighted the following points:

• At the Koolan Island mine project, MGX reported ~1.8 Mwmt ore sales in FY21 with a sales target of ~2.0 Mwmt in FY22 with improved grades in June.
• The company is progressing towards the completion of the elevated waste stripping phase in FY22. The cashflow and sales are expected to increase as the stripping phase is completed.
• At the mid-west region projects- operations have been cancelled due to the fast deterioration of market conditions. The site is under care & maintenance to preserve the deposit and restart quickly as conditions improve. The Extension Hill site is advancing to rehabilitation as per the plan.

Q1FY22 Highlights:

• MGX reported total mineral resources of ~67.4 Mt, down by ~3% YoY as of 30 June 2021 due to mining depletion. The total ore reserves amounted to ~20.3 Mt including 17.5 Mt (grading 65.3% Fe) at the Koolan Island, signifying a high-grade deposit.
• The Group cash outflow for Q1FY22 amounted to ~$111 million due to waste stripping and capital investments in the Koolan project and the development of the Shine Project.
• MGX posted ~$29 million revenue (FOB) due to declining iron ore prices in Q1FY22 and imposed restrictions on steel making by the Chinese Government.
• MGX sold ~0.44 Mwmt ore in Q1FY22 due to the stripping phase at the Koolan Island and the preliminary ore sales from the Shine project operations.
• The cash and investments balance stood at ~$250 million with nil borrowings as of 30 September 2021.

Cash & Investments Highlights; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of increased capital investments on projects, adverse weather conditions, commodity price changes. The demand for iron ore/ steel, increased shipping freight, and government regulations add risk to the business.

Outlook:

• The company maintains the sales guidance at the Koolan Island at ~2.0 Mwmt for FY22. It has withdrawn guidance on the Shine mine project.
• At Koolan Island, MGX aims to progress on the Main Pit waste stripping to extract high-grade ore as planned to boost sales and cash flows.
• It also plans to finish the care and maintenance of the Shine mine to re-start as soon as the market conditions improve.
• MGX aims for continued operating and cost improvements across its business and to explore acquisition opportunities in the resources sector.

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 stock of MGX gave a negative return of ~37.69% in the past three months and a negative return of ~51.20% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.350 - $1.010. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount than its peers’ average EV/Sales multiple, considering the suspension of the Shine project, weaker iron ores prices, cash outflows, and ongoing capital investments in the Koolan Island project in Q1FY22. For this purpose of valuation, few peers like Fortescue Metals Group Limited (ASX: FMG), South32 Limited (ASX: S32), Champion Iron Limited (ASX: CIA), and others have been considered.  Considering the current trading levels, continued focus on cost improvements, substantial progress in the completion of the bulk stripping program at the Koolan Island, upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing price of $0.405, down by ~2.410% as on 25 November 2021.

MGX Daily Technical Chart, Data Source: REFINITIV  

Cyprium Metals Limited

CYM Details

Investor Copper Day Presentation Highlights: Cyprium Metals Limited (ASX: CYM) aims to become a mid-tier mining company and manages a portfolio of copper projects in Australia.

• Nifty Project Update: The company is focusing on the development of the Nifty open pit and heap leach strategy to produce LME grade A copper cathode in the near term. PRN is continuing with drilling on-site, metallurgical testwork, engagement with regulators, and ramped up other activities for production at the Nifty copper project.
• Murchison Copper Project Update: On 22 November 2021, CYM reported extensive copper-gold sulphide mineralisation intersection from the assay results of Phase 1 final drilling programme at the Nanadie Well deposit. It will continue drilling at the Well to include the result in the Maiden JORC 2012 Mineral Resource Estimate (MRE) to feed into the Murchison Scoping Study.

Updated Nifty Copper MRE:  CYM recently updated the MRE for the heap leachable component of the Nifty copper deposit. The Heap leachable Measured, Indicated, and Inferred Resource increased to ~11.9Mt at 1.1% Cu for ~135,000t of contained copper.

Q3FY21 (Ended 30 September 2021) Results:

• CYM advanced on the development activities on the Nifty copper project. It undertook a detailed Mineral Resource review of the deposit and restarted open pit optimisation work for the Heap Leach Restart Study.
• The company held a cash balance of ~$40.0 million as of 30 September 2021.
• CYM reported ~$6.69 million net cash outflows from operating activities for Q3FY22.

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

Key Risks: The company faces the risk of exploration targets, commodity price risk, mining hazards, regulatory delays, and COVID-19 impact of labour shortage.

Outlook:

• The company is advancing on the metallurgical column testwork on the trench samples and optimising the leaching process on the Nifty deposit.
• At the Nanadie Well project, CYM plans to start a mineral resource estimate to maximise the gold-copper extraction from a potential heap leach operation.

Stock Recommendation: The stock of CYM gave a negative return of ~17.77% in the past three months and a negative return of ~41.26% in the past six months. The stock is currently trading closer to its 52-weeks’ low level of $0.180. On a TTM basis, the stock of CYM is trading at a price to book value multiple of 1.0x lower than the industry (Basic Materials) median of 2.5x, thus seems undervalued. Considering the current trading levels, updated MRE on the Nifty copper project, copper-gold sulphide discovery at the Nanadie Well deposit, valuation on a TTM basis, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $0.185 as of 25 November 2021.

CYM 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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