Resolute Mining Limited

RSG Details
 
Gold Production Remains Unaffected From COVID-19 Restrictions:Resolute Mining Limited (ASX: RSG) is a gold producer which is mainly involved in the development of resource projects and prospecting and exploration for minerals. On 26 March 2020, the company provided a business update, wherein, it informed that its gold production has not been impacted by government-regulated COVID-19 restriction and its mining and processing operations are continuing as normal at the Syama Gold Mine in Mali and Mako Gold Mine in Senegal. The company has also assured that it is taking range of additional measures to mitigate the spread of infection amongst its workforce and to provide a platform for business continuity.

Completion of Debt Refinancing:On 26 March 2020, the company confirmed the successful completion of its refinancing following first drawdown under its new US$300 million flexible low-cost syndicated loan facility which has been used to refinance the Company’s existing senior debt and completely repay the Project Loan over the Mako Gold Mine in Senegal (Mako). This refinancing simplifies the company’s capital structure, reduces annual borrowing costs and provides the company with additional liquidity.

Outlook: For the 12 months ended 31 December 2019, the company reported sales revenue of $770 million with Underlying EBITDA of A$202 million. The company entered the year 2020 in a strong position to deliver on the full potential of its asset base and generate long-term value for its shareholders and broader stakeholders. The company has set guidance for FY20 at 500,000oz at an AISC of US$980/oz. During 2020, the company intends to focus on generating positive free cashflow from operations at Syama and Mako. The company is also focused on the expansion of the underground resources at Tabakoroni, and mine life extension opportunities at Mako.
 

FY19 Results Summary (Source: Company Reports)

Valuation Methodology: Price to Book Value Multiple based Relative Valuation


Price to Book Value based Valuation(Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The company is well supported by its logistics partners and remain confident in its key supply chains including fuel, food and product shipment. RSG’s stock is trading near to its 52 weeks low price of $0.605, offering investors a decent opportunity for accumulation.  We have valued the stock using Price to Book Value based valuation method and have arrived at a target price of lower double-digit growth (in % terms). For the purpose, we have taken peers like Northern Star Resources Ltd (ASX: NST), St Barbara Ltd (ASX: SBM), OceanaGold Corp (ASX: OGC). Hence, considering the company’s resilient performance despite covid-19 restrictions, recent completion of debt financing, and decent FY20 guidance, we are giving a “Speculative Buy” recommendation to the stock at the current market price of $0.925, up by 5.114% on 26 March 2020, owing to the recent Covid-19 update.

 
RSG Daily Technical Chart (Source: Thomson Reuters)
 

Northern Star Resources Ltd

  NST Details
 
Implementing Prudent Financial Measures to Preserve Business: Northern Star Resources Ltd (ASX: NST) is a global-scale Australian gold producer with world-class, low-cost, high-grade gold mines. As at 26 March 2020, NST’s market capitalisation stood at ~$9.99 billion.  On 26th March 2020, the company announced that in response to the impact of COVID-19, it is implementing prudent financial measures to preserve the value of its business in the long term. However, these measures are creating unavoidable disruptions to normal operations and affecting gold production as a result of which the Company’s outlook is becoming more difficult to predict. Due to this, NST has withdrawn its production and cost guidance for the year to June 30, 2020 and has decided to defer the payment of its interim dividend due on 30 March 2020.

H1FY20 Highlights: In the first half of FY20, the company had reported a net profit of $126.8 million, up by 54% on pcp. Further, the company reported EBITDA of $322.2 million, up 45% on pcp. Over the period, the company witnessed a 76% growth in Group operating cash flows and 179% in underlying free cash flow compared to pcp.


H1FY20 Results Summary (Source: Company Reports)

Strong Financial Position Maintained:  Northern Star is in a strong financial position with cash on hand and bullion of around $534 million and total debt of $700 million. The only debt repayment the company has to do in the next 12 months is for $25 million on December 31, 2020. In order to minimise the financial risk associated with its gold hedges, the company is requesting the deferral of its CY2020 hedges until CY2021.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

EV/Sales based Valuation(Source: Thomson Reuters)

Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: In the last one year, the company’s gross margin has slightly improved from 23.9% in H1FY19 to 25.6% in H1 FY20. Over the period, the company’s EBITDA Margin has also improved from 35.8% in H1FY19 to 39.3% in H1FY20, demonstrating the company’s improving profitability.  We have valued the stock using EV/Sales based relative valuation method, and for the purpose, we have ten peers like Newcrest Mining Ltd (ASX: NCM), Evolution Mining Ltd (ASX: EVN), Saracen Mineral Holdings Ltd (ASX: SAR), and have arrived at a target price which is offering an upside of lower double-digit (in percentage terms). Considering, the efforts to implement prudent financial measures to preserve the value of its business in the long term, its strong financial position, and valuation, we give a “Buy” recommendation on the stock at the current market price of $11.470, down by 15.037% on 26 March 2020. 

 
NST Daily Technical Chart (Source: Thomson Reuters)

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