Stocks’ Details
 

Saracen Mineral Holdings Limited

Completion of Retail Entitlement Offer: Saracen Mineral Holdings Limited (ASX: SAR) is engaged in gold mining, processing & sales and mineral exploration. As on 20 January 2020, the market capitalization of the company stood at ~$4.12 billion. The company has recently announced that it will release its December 2019 Quarterly Activities Report on 28 January 2020. SAR also announced the results of the retail component of its 1 for 5.75 accelerated non-renounceable entitlement offer and stated that the company has received applications for approximately $37.37 million.

Record Quarterly Gold Production: The company in its September quarter report stated that it witnessed record quarterly gold production of 96,324 oz at AISC (All-in Sustaining costs) of $964/oz. For the same time span, cash and equivalents stood at $196.1 million, up from $154.5 million in June 2019.


Group production and AISC (Source: Company Reports)

Future Opportunities: The company has given its production guidance for FY20 and expects it to be between 350 koz to 370 koz at AISC of between $1,025 to 1,075/oz. It also gave its long-term production outlook and anticipates it to be around 400 koz p.a. from FY21.

Valuation Methodology: Price/Earnings Based Approach

Price/Earnings Multiple Approach (Source: Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months.

Stock Recommendation: As per ASX, the stock gave a return of 26.35% in the past one month and is moving towards its 52-week high of $4.6569. During FY19, net margin of the company stood at 16.6%, higher than the industry median of 10.9%. In the same period, Return on Equity was 21.2% as compared to the industry median of 12%. Considering the returns, higher ROE, etc., we have valued the stock using Price/Earnings multiple approach and arrived at a target upside of higher single-digit (in percentage terms). For the said purpose, we have taken Northern Star Resources Ltd (ASX: NST), Independence Group NL (ASX: IGO), Resolute Mining Ltd (ASX: RSG), etc. as peers. Hence, we recommend a “Hold” rating on the stock at the current market price of $3.790, up by 1.337% on January 20, 2020. 

Gold Road Resources Limited

Gold Road Earn-in Agreements Update: Gold Road Resources Limited (ASX: GOR) in engaged in the exploration of gold and other minerals. As on 20 January 2020, the market capitalization of the company stood at $1.18 billion. Gold Road Pty Ltd has withdrawn from the Wadderin Letter Agreement and is finalising budgeted exploration expenditure for the 2020 year for both the Lake Grace and Yandina Joint Ventures with Cygnus Gold. 

The company in its quarterly report for September stated that it has cash of $65.3 million and bullion of $5.8 million. For the same time span, the company has hedged 125,300 ounces at an average price of $1,837 per ounce. For the quarter ended 30 September 2019, a total of 2.1 Mt of ore was mined with respect to Gruyere at an average grade of 0.88 g/t gold for 59,662 contained ounces.


Gruyere Production (Source: Company Reports)
 
What to Expect: The company anticipates gold production for calendar 2019 to be at the upper end of guidance of 75,000 to 100,000 ounces with respect to Gruyere. It also re-affirmed the guidance for AISC and expects it to be between $1,050 to $1,150 per ounce.

Valuation Methodology: EV/Sales Multiple Approach 

EV/Sales Multiple Approach (Source: Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months.

Stock Recommendation: As per ASX, the stock of GOR gave a return of 22.37% in the past one month and is inclined towards its 52-weeks’ high level of $1.645. During FY19, current ratio of the company stood at 1.91x, higher than the industry median of 1.87x. Considering the aforesaid facts, current trading levels and future guidance, we have valued the stock using EV/Sales multiple approach and arrived at a higher single-digit downside (in percentage terms). For the said purposes, we have considered Saracen Mineral Holdings Ltd (ASX: SAR), Northern Star Resources Ltd (ASX: NST), Orocobre Ltd (ASX: ORE) and Regis Resources Ltd (ASX: RRL) as peers. Hence, we have a watch stance on the stock at the current market price of $1.365, up by 1.866% on January 20, 2020. 

Silver Lake Resources Limited

Record Gold and Copper Production: Silver Lake Resources Limited (ASX: SLR) is engaged in gold production and exploration with tenements in the Mount Monger goldfields of Western Australia. As on 20 January 2020, the market capitalization of the company stood at$1.24 billion. The company has recently released its quarterly report for December quarter, wherein it stated that it has witnessed record production of 68,519 ounces in gold and 691 tonnes in copper. In the same time span, the company made gold sales of 66,074 ounces and copper sales of 694 tonnes at an average sale price of $2,028/oz and AISC of A$1,192/oz.


Gold Production and AISC (Source: Company Reports)

Growth Opportunities: The strong operational performance enabled the company to increase Group sales guidance to 240,000 ounces to 250,000 ounces at a lower average AISC range of A$1,300/oz to A$1,350/oz. The upgraded guidance reflects increased sales guidance at Mount Monger and Deflector.

Valuation Methodology: EV/Sales Multiple Approach

EV/Sales Multiple Approach (Source: Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months.

Stock Recommendation: As per ASX, the stock gave a return of over 25.89% in the past one month and is trading close to its 52-week high of $1.550. During FY19, gross margin of the company stood at 9.8% as compared to the industry median of 38.9%. In the same time span, the company reported a stable balance sheet with Debt/Equity ratio of “Zero”, lower than the industry median of 0.13x. Considering the returns, trading levels, future guidance and stable balance sheet, we valued the stock using EV/Sales multiple approach and arrived at a downside of lower single-digit (in percentage terms). For the said purpose, we have considered Ramelius Resources Ltd (ASX: RMS), Resolute Mining Ltd (ASX: RSG), Dacian Gold Ltd (ASX: DCN) etc. as peers. Hence, we have a watch stance on the stock at the current market price of $1.505, up by 6.738% on January 20, 2020, owing to the recent release of the quarterly report.
 
Comparative Price Chart (Source: Thomson Reuters)

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