Evolution Mining Limited

EVN Details

Substantial Growth in Reserve and Resource: Evolution Mining Limited (ASX: EVN) is a gold mining company engaged in operating, identifying and developing gold-related mining projects in Australia and New Zealand. It owns and operates five wholly owned mines: Cowal in New South Wales; Mt Carlton, Mt Rawdon, and Cracow, in Queensland; and Mungari in Western Australia. EVN recently announced that its Group Mineral Resources grew by 74% year-on-year (YOY) to 26.4 million ounces, compared to December 2019. Further, Group Ore Reserves increased by 49% YOY to 9.9 million ounces.

Mineral Resource Growth (Source: Company Reports)

Dividend Announced: The company has announced a total dividend of $119.6 million, equating to $0.07 per share, to be paid on 26 March 2021, which is equal to 12% of the revenue, generating a strong yield of 3.5% (at Share Price of $4.61).

Outlook: EVN board has approved the development of a surface decline at the Red Lake gold mine in Canada, which provides a near term opportunity to access additional low-cost ounces in Upper Campbell mine. Going Ahead, EVM has Stage 1 transformational plans for 200Kozpa+ at an All-in sustaining cost (AISC) less than US$1,000 per ounce by 2023.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, 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: In the last one month, EVN has decreased by 11.58% and 24.54% in the last three months on ASX. The stock is currently trading below the average 52-week price level range of $3.285-$6.585. On the technical analysis front, the stock has a support level of ~$3.758 and resistance of ~$4.562. We have valued the stock using P/E based multiple relative valuation method and have arrived at a target price of lower double-digit upside (in % terms). For the purpose we have taken peers Austral Gold Ltd (ASX: AGD), Resolute Mining Ltd (ASX: RSG), Pantoro Ltd (ASX: PNR) and more. We believe that the company might trade at a premium to its peer average P/E (NTM Trading multiple), considering an increase in reserves and resources, consistent dividend payments, attractive valuations, and current trading level. Hence, we give a “Buy” rating on the stock at the current market price of $4.115 (as highlighted in the chart below).

EVN Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

OceanaGold Corporation 

OGC Details

Robust Growth in Q4FY20 Production: OceanaGold Corp (ASX: OGC) is a Canada-based gold producer. The Company’s operating assets include: the Didipio Mine in the Philippines; the Macraes Operations in the South Island of New Zealand, the Waihi Gold Mine in the North Island of New Zealand and Haile Gold Mine in South Carolina, US. OGC has posted an increase of 57% QoQ in its Q4FY20 production on the back of higher production at Haile & Macraes & Waihi resumption. As per the company reports, All-in Sustaining Cost (AISC) decreased by 37% QoQ. Revenue for Q4FY20 stood at $168.2 million and EBITDA stood at $129.6 million. 

Production and AISC trend (Source: Company Reports) 

Outlook: OGC is investing in Gold projects such as Haile in US, Macraes and Waihi in New Zealand where they are expecting a high production in next 5 years. Moreover, OGC is pursuing options to bring WKP in to their 5-year plan and focusing on restarting Didipo in Philippines in the near term due to absence of revenues from Didipo on suspension of operations. OGC is expecting to increase its production to over 500,000 ounces of gold with increasing margins on lower costs in the next 5 years. 

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, 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: In the last one month, OGC has decreased by 16.11% and increased by 11.53% during the last three months on ASX. The stock is currently trading below the average of its 52-week price range of $1.45-$4.29. On the technical analysis front, the stock has a support level of ~$1.70 and resistance of ~$2.50. We have valued the stock using EV/Sales based multiple relative valuation method and have arrived at a target price of higher double-digit upside (in % terms). For the purpose, we have taken peers Gold Road Resources Ltd (ASX: GOR), Sandfire Resources Ltd (ASX: SFR), Austral Gold Ltd (AGD) and more. Considering an increase in production, declining AISC leading to improving margins going forward, positive outlook and valuations, we recommend a “Buy” rating on the stock at the current market price of $2.020 (as highlighted in the chart below).

OGC Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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