Stocks’ Details

Newcrest Mining Limited

Expiration of Any and All Tender Offer:Newcrest Mining Limited (ASX: NCM) is a leading gold mining company with a portfolio of predominantly low cost, long life mines and a strong pipeline of brownfield and greenfield exploration projects. Recently, NCM’s wholly owned subsidiary - Newcrest Finance Pty Limited commenced a cash tender offer (Any and All Tender Offer) for any and all of its outstanding 4.45% Notes due 2021 and for its outstanding 4.20% Notes due 2022, for up to US$400 million aggregate maximum repurchase amount. The Any and All Tender Offer expired on 13 May 2020 with US$455,319,000 aggregate principal amount validly tendered and not validly withdrawn prior to or at the expiration.

March Quarter Highlights:In the March 2020 quarter, the company reported gold production of 519koz in line with the company’s guidance. Over the quarter, the company also reported impressive exploration results with the discovery of a new high-grade zone at Red Chris and the continued high-grade mineralization at Havieron. At the end of March quarter, the company had US$1.4 billion in cash.

Equity Raising to Fund Future Growth:On 1^st May 2020, the company announced that it has completed a $1.0 billion fully underwritten institutional placement of approximately 39.1 million new fully paid ordinary NCM shares. The proceeds from the placement will be used to purchase the Fruta del Norte financing facilities and to fund future growth options such as the construction of declines at Havieron and Red Chris.

SPP Underway:The company is now targeting to raise up to $100 million via a Share Purchase Plan (SPP), under which, the offer price per New Share will be the lower of the Placement Price, being A$25.60 per New Share. Key dates of the equity raising are mentioned below:


Key Dates (Source: Company Reports)

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

*1 USD= ~1.55 AUD

EV/Sales Multiple Based Approach (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation:The company’s strong balance sheet position and free cashflow generation has positioned it well to fund its growth options. In the last three months, the stock of NCM has increased by 8.82% on ASX and is inclined towards its 52-week high of $38.870. We have valued the stock using EV/Sales multiple based illustrative relative valuation method and arrived at a target price with a correction of single digit (in % terms). For the purpose, we have taken peers like Kirkland Lake Gold Ltd (ASX: KLA), Evolution Mining Ltd (ASX: EVN), etc. Considering the aforesaid facts and the company’s current trading levels, we have a watch stance on the stock at the current market price of $32.260, up by 6.715% on 18 May 2020. 

Saracen Mineral Holdings Limited

Record Production in March Quarter:Saracen Mineral Holdings Limited (ASX: SAR) is the all-Australian gold growth company with a market cap of $5.57 billion as on 18 May 2020. For the March 2020 quarter, SAR reported record quarterly gold production of 158,132 ounces at an AISC of $1,133/oz and sold 165.7K ounces of gold at a record average price of $2,228 per ounce, which generated a revenue of around $369 million. At the end of march quarter, the company’s cash and equivalents stood at $340.3 million.


Group production and AISC (Source: Company Reports)

What to expect:In the June 2020 quarter, the company is prioritising the milling of higher-grade portions of the stockpiles at Thunderbox and Carosue Dam to bring forward production ounces and cash flow into FY20 and to further insulate the business. In FY20, the company expects its production to be around 500,000oz and in FY21, the company expects production to further increase to 600,000oz. The company is currently tracking ahead of FY20 guidance.

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

P/E Multiple Based Approach (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation:The company has a robust and a flexible balance sheet with cash, bullion and investments of $340.3 million and debt of $360.0 million. We have valued the stock Price to Earnings multiple based illustrative relative valuation method and have arrived at a target price with higher single digit upside (in % terms). For the purpose we have taken peers like Northern Star Resources Ltd (ASX: NST), Evolution Mining Ltd (ASX: EVN) and Perseus Mining Ltd (ASX: PRU). Considering the aforesaid facts, the company’s decent production performance, and expected upside in the valuation, we give a “Hold” recommendation on the stock at the current market price of $5.620, up by 11.287% on 18 May 2020.

St Barbara Limited

March Quarter Highlights:St Barbara Limited (ASX: SBM) is a gold producer and explorer with a diversified portfolio of gold operations. As on 18 May 2020, the company’s market capitalisation stood at ~$2.05 billion. During the March 2020 quarter, the company reported consolidated gold production of 91,547 ounces with AISC of A$1,405 per ounce. Over the quarter, the company was able to maintain its operations at all three mines in Australia, Canada and PNG while implementing a range of physical distancing and hygiene measures for the safety of its employees at work. For the period, the company recorded operational cash contribution of $86 million. At the end of March quarter, the company had total cash at bank and term deposits of $320 million with total debt of $316 million.


Production Summary (Source: Company Reports)

Feasibility Study of the Simberi Sulphide Project:On 5 May 2020, the company announced that it is going to undertake a feasibility study of the Simberi Sulphide Project, to support a possible future investment decision, including further investigation of the optimal balance between grinding and flotation time to maximise recovery. The Simberi Sulphide Project is already supported by robust financial metrics indicated by the recently updated pre-feasibility study.
What to expect:The company expects its full year production in FY20 to be at the lower end of the guidance range of 370 to 400 koz. 

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

EV/EBITDA Multiple Based Approach (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation:In the past six months, the company’s stock has increased by 12.31% on ASX. Amid Covid-19 situation, the company has maintained its operations at all three mines in Australia, Canada and PNG. We have valued the stock using EV/EBITDA multiple based illustrative relative valuation method and have arrived at a target price with low double-digit upside (in % terms). For the purpose, we have taken peers like Regis Resources Ltd (ASX: RRL), OceanaGold Corp (ASX: OGC), and Resolute Mining Ltd (ASX: RSG). Considering the aforesaid facts, the company’s resilient performance amid Covid-19, and its FY20 guidance, we give a “Hold” recommendation on the stock at the current market price of $3.140, up by 7.534% on 18 May 2020. 

 
Comparative Price Chart(Source: Refinitiv, Thomson Reuters)

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