Stocks’ Details
 

Newcrest Mining Limited

Continuation of Strong Drilling Results at Havieron and Red Chris: Newcrest Mining Limited (ASX: NCM) is engaged in the exploration, development, mining, and sale of gold. As on 11 June 2020, the market capitalization of the company stood at $23.19 billion. NCM continued to focus on infill drilling at the Havieron project to support a maiden inferred resource in 2HCY20. At Red Chris, infill drilling continues to confirm the continuity of the discrete high-grade pod.

Quarterly Performance: During the quarter ended 31 March 2020, the company produced 519koz of gold at an AISC of US$827/oz. NCM has a strong growth pipeline with Cadia Expansion, Wafi-Golpu, Red Chris block cave and Havieron.


Quarterly Operational Highlights (Source: Company Reports)

Completion of an increased Share Purchase Plan: NCM has successfully completed its share purchase plan and has raised approximately $200 million. The funds will ensure the strong financial position of the company and free cash flow generation, positioning it well for the future growth options.

Future Guidance: Mining has been declared as an essential service and hence the outspread of COVID-19 has not impacted the future guidance of the company. NCM anticipates total gold production of 2,100-2,200 koz and copper production of 140-145kt. It is also likely to incur capital expenditure in the range of US$710 million to US$790 million. 

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

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

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

Stock Recommendation: The company retains a strong capital position with a cash balance of ~US$1.4 billion as at 31 March 2020. It has structured its debt and has a healthy balance sheet. As per ASX, the stock of NCM gave a return of 2.23% in the last one month and is trading near average levels of its 52-weeks’ band of $20.7-$38.87. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and have arrived at a target price, offering an upside of low double-digit (in percentage terms). For the said purpose, we have considered Kirkland Lake Gold Ltd, Evolution Mining Ltd, Northern Star Resources Ltd, etc., as peers. Considering the healthy balance sheet, decent operational performance, unchanged guidance and decent growth pipeline, we recommend a ‘Buy’ rating on the stock at the current market price of $30.04, up by 5.7% on 11 June 2020, owing to its recent exploration update.

Northern Star Resources Ltd

Value Creation and Delivering Returns to Shareholders: Northern Star Resources Ltd (ASX: NST) is engaged in the production and exploration of gold and other minerals. As on 11 June 2020, the market capitalization of the company stood at $9.63 billion. The company has a strategy of balancing organic growth with well-executed M&A. This has generated over $8.3 billion of value for shareholders since 2010. NST retains a healthy balance sheet with cash/liquid resources of $551 million as at 31 March 2020. During the quarter, the company sold 239koz of gold at an AISC of $1,590/oz. 


Quarterly Operational Performance (Source: Company Reports)

Impact of COVID-19: COVID-19 related measures resulted in temporary reductions in production and hence resulted in increased unit costs. However, it paved the way for an expected improved performance in the June quarter. The underlying operational transition at Pogo continues to progress. NST moved early and decisively to implement strict COVID-19 mitigation measures, causing short term disruption to operations. 

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

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

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

Stock Recommendation: NST has a manageable and profitable operating platform and is likely to pay full financial year dividend as per normal terms. As per ASX, the stock of NST gave a return of 30.89% in the past six months and is inclined towards its 52-weeks’ high level of $15.28. We have valued the stock using the EV/Sales multiple based illustrative relative valuation method and have arrived at a target price, offering an upside of high single-digit (in percentage terms). For the said purposes, we have considered Newcrest Mining Ltd, Evolution Mining Ltd, Saracen Mineral Holdings Ltd, etc. as peers. Considering the current trading levels, attractive returns in the past six months, decent operational performance, and positive outlook, we recommend a ‘Hold’ rating on the stock at the current market price of $13.89, up by 6.764% on 11 June 2020. 

Saracen Mineral Holdings Limited

7-year Track Record of Meeting or Beating Guidance: Saracen Mineral Holdings Limited (ASX: SAR) is engaged in the production and exploration of gold. As on 11 June 2020, the market capitalization of the company stood at $5.07 billion. The company has a 7-year track record of meeting or beating the guidance and is future-proofing the business. 

Record Quarterly Production:During the quarter ended 31 March 2020, the company produced 158,132oz of gold at AISC $1,133/oz. It also reported cash and cash equivalents $340.3 million and quarterly unaudited NPAT of $65 million to $70 million.


Quarterly Operational Highlights (Source: Company Reports)

Future Guidance: The company is maintaining its future guidance for FY20 and expects to produce over 500koz of gold. It is pro-actively responding to COVID-19 and is vigilant to take more extensive actions if required. SAR is future-proofing its business and is building up surface ore stockpiles to over 1.7moz. The production guidance for FY21 remains at 600,000oz.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: The company reported a robust first quarter and is seizing opportunities to increase the number of open pit mining areas. These opportunities are likely to provide increased flexibility and cost and material movement efficiencies. As per ASX, the stock of SAR is inclined towards its 52-week high of $5.690, but still holds the potential for growth. We have valued the stock using the P/E multiple based illustrative relative valuation method and have arrived at a target price, offering an upside of mid-single-digit (in percentage terms). For the said purpose, we have considered Northern Star Resources Ltd, Evolution Mining Ltd, Regis Resources Ltd, etc., as peers. Considering the current trading levels, increased opportunities, future guidance, and record production, we recommend a ‘Hold’ rating on the stock at the current market price of $4.81, up by 4.565% on 11 June 2020. 

 
Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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