Company Overview: Aurelia Metals Limited is an exploration and mineral development company. The Company operates through segments, including Hera-Nymagee project and other exploration projects. The Hera-Nymagee project includes the gold and base metal Hera deposit, and the copper discovery at the Nymagee copper deposit. The Hera-Nymagee Project is located approximately 100 kilometers southeast of Cobar in western New South Wales (NSW). The Hera Project produces gold-silver dore and a bulk concentrate, which includes lead and zinc. The Doradilla project is a tin project. The Company is also engaged in exploration for copper, gold and tin on a number of tenements in the Lachlan Fold Belt of NSW. The Doradilla Project represents an exploration target for nickel, copper, silver, bismuth, zinc and indium. The Tallebung tin field is located over 70 kilometers north-west of Condoblin, NSW, and includes a series of alluvial and deep lead tin deposits, as well as tin-tungsten hard rock lodes.


AMI Details
 
Strong CAGR Performance for Top-line and Bottom-line for FY16-19: Aurelia Metals Limited (ASX: AMI) is involved in the production and mineral exploration of gold, copper, lead and zinc. Its five wholly-owned subsidiaries include Peak Gold Mines Pty Ltd, Peak Gold Asia Pacific Ltd, Nymagee Resources Pty Ltd, Hera Resources Pty Ltd and Defiance Resources Pty Ltd.

Looking at the past performance over FY16 to FY19, total revenue of the company has grown with a compound annual growth rate (CAGR) of 47.51%, and the bottom-line grew at a CAGR of 48.92% over the same period. Total revenue improved from $91.9 Mn in FY16 to $295 Mn in FY19, and net profit improved from $10.9 Mn in FY16 to $36.0 Mn in FY19.

The company delivered a strong set of operating and financial results for FY19, where gold production increased by 21% to 117,521 ounces from Peak Mines at robust group All-In-Sustaining-Cost (AISC) of A$1,045 per ounce. Both EBITDA and net operating cashflow for FY19 exceeded A$100 million mark. Moreover, cash position increased by 56% to around A$104 million, with no debt on balance sheet.

AMI is heavily investing in upgrading the processing circuit at Peak Mines, which is expected to help the company in increasing lead-zinc production capacity. It is also accelerating access to the high-grade Kairos deposit in the coming months. Additionally, the company’s drilling efforts have yielded significant new discoveries including the Federation and Athena systems in the Hera region, and the Kairos and Upper Chronos extensions in the Peak near-mine area.

As per its FY20 guidance, gold production is expected to remain short than FY19 results, whereas production of lead, zinc and copper are expected to increase.

Group Gold Production Historical Data (Source: Company Reports)

December’19 Quarter Key Highlights: Gold production for the quarter stood at 15,274 oz at All-In-Sustaining-Cost (AISC) of $1,977/oz and FY20 YTD production stood at 44,581 oz at AISC of $1358/oz. In the previous quarter, gold production stood at 29,307 oz. The decrease in gold production in the adjacent quarters can be attributed to reduced gold production at Peak from scheduled lower grade gold ore sources and an eleven-day plant shutdown for pre-upgrade tie-ins during the quarter. Expenditure on the Peak process plant upgrade is well within the budget and its full commissioning is expected to commence in February. With increased throughput offsetting a reduction in gold grades, Hera Mine delivered a 5% increase in gold production.

During the quarter, the company was able to attain all required regulatory approvals to enable the extraction of water from the closely positioned historic workings at both Peak and Hera. Moreover, connection of infrastructure to enable pumping is under progress and nearing completion, and construction activity is well running in advance. Operating cost impact associated with raw water pumping and the lower raw water quality from new sources has been anticipated at $50/oz.


Quarterly Operational Data (Source: Company Reports)

Cash on Hand as on December 31, 2019 Stood at $63.6 Mn: Group sales revenue for the period was reported at $72.9 million, where 60% contribution was from the sale of precious metals and 40% contribution from the sale of copper, lead and zinc. The sales revenue declined on the prior quarter, primarily due to the result of lower gold sales. Total gold doré and gold in concentrate sold in the three months period was reported at 18,378 oz as compared to 30,747 oz in the previous three months ended September 30, 2019.

Cash position at the end of the period was reported at $63.6 million with no debt, as compared to $93.1 million in the previous quarter. The gold hedge book as on December 31, 2019, was reported at 18 koz at $1,911/oz, as compared to 35 koz at $1,854/oz as on September 30, 2019.

Net site cash flow (before corporate costs and growth capital expenditure) for the period was reported at $10 million, where $12.6 million was contributed from Hera and negative $2.6 million was contributed from Peak. Corporate cash flows included the FY19 dividend payment of $17.4 million, general and administration costs of $2.3 million, realised losses on gold forwards of $5.9 million, $2.7 million inflow from the sale of surplus mining equipment and changes in working capital and $2.6 million of tax payments.

Capital spends for the three months period ended December 31, 2019, was reported at $29 million, where $24 million were spent on Peak and $5 million were spent on Hera. The sustaining capital and growth capital accounted for $12 million and $17 million, respectively. The growth capital was mainly associated with the Peak process plant upgrade at $14 million and rest in exploration (discovery) drilling.


December’19 Quarter Financial Performance (Source: Company Reports)

Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together form around 24.98% of the total shareholding. AustralianSuper holds a maximum interest in the company at 6.06%.


Top 10 Shareholders (Source: Thomson Reuters)

A Quick Look at Key Metrics: EBITDA margin for FY19 stood at 40.9%, better than the industry median of 29.5%. Its current ratio for FY19 stood at 2.63x, better than the industry median of 1.82x, which implies that the company is in a better position to address its short-term obligations. Its ROE for FY19 stood at 17.8%, better than the industry median of 12.3%, which implies that the company generated a better return for its shareholders than its peer group. Its cash cycle for FY19 stood at 43.60 days, lower than the industry median of 52.90 days, which implies that the company efficiently managed its asset-liability balances.


Key Metrics (Source: Thomson Reuters)

Key Risks: The company is exposed to certain risks such as business risks, which include fluctuations in the commodity prices, wrong estimation in the Ore Reserves and Resources, mining risks, insurance risks, production & cost estimation, etc.

Growth Projects:

Under the Pb/Zn process plant upgrade, $53 million of capital investment is on schedule. Project expenditure to date incurred at ~$46 million. Important developments such as Wet commissioning of some plant areas (including the filtration area and sections of the flotation circuit) started in the month of January’20 with full scale commissioning expected in the next month.

Additionally, the company advised to develop an exploration decline and associated infrastructure to enable infill drilling of the Great Cobar mineralization. However, the commencement of development was deferred by the discovery of the additional ore source at Kairos.

FY20 Guidance: As per the release, FY20 gold production guidance has been re-confirmed at 85-95 koz at an AISC of $1,050- 1,250/oz. An increase in throughput expectation at Peak in the second half of FY20 along with higher levels of base metal production from both operations has led to anticipation of significant quarterly variation. June’10 quarter has been anticipated to get benefit from a strong lift in Peak throughput following targeted plant upgrade completion in the March’20 quarter, with concurrent increase in high-grade Chronos Pb/Zn ore processed.

Growth capital was predominantly weighted towards the first half of FY20 underpinned by the Pb/Zn plant upgrade at Peak. Sustaining capital with the majority associated with Peak mine development has been anticipated at A$45-50 million. Current group FY20 exploration budget has been anticipated at A$15 million. Under hedging strategy, 56 koz gold hedged at an average of A$1,809/oz for FY20, where 21 koz delivered at average A$1,736/oz for September’19 quarter; 17 koz delivered at average A$1,797/oz for December’19 quarter; and 18 koz at avg. A$1,911/oz over residual months to June 2020.

As per the company report, annual throughput at Peak in FY21 has been anticipated to achieve nameplate capacity of 800 ktpa. Towards end of FY20, the company expects its accelerated UG development to deliver access to base of Kairos. AMI also expects that in FY21 there is good potential for prioritisation and mining of high margin tonnes from Kairos. Following expected completion of the Peak Pb/Zn upgrade in Q3FY20, growth capital expenditure is expected to reduce sharply in FY21.


FY20 Guidance (Source: Company Reports)

Gold Outlook: Gold Spot (XAU/USD) at the time of writing was trading at ~US$1573.44 (16:42 (UTC+11)). On monthly framework chart, the gold price is trading above 20 EMA, 50 EMA and 200 EMA, indicating bullish momentum. It broke an important resistance level at around US$1367.03, underpinned by formation of “Ascending Triangle pattern”. Now the price is expected to test the resistance level at ~US$1675.17 in the coming months.


Gold Spot Monthly Chart (Source: Thomson Reuters)


Key Valuation Metrics (Source: Thomson Reuters)

Valuation Methodology: Price to Earnings (PE) Multiple Approach

Price to Earnings (PE) Multiple Approach (Source: Thomson Reuters)

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

Technical Analysis-
Monthly Chart:

(Source: Thomson Reuters)

Weekly Chart:

(Source: Thomson Reuters)

The stock is trading close to its strong support level at around $0.39 on both the charts. On weekly chart, ‘Morning Star’ candle stick pattern few weeks back around the strong support provides an indication for a trend reversal probability. On closing above 20 EMA and 50 EMA on weekly chart, the stock may test resistance zone around $0.587 (Fibonacci projection level of 23.6%).
Note: EMA – Exponential Moving Average
 
Stock Recommendation: AMI’s stock posted a negative return of 47.88% in the span of one year, and negative return of 11.34% in the span of six months. Considering the company’s business in diversified metals, historical performances, December’19 quarter results, FY19 performance, profitability margins, FY20 outlook, gold outlook and current trading levels, we have valued the stock using a relative valuation method,i.e., Price to Earnings (PE) multiple and arrived at a higher single-digit upside (in % terms). Hence, we give a “Buy” recommendation on the stock at the current market price of $0.425, down 1.163% on February 4, 2020.

 
 
AMI Daily Technical Chart (Source: Thomson Reuters)

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