Company Overview: Aurelia Metals Limited (ASX: AMI) is a high-grade gold and base metal producer that owns and operates three underground mines (Peak, Hera, and Dargues) and processing facilities. The Peak and Hera Mines are located in the Cobar Basin in western New South Wales (NSW), and the Dargues Mine is in south-eastern NSW. The company was listed on ASX on 8 May 2007.

AMI Details

Key Takeaways from FY21 Results: On 25 August 2021, AMI released its financial results for the year ending 30 June 2021. Key highlights of the results are as follows:

• Rise in Production: Gold production for FY21 stood at 104koz at an AISC of $1,337/oz, compared to 92koz at $1,526/oz in FY20. Ore processed at Peak and Hera mines grew by 10% and 9%, respectively in FY21, as compared to FY20.
• Increase in Revenue: For FY21, AMI reported total revenue of $416.5 million, up 26% on the previous year, driven by 10% YoY growth in gold sales and 6% YoY growth in average realised gold price.
• Completed Acquisition of Dargues Gold Mine: During FY21, AMI acquired the Dargues Gold Mine and regional exploration tenements by way of the acquisition of all shares in Dargues Gold Mine Pty Ltd from Diversified Minerals Pty Ltd.
• Rise in Operating Costs: In comparison to FY20, the operating cost, excluding the Dargues Gold Mine, was $11.1 million higher in FY21, due to an increase in site costs at the Peak Mine, site costs at the Hera Mine, and increased transportation costs at Hera related to higher volumes of bulk concentrate.
• Rise in Underlying NPAT: Due to the rise in gold revenue and by-product revenue, the company’s underlying NPAT grew more than doubled to $57.4 million in FY21, as compared to $25.6 million in FY20. Statutory NPAT for FY21 stood at $42.9 million, up 46% on FY20.

Statutory NPAT Trend (Source: Analysis by Kalkine Group)

Key Metrics: Gross margin for FY21 stood at 25.9%, up from 22.1% in FY20. EBITDA margin for FY21 stood at 40.9%, up from 36.4% in FY20. ROE for FY21 stood at 13.1%, up from 12.9% in FY20, reflecting the company’s improved profitability. Current ratio for FY21 stood at 1.61x, down from 2.28x in FY20.

Profitability Metrics (Source: Analysis by Kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form around 34.32% of the total shareholding, while the top four constitute the maximum holding. Eley Griffiths Group Pty. Ltd. and Van Eck Associates Corporation are holding a maximum stake in the company at 5.33% and 4.99%, respectively, as also highlighted in the chart below:

(Source: Analysis by Kalkine Group)

Latest Developments:

• Board Changes: On 13 September 2021, the company announced the appointment of Mr. Peter Botten, an experienced executive with worldwide experience in the resources industry, as a Non-Executive Director to the Aurelia Board.
• Gold Mineralisation Extended at Dargues: The new drilling results from the company’s resource upgrade and extensional drilling campaign at the Dargues Mine, have confirmed multiple zones of gold mineralisation beyond existing Resource footprint.

Key Risks:

• Fluctuations in the Commodity Price: Volatility in the price of gold, silver, lead, zinc and copper could impact the company’s revenue.
• Foreign Currency Risk: The company’s concentrate sales are denominated in US dollar, exposing it to the foreign exchange price risk.
• COVID-19 Pandemic Uncertainties: The associated restrictions of the COVID-19 pandemic have the potential to impact the company’s processing plants, accommodation and logistics operations, as well as underground mining operations.

Outlook: The acquisition of Dargues Gold Mine has enhanced the company’s asset portfolio, while also providing avenues for additional financial returns from mine life extension and operating discipline. Looking ahead, the company is focused on advancing its priority organic growth projects through staged evaluation studies and regulatory permitting.

In FY22, the company expects significant Ore Reserve growth with Maiden Ore Reserves targeted for Federation and Great Cobar. At Hera Mine, the company’s near-term focus is to accelerate exploration and evaluation works in relation to the Federation deposit. For FY22, the company expects its gold production to be in the range of 112 -123koz. Growth capital expenditure in FY22 is expected to be between $16-$18 million.

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

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: Over the last three months, the stock has corrected by ~14.81% and is trading lower than the average 52-week price level band of $0.315 and $0.539, offering a decent opportunity for accumulation. The stock has been valued using P/E multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). The company can trade at slight discount to its peers, considering the uncertainty surrounding the impact of COVID-19 pandemic, rising operating costs, and risks associated with commodity prices. For the purpose of valuation, peers such as OceanaGold Corp (ASX: OGC), AngloGold Ashanti Ltd (ASX: AGG), and Regis Resources Ltd (ASX: RRL) have been considered. Considering the company’s improved financial and production performance in FY21, enhanced asset profile, modest outlook, current trading level and valuation, we give a “Buy” rating on the stock at the current market price of $0.345, up by ~1.470% as on 14 September 2021.

AMI Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined: 

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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