Northern Star Resources Limited

NST Details

Dividend Declaration: Northern Star Resources Limited (ASX: NST) commercialises refined gold by exploring, developing, mining, and processing gold deposits in Australia. As per a recent announcement, the company has declared a final dividend of $0.095 with a record date of 7 September 2021, and the payment date of 29 September 2021.

Response to ASX Query: The company has given a response to ASX with the information with regards to its delay in lodgement as a result of internal administrative oversight by NST, which happened post the resignation of Ms In’t Veld, effective on 30 June 2021.

FY21 Financial Performance:

• The company has recorded revenue growth of 40% to $2,761 million in FY21, compared to $1,972 million in FY20, derived from pre-commercial mine development activities.
• The company reported a hike in its EBITDA by 216% to $2,268 million in FY21 against $717 million in FY20, reflecting record production volumes and a steady Australian-dollar gold price.
• NST has gained cash earnings of $648 million in FY21 versus $588 million in FY20, reflecting record production volumes and a steady Australian-dollar gold price.
• Additionally, NST has incurred a net profit of $1,032 million in FY21, a 300% increase from $258 million in FY20, driven by organic growth that drove strong financial returns.
• At the end of 30 June 2021, the cash and bullion were $799 million.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Gold Price Risk- The fluctuations of gold prices in the global market has a direct impact on the company’ financials.
• Geological Risk: The company is exposed to geological risk where it needs to have a regular quality and quantity check from a geologist. Therefore, any negative report could impact its operations.

Outlook:

• The company has guided for FY22 where the group production is between 55-1.65Moz at AISC of US$1,105-1,180/oz, net growth capital and exploration as A$710 million and US$430 million growth capital. Notably, increasing grades at Yandal and increasing mining rates at Pogo were key catalysts.
• NST is focused on sustainable shareholder returns with disciplined, balanced reinvestment, lower cost, reliable production delivery, and cost guidance.

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

Source: 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: Recently, the company's directors Stuart Peter Tonkin and Northern Star Resources Limited have acquired 50,000 shares at $9.3726 per share and 100,000 shares at $9.59 per share, respectively of the company. The stock of NST is trading below its average 52-weeks' levels of $8.990-$17.030. The stock of COE gave a positive return of ~3.644% in the past one week and a negative return of ~35.18% in the past one year. The stock has been valued using EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company might trade at some premium to its peers' average, considering the economic recovery and higher net margin. For the purpose of valuation, peers such as Evolution Mining Ltd (ASX: EVN), Gold Road Resources Ltd (ASX: GOR), Newcrest Mining Ltd (ASX: NCM) and other have been considered. Considering the current trading levels, indicative upside in valuation, strategic acquisition, increase in production volumes, optimistic outlook, we recommend a 'Buy' rating on the stock at the current market price of $9.610, as on 15 September 2021, 1:52 PM (GMT+10), Sydney, Eastern Australia.

NST Daily Technical Chart, Data Source: REFINITIV

Southern Gold Limited 

SAU Details

Q4FY21 Financial Performance: Southern Gold Limited (ASX: SAU) operates in the exploration and production of gold, nickel, and base metal mineral in South Korea.

• During the quarter, successful completion of a deal for the sale of Gubong and Kochang Joint Venture interests, with the current value of A$13.7 million.
• The company recorded a total cash outflow of A$1.03 million that comprises net cash outflows from operating and investing activities of A$1.01 million, included exploration expenditure of A$0.5 million.
• At the end of 30 June 2021, the cash position of the company stood at A$8.00 million.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Climatic Risk: The company is exposed to climatic risk, which is uncertain and could impact the company's operational activity.
• Impact of COVID-19 pandemic- The company has faced the challenge of delay in projects during the COVID-19 pandemic that has impacted its financials, and still, the uncertainty prevails.

Outlook:

• The company is focused on building up future drill targets in South Korea across five different projects areas, i.e., Deokon Project, Geum Mar Project, Daeam Project, Dokcheon Project, Yeongdong District.
• The company maintains CSR by building a positive relationship with the locals and their issues and continuing during the next quarter.

Stock Recommendation: The stock of SAU is trading below its average 52-weeks' levels of A$0.061-A$0.155. The stock of SAU gave a positive return of ~1.56% in the past one week and a negative return of ~53.57% in the past one year. On a TTM basis, the stock of SAU is trading at a Price/Book Value multiple of 0.7x, lower than the industry median (Metals & Mining) of 2.6x, thus seems undervalued. Considering the current trading levels and valuation on a TTM basis, technical levels as mentioned below, decent balance sheet, economic recovery, higher current ratio, and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of A$0.065 as on 15 September 2021.

Technical Overview

After taking steep correction from the higher levels now the SAU stock prices are hovering around the falling trendline support zone and prices are sustaining above the trend line support level of AUD 0.054. Moreover, the momentum oscillator RSI (14-period) is trading in an oversold zone (~37.87 level), and which might indicate the possibility of the upside recovery from the lower levels. An important support level for the stock, is placed at AUD 0.054 while the key resistance level is placed at AUD 0.077.

SAU Daily Technical Chart, Data Source: REFINITIV

Note: The purple color line in the chart shows RSI (14-period) and yellow color line represents the trend line.

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

Note 2: Investment decisions 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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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