Northern Star Resources Limited

NST Details

 Issue of Shares: Northern Star Limited (ASX: NST) is a leading producer and explorer of gold with projects in Australia and North America. On 30 July 2021, NST issued 14,328 share rights (code NSTAC) to key management personnel (KMP), including Mary Hackett, Nicholas Cernotta, and John Fitzgerald, as a part of the NED remuneration.

Presentation Highlights of Diggers & Dealers 2021:

• Liquidity Position: NST reported $1.14 billion of cash, bullion, and available credit facilities on 30 June 2021.
• Debt Refinanced: NST has refinanced debt with a higher loan facility at improved terms and an extended maturity timeline. The company targets a less than 20% gearing ratio and a leverage ratio less than 1.5x for FY22.

Business Update on FY21 & Q4FY21:

• Achieved Guidance: NST sold 1.6Moz of gold for FY21 within the guidance range 1.5-1.7Moz provided. The company recorded $1,483/oz of All-In Sustaining Costs (AISC) for FY21, also within the guidance range of $1,390-$1,520/oz.
• Synergies With SAR: The company reported the accrual of synergies at multiple levels from its recent merger with Saracen Mineral Holdings (ASX: SAR) ahead of schedule in Q4FY21.

Revenue & Net Profit After Tax from FY17-FY20; (Analysis by Kalkine Group)

Key Risks:

• Gold Price Changes: The company faces the risk of changes in gold prices, impacting its revenue and profitability.
• COVID-19 Uncertainties: The COVID-19 lockdowns and related protocols could disrupt the mining operations, availability of drill rigs, and the labor movement at the project sites.

Outlook:

• For FY22, NST estimates gold production in the range of 1.55-1.65Moz at an AISC of $1,475-$1,575/oz and estimates growth capital of ~$570 million.
• NST intends to allocate capital in a disciplined manner for dividend distribution, re-investment, and retention of surplus.
• NST has scheduled a conference call for investors to update the FY21 audited results to be released on 25 August 2021.

Valuation Methodology: Price/Earnings 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: The stock of NST gave a negative returns of 11.77% in the past three months and a negative returns of 22.96% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $8.990 - $17.030. The stock has been valued using the Price to Earnings multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at some premium than its peers’ average, considering its decent financial performance in Q4FY21, continuing productivity gains and savings from the integration with SAR, decent production for FY21, etc. For the purpose of valuation, few peers like Evolution Mining Limited (ASX: EVN), Newcrest Mining Limited (ASX: NCM), Alkane Resources Limited (ASX: ALK) have been considered. Considering the low trading levels, decent production in FY21, cost performance in FY21, and valuation, we give a ‘Buy’ rating on the stock at the market price of $9.240, as on 13 August 2021, 10:32 AM (GMT+10), Sydney, Eastern Australia.

NST Daily Technical Chart, Data Source: REFINITIV 

Silver Lake Resources Limited

SLR Details

FY21 & June 2021 Quarter Takeaways: Silver Lake Resources Limited (ASX: SLR) is a gold and gold/copper concentrate mining firm. SLR undertakes Mount Monger and Deflector Operations in Western Australia.  

• Higher Q4FY21 Production: SLR reported 64,302 oz gold equivalent production in Q4FY21 versus 61,797 oz gold equivalent produced in Q3FY21.
• Lower FY21 Production: SLR produced 249,177 oz of gold equivalent in FY21 versus 273,071 equivalent gold ounces in FY20.
• Met Top-End Guidance: The company sold 248,781 oz gold and 1,724 tonnes of copper, thereby meeting the top-end of the sales guidance of 240,000-250,000 oz for gold and 1,600 tonnes for copper. The AISC of $1,484/oz also fell in line with the guidance range of $1,400 to A$1,500 per ounce.
• Increase in Ore Stockpiles: The stockpiles at the Mount Monger project increased by ~17,000 oz to ~115,000 oz in Q4FY21 due to increased open pit ore production from Aldiss.
• Decent Liquidity Position: The cash and bullion balance stood at $330.2 million, up by $10 million as of 30 June 2021 (excluding $11.1 million of gold concentrate on hand and in the circuit).
• Deflector Operation: During the quarter, SLR constructed and commissioned the Deflector Carbon in Pulp (CIP) circuit and related infrastructure in the region and developed another high-grade ore source at Rothsay.

Total Revenue & Net Income from 2hFY19-1HFY21; (Analysis by Kalkine Group)

Key Risks:

• Skilled Manpower: The company faces the shortage of skilled labour due to restrictions on interstate and overseas travel. The restricted labour mobility, in turn, poses a risk to the productivity and efficiency of operations.
• Gold Prices: SLR faces fluctuations in the realised prices of gold and copper, affecting its top line.

   Outlook:

• SLR estimates sales of 235,000 to 255,000 ounces of gold and 600-1,000 tonnes of copper between an AISC of $1,550-$1,650 per ounce for FY22.
• At Deflector, SLR estimates gold sales in FY22 to be 10-20% higher than FY21 due to increased recoveries and higher milled grades.
• SLR expects cash flow growth and higher grade-driven production in FY23 once it establishes high-grade production areas at Rothsay and Deflector in FY22.

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: The stock of SLR gave a negative returns of 28.18% in the past three months and a negative returns of 13.11% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level of $1.280 - $2.540. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ average, considering its lower sales and higher AISC guidance for FY22 vs. FY21, the risks associated with COVID-19 uncertainty, restricted mobility of skilled labour, etc. For the purpose of valuation, peers like Regis Resources Limited (ASX: RRL), Calidus Resources Limited (ASX: CAI), Red 5 Limited (ASX: RED), and others have been considered. Considering the current trading levels, improved liquidity position, achieved the top-end guidance for FY21, increased ore stockpiles at Mount Monger operations, higher sales guidance from Deflector operations for FY22, and valuation, we give a ‘Buy’ rating on the stock at the current market price of $1.325, down by ~1.852% as on 13 August 2021.

SLR 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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