Stocks Details’

Rio Tinto Limited

Operations Resumed at Richards Bay Minerals:  Rio Tinto Limited (ASX: RIO) is engaged in the production of copper, gold, iron ore, coal, aluminium, borates, titanium dioxide and other minerals and metals. Following stabilisation of the security situation near the Richards Bay Minerals (RBM), supported by the national and provincial government, and substantive engagement with host communities and their traditional authorities, the company restarted operations at the mine in the month of August 2021.

1H FY21 Financial Summary:

• Increase in Revenue: For the half-year ended 30^th June 2020, the company recorded consolidated sales revenue amounting to US$33,083 million against US$19,362 in 1H FY20. This was supported by the Government stimulus, which resulted in strong demand for its products at a time of constrained supply.
• Focus on Safe Operations: During the half-year, the company was focused on safely running its world-class assets and supplying products to its customers. As a result of this, the company recorded a free cash flow of US$10.2 billion and underlying earnings of US$12.2 billion, after taxes and government royalties of US$7.3 billion in spite of operational challenges.
• Reward to Shareholders: On the back of record financial results, the company declared a total interim dividend of 561 US cents per share.

Sales Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Commodity Price Risk: Any adverse movement in the commodity may impact the company’s financial health.
• Environmental Risk: The company is exposed to risk caused uncertainties from the environment and could stop the company’s mining operation and impact its growth.

Outlook:

• The company expects capital expenditure to be approx. $7.5 billion in each of 2021, 2022 and 2023.
• RIO expects Pilbara iron ore (shipments, 100% basis) production in the range of 325 to 340 Mt and Bauxite of between 56 to 59 Mt for FY21.

Valuation Methodology: P/E 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: During the half-year, the company decreased its debt position by US$3.8 billion and achieved a net cash position of US$3.1 billion as at 30 June 2021. The stock of RIO is trading below its 52-week low-high average of $90.035 - $137.330. The stock of RIO has corrected ~14.34% in the past one month. The stock has been valued using P/E multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers, considering the COVID-19 disruptions and commodity price risk. For the purpose of valuation, peers such as Fortescue Metals Group Ltd (ASX: FMG), BHP Group Ltd (ASX: BHP), South32 Ltd (ASX: S32), and others have been considered. Considering the expected upside in valuation, decent outlook, increasing sales, improved debt position and current trading levels, we recommend a ‘Buy’ rating on the stock at the current market price of $95.070 as on 29 September 2021, 12:18 PM (GMT+10), Sydney, Eastern Australia.

RIO Daily Technical Chart, Data Source: REFINITIV 

Aurelia Metals Limited

New Appointment to Board: Aurelia Metals Limited (ASX: AMI) is engaged in the exploration and mining of gold and base Metal in NSW, Australia. On 22 September 2021, Van Eck Associates Corporation and its associates became a substantial holder in the company with voting power of 5.02%. The company has appointed Mr. Peter Botten AC CBE as a Non-Executive Director, effective from 13 September 2021. Mr. Botten also to succeed chair of the company’s Board.

FY21 Financial Summary:

• Increase in Revenue: For the year ended 30^th June 2021, the company recorded revenue amounting to $416.5 million against $331.8 million, reflecting growth of 26%, primarily supported by the realization of higher gold sales volume post-acquisition of Dargues, rising volume of lead and zinc from Peak and Hera and increased payable gold equivalent production to 181koz against 153koz in FY20.
• More Than Double NPAT: During the year, the company recorded NPAT of $57.4 million against $25.6 million in FY21, benefited from higher gold revenue, due to volume from Dargues.
• Increasing Operating Cash Flow: Operating cash flow for the year grown by 49% to $185.2 million because of volumes from Peak and Hera.

Revenue and NPAT Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Price Risk: The company is exposed to risks arising from negative movement in the gold price, which could impact its financials.
• COVID-19 Disruptions: Uncertainties arising from COVID-19 may affect the company’s operational and financial performance in the upcoming period.

Outlook:

• For FY22, the company expects gold production in the range of 112-123 koz and lead production in the ambit of 24.5-27kt.
• AMI anticipates exploration and evaluation expenditure in the vicinity of $28-$31 million for FY22.

Valuation Methodology: P/E 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: As on 30^th June 2021, the company had a cash balance of $74.5 million against $79.1 million as on 30^th June 2020. The stock of AMI recently touched its 52-week low level of $0.285. The stock of AMI gave a negative return of ~14.49% in the past one month. The stock has been valued using P/E multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers, considering the commodity price risk and increasing debt-to-equity ratio. For the purpose of valuation, peers such as OceanaGold Corp (ASX: OGC), AngloGold Ashanti Ltd (ASX: AGG), Regis Resources Ltd (ASX: RRL) have been considered. Considering the expected upside in valuation, decent outlook, increasing revenue and NPAT, rising cash flow, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.285 as on 29 September 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

AMI Daily Technical Chart, Data Source: REFINITIV 

Resolution Minerals Ltd

Signing of Binding Term Sheet: Resolution Minerals Ltd (ASX: RML) is involved in the exploration of gold, copper, cobalt and other battery metals in the Northern Territory of Alaska (USA). Recently, the company inked a binding term sheet with Cedar Resources Pty Ltd for the acquisition of 100% of two surrounding granted tenements (EL31287 and EL32229). After the completion of the transaction, RML would hold a 100% unencumbered interest in the two Tenements. In addition, the company has successfully lodged applications for two exploration Tenements adding a further 1,025km upon grant.

• RML also commenced a 2,500 metre RC drilling program at the Benmara Project, Northern Territor. The company added that the drilling will take time of three (3) weeks to finish.
• The company is also well-financed, supported by a recent placement of $1.7 million.

Q4 FY21 Results Summary

• Completion of RC Drilling: During the quarter, the company wrapped up RC drilling at East Pogo Prospect (Alaska). It received Positive assay results from RAB drilling at the Sunrise Prospect (Alaska).
• Spent Funds on Exploration: RML expended enough funds on exploration activity in order to tap the obligations to earn a 42% interest in the 64North Project ahead of the Year2 due date 31/1/2022.
• Cash Position: The company closed (30 June 2021) quarter with a cash balance of $1.75 million against $3.05 million as on 31 March 2021.

Cash Balance Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Gold Prices: The company’s financial and operational growth is exposed to the risk caused by unfavorable movement in gold prices.
• Regulatory Risk: Any change in policy by the government could impact the company’s growth.

Outlook:

• The company is expecting results of the RC drilling program at the Benmara Project in November 2021.
• Looking forward, RML is focused on battery metals in under-explored Northern Australia and precious metals on specific prospects at the 64North Gold Project in Alaska.

Stock Recommendation: During Q4 FY21, the company re-instated the At-the-Market Subscription Agreement with Acuity Capital to raise working capital of $3 million over a two-year period. The stock of RML is trading near to its 52-week low level of $0.018. The stock of RML gave a negative return of ~19.23% in the past six months. The stock of RML is trading at a price-to-book value value multiple of 0.6x against the industry median (Basic Materials) of 2.5x on a TTM basis, implying undervaluation. Considering the valuation on a TTM basis, recent acquisition of two tenements, decent outlook, nil debt-to-equity ratio, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.020 as on 29 September 2021, 12:20 PM (GMT+10), Sydney, Eastern Australia.

RML 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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