Nomad Royalty Co Ltd

Nomad Royalty Co Ltd (TSX: NSR) is a royalty mining company. The company mines for silver, gold, and other base metals. The portfolio includes Woodlawn property, Blyvoor property, Gualcamayo property, Suruca property, and other properties. 

Key highlights

• Acquires Additional Royalty on the Caserones Mine: For a monetary payment of USD 27.25 million, the firm recently purchased an effective 0.351 percent net smelter return royalty on the producing Caserones mine. The Royalty was acquired in addition to the effective 0.28 percent net smelter return royalty on the Caserones mine, which was purchased in May 2021. Following the completion of the transaction, Nomad will hold an effective 0.63% net smelter royalty on the Caserones mine, having invested a total of USD 50.25 million.

• Strong focus on cash flows: The company's production assets generate about 64% of the cash flow including the recent one which is Caserones royalty. The firm intends to raise this percentage since near-term production assets would contribute another 9%, while the remaining 27% is still in the development stage.

Source: Company

• Elevated commodity prices to support future earnings: Although at the present time the commodities prices are witnessing some volatility, but we believe the price would elevate in the mid-term. As the prices go up, it increases averages realization prices for the miners, which lead to a higher margin profile, higher free cash flow generation and deleveraging of the balance sheet. We believe that the company is well placed to capitalize on the increasing prices of the underlying commodity and exit FY2021 on strong financial health.

Financial overview of Q2 2021 (Expressed in thousands of USD)

Source: Company

• For the three months ended June 30, 2021, revenue was USD 4.6 million compared with USD 6.0 million for the corresponding period in 2020. The decrease of USD 1.4 million was primarily due to the decrease of 27% of gold equivalent ounces sold.
• Gross profit for the reported period increased to USD 1.2 million, against USD 0.2 million in pcp.
• The company earned operating loss of USD 91K compared to USD 22.6 million in pcp, primarily due to higher gross profit and there were no listing expenses in the reported period.
• Primarily due to above discussed rationale, the company clocked a net loss of USD 0.2 million, against a profit of USD 7.2million in pcp. Last period’s net profit was also supported by income tax recovery.
  

Risk associated with investment

The Company’s financial performance is mostly dependent on the price of gold, which directly affects their profitability and cash flow. Any drawdown in the gold prices would impact the group’s performance.

Valuation Methodology (Illustrative): EV/Sales

Stock recommendation

During the quarter, the company's portfolio continued to show its strength, with some noteworthy advancements at its main properties. The company anticipates substantial growth in the future years as the Blyvoor gold mine ramps up production and Nevada Gold Mines goes forward with the development of the Robertson site. Going forward the company’s focus is on maintaining this positive momentum by delivering on its stated goal of delivering value through further deployment of capital in new opportunities across the globe. This coupled with the strong organic growth of its current portfolio would allow Nomad to continue to generate strong free cash flow and support further growth. Therefore, based on the above rationale and valuation, we recommend a “Speculative Buy” rating on the stock at the closing price of CAD 7.36 as on August 19, 2021. We have considered Osisko Gold Royalties Ltd, Sandstorm Gold Ltd etc., as the peer group for the comparison.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary

One-Year Technical Price Chart (as on August 19, 2021). Source: REFINITIV, Analysis by Kalkine Group

Golden Star Resources Ltd

Golden Star Resources Ltd (TSX: GSC) is a gold mining company which owns and operates the Wassa underground mine in Ghana, West Africa. The mine has mineral proven and probable mineral reserves of approximately 1.5 million ounces (oz).

Key Highlights

• Repaid Convertible Debentures: Recently, the company repaid USD 51.5 million in cash and settled the Convertible Debentures in full. This deleveraging event removes the significantly more expensive facility from its balance sheet and therefore lowers the cost of capital. It is also positive to see the Convertible Debentures repaid in cash, with no equity dilution.

• Investing in infill drilling and development at Wassa mine: In Q2 2021 the company continued to put investment in infill drilling and development at Wassa, ahead of planned future production expansion. The group is focused on delivering strong margins and free cash flow from the Wassa mine.
• Positive drill results: In-mine exploration has continued to yield promising drill results around the current and future reserve mining zones, with infill drilling already beginning in the hopes of finding mineral resources before the end of the year. Furthermore, the excellent drill findings would boost the company's mineral resources.
• Generated free cash flow: In Q2 2021, the company’s continuing operations generated USD 2.4 million of free cash flow, despite the significant working capital outflow during the quarter of USD 10.3 million and capital investment of USD 12.2 million.
• Revised production guidance for 2021: The company's projected ore tonnes for 2021 would be reduced by 21% due to a delay in the completion of the paste plant. It does, however, set a production target of 145-155 koz, with expenses projected to rise to USD 1,150-1,250 per ounce. Moreover, it would also maintain the level of capital spending in 2021, with a focus on increasing development and drilling activities, to support further volume increases for production growth and enhanced cash flow generation.
  

Financial overview of Q2 2021 in thousands of USD

Source: Company

• The company reported lower revenues in Q2 2021, decreased by 15% to USD 64.3 million, compared to USD 75.3 million in the previous corresponding period, due to lower gold sales, in part offset by a 5% increase in the average realized gold price.

• Lower revenue and higher depreciation cost in the reported period dragged the Mine operating profit lower at USD 25.4 million compared to USD 35.5 million in pcp. Although the mine operating profit was supported by higher average realization price of gold.

• On the back of higher other expenses which elevated to USD 17.7 million in Q2 2021, the company posted net loss at USD 10.4 million, against a profit of USD 8.3 million in the previous corresponding period.
  

Risks associated with investment

The Company’s financial performance is mostly dependent on the price of gold, which directly affects their profitability and cash flow. Any drawdown in the gold prices would impact the group’s performance.

Valuation Methodology (Illustrative): EV to EBITDA

Stock recommendation

The company's total output in H1 2021 was 78.0koz at an AISC of USD 1,140/oz, and it is on pace to meet the newly updated production forecast of 145-155koz for 2021. In addition, the company completed major infrastructure projects and is increasing its investment in infill drilling, which is likely to support greater production rates in the future, boosting the company's cash flow. Furthermore, the business repaid USD 51.5 million of Convertible Debentures, which is a favorable sign because the debt was repaid in cash with no equity dilution. Despite the large working capital outflow, the firm achieved free cash flow of USD 2.4 million, which is impressive. Therefore, based on the rationale discussed above and valuation, we recommend a "Speculative buy" rating on the stock at the closing price of CAD 2.81 on August 19, 2021. We have considered Galiano Gold Inc, Dynacor Gold Mines In, Karora Resources Inc, etc., as the peer’s group for comparison.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary

One-Year Price Chart (as on August 19, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Peak Fintech Group Inc

Peak Fintech Group (CSE: PKK) is a commercial lending company. It lends money to small and micro businesses in China.

Key highlights

• The company recorded a decent revenue growth during Q1FY21 on a YoY basis, but EBITDA declined when compared to the same period last year. Moreover, the company is generating loss at the bottom-line level consistently.
• The management expects decent revenue growth in next few years and expects the company to become profitable in FY21; however, considering the latest result and current economic scenario, this seems challenging.
• The management stated that its current level of revenue is presently not sufficient to meet its working capital requirements and investing activities.
• PKK shares are available at an NTM EV/EBITDA multiple of 34.79x compared to the industry average of 13.2x, implying that the shares are overvalued against the industry.
• On the daily price chart, the stock has recently seen a robust rally and has moved near to the upper band of the Bollinger band, indicating that the company is possibly overbought and due for a price correction or consolidation. Furthermore, the RSI (14-Period) momentum indicator is trading around 73.50 levels, indicating a potential price correction or consolidation.

Technical Price Chart, Source: REFINITIV, Analysis by Kalkine

Conclusion: The Company is in the early stage of development and has just begun to generate operational revenue through its subsidiaries. It is lacking in liquidity and would be using external financing sources to help meet its financial obligations. Furthermore, the company is trading at overvalued levels compared to the industry, even the technical indicators point to a possible price correction or consolidation. As a result, we recommend an “Expensive” rating on the stock at the closing price of CAD 9.81 on August 19, 2021, based on the above rationale.

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.