Pretium Resources Inc.

Pretium Resources Inc. (TSX: PVG) is an exploration and development company and operates mainly through its Brucejack Project, located in northwestern British Columbia, Canada.

Key Highlights:

• Weak working capital management: The company is struggling to manage its short-term liabilities with its current assets, which remains a concern. Notably, the quick ratio and current ratio and stood at 1.13x and 1.28x, respectively, significantly lower than 1.51x and 2.57x, respectively.
  

• Slide in performance: In Q3FY21, the company reported degrowth in its performance due to lower gold revenue. Notably, revenue stood at USD 146.825 million in Q3FY21, lower than USD 154.876 million in pcp, while net profit, during the quarter, slide to USD 22.046 million, as compared to USD 31.215 million in pcp.
  

• Exhaustive technicals: On a daily price chart, the stock of PVG trading near the upper range of the 20-days Bollinger band, which indicates a possible correction in the coming trading days. Moreover, the relative strength index (RSI) is also higher at 85.77, which indicates sidewise movement or a price correction in coming days.

Technical Price Chart (as on November 15, 2021). Source: REFINITIV, Analysis by Kalkine Group 

Valuation Methodology (Illustrative): Price to CF

Stock Recommendation:

The company reported a lower free cash flow of USD 125.296 million in 9MFY21, as compared to USD 191.359 million in pcp, which indicates a poor liquidity position. Moreover, the company is also witnessing an increase in the input costs, and reported a production cost of USD 208.162 million in 9MFY21, significantly higher than USD 188.306 million in pcp. Continuation of the above trend would dampen the company’s profitability and cash flows.

We have valued the stock using the Price to CF-based relative valuation approach and arrived at a target price offering double-digit downside potential (in % terms). We have considered peers like Kirkland Lake Gold Ltd, Yamana Gold Inc etc. Hence considering the aforesaid facts, we recommend a ‘Sell’ rating on the stock at the last traded price of CAD 18.26 on November 15, 2021.

One-Year Technical Price Chart (as on November 15, 2021). Analysis by Kalkine Group

Wesdome Gold Mines Ltd

Wesdome Gold Mines Ltd. (TSX: WDO) is a gold producer engaged in mining-related activities including exploration, processing, and reclamation. The company produces gold at the Eagle River Complex located near Wawa, Ontario from the Eagle River Underground and Mishi Open Pit gold mines.

Why Should Investors Book Profit?

• Increasing uncertainties: The resurgence of Delta variant cases has raised a lot of questions, and it might have an influence on the company's operations and cash flows as the government may tighten some mandatory lockdowns to combat the spread.
• Clocking higher AISC: The company is witnessing higher AISC of CAD 1495, which increased on a sequential basis is a sign of worry, the higher AISC means lower profit margins.
• Negative free cash flows: In the reported period the company clocked negative free cash flows of CAD 9.0 million, even in the prior sequential period the company generated negative free cash flow of CAD 9.1 million.
• Stretched valuations: WDO shares are available at an NTM Price/Cash Flow multiple of 8.8x compared to the industry (Basic Materials) median of 4.6x, while on NTM EV/Sales multiple, it is trading at 4.3x compared to the industry median of 1.7x. This implies that the shares are overvalued against the industry.

• Exhausted technical indicators: Recently, the stock witnessed a healthy rally on the daily price chart and has moved close to the upper band of the Bollinger band, indicating the stock is perhaps overbought and due for a price correction or a consolidation. Furthermore, the momentum oscillator RSI (14-Period) is trading at ~78.10 levels, which also indicates that the stock is in overbought zone and there is a deep possibility of price consolidation or correction.

Source: REFINITIV, Analysis by Kalkine Group 

Valuation Methodology (Illustrative): EV to EBITDA

Stock recommendation

The company's sales increased by 23% to CAD 67.5 million in Q3 2021, but the bottom line was impacted by lower average price realization and greater expenses. Furthermore, the reintroduction of Delta variant instances has sparked a lot of concern, and it could affect the company's operations and cash flow. The company is generating negative cash flows, which is a sign of worry. Furthermore, the company is trading at a premium to the industry median on a number of multiples that do not match its fundamentals. Even the technical indicator suggests that stock is perhaps overbought and due for a price correction or a consolidation. Hence, based on the above rationales and valuation, we recommend a “Sell” rating on the stock at the closing price of CAD 13.27 on November 15, 2021.

 *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.