New Gold Inc.

Improvement in Operational Performance: New Gold Inc. (TSX: NGD) is an intermediate gold mining company with operations across the globe. As on 4 August 2020, the market capitalization of the company stood at ~CAD 1.50 million.

Quarterly Performance (For the Period Ended 30 June 2020): During the quarter ended 30 June 2020, the company produced 98,079 gold equivalents ounces and generated revenues of USD 129 million. During the quarter, operating expense of the company stood at USD 726 per gold eq. ounce and incurred total cash costs of USD 773 per gold eq. ounce. In the same time span, all-in sustaining costs were USD 1,283 per gold eq. ounce. The company generated USD 53 million of cash from operations for the quarter and completed a USD 400 million senior notes due in 2027.

Quarterly Financial Highlights (Source: Company Reports)

Guidance: The company has upgraded its guidance for FY20 and expects to produce 284,000 - 304,000 ounces of gold and 65 to 75 mlbs of copper. It also expects operating expenses per gold eq. ounce to be in the range of USD 780 to USD 860 and cash costs per gold eq. ounce in between USD 830 to USD 910. The company anticipates AISC to be between USD 1,410 to USD 1,490 per gold eq. ounce.

Key Risks: The company is exposed to certain factors including disruptions affecting the company’s operations, political and legal developments in jurisdictions where NGD operates, inconsistent prices for diesel, natural gas, fuel oil, electricity, and other key supplies, etc.

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

EV/EBITDA Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Despite the challenges presented by COVID-19, the company reported strong operational performance and completed two strategic transactions wherein it restructured its balance sheet and improved its liquidity position. As per TSX, the stock of NGD is trading close to its 52-weeks’ high levels of CAD 2.29 but retains potential for further growth. The stock of NGD gave a return of 92.98% in the past three months and a return of 19.57% in the last one month. We have valued the stock using the EV/EBITDA multiple based illustrative relative valuation method and arrived at a target upside of lower single-digit (in percentage terms). Considering the current trading levels, attractive returns in the past three months, improvement in performance despite significant disruption in the market and positive guidance, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 2.22, up by 0.9091% on 4 August 2020.

NGD Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Dundee Precious Metals Inc.

Record Q2 2020 Operating and Financial Results: Dundee Precious Metals Inc. (TSX: DPM) is an international gold mining company that is engaged in acquisition, exploration, development, mining, and processing of precious metals. As on 4 August 2020, the market capitalization of the company stood at ~CAD 1.84 billion.

Quarterly Performance (For the Period Ended 30 June 2020): During the second quarter ended 30 June 2020, the company reported consistent performance and record gold production of 81,365 ounces. Despite a 30-day reduction in throughput in April because of COVID-19, the company achieved a throughput of 58,516 tonnes at Tsumeb. In the same time span, DPM reported a record free cash flow of USD 58.4 million and record net earnings attributable to common shareholders of USD 48.8 million, reflecting strong gold production and excellent cost performance from Chelopech and Ada Tepe combined with higher gold prices. During the quarter, the company reported all-in sustaining cost per ounce of gold of USD 729 and a cash cost per tonne of complex concentrate smelted of USD 345. DPM strengthened its financial position with ~USD 226 million of cash resources, reflecting its efforts to proactively respond to the challenges of the COVID-19 pandemic.

Quarterly Financial and Operational Highlights (Source: Company Reports)

Guidance: The company has provided guidance for FY20 and expects to produce 257,000 to 299,000 ounces of gold and 35 to 40 million pounds of copper. The company also expects all-in sustaining cost in the range of USD 700 to USD 780 per ounce and cash cost per tonne of complex concentrate smelted guidance of USD 370 to USD 450.

Key Risks: The investment in stock is subject to uncertainties including impacts of COVID-19 on the Company’s global supply chains, metals exposure and stockpile interest deductions; currency fluctuations; product shortages, delivery and shipping issues, closure and/or failure of plant, equipment, fluctuations in metal and acid prices, uncertainties and risks inherent to developing and commissioning new mines into production, etc.

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

EV/EBITDA Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: With strong performance in the first half of the year, DPM seems to be well-positioned to move towards the higher end of guidance for gold production. The company achieved record gold production and strong cost performance, which combined with higher gold prices, generated record net earnings and free cash flow. This demonstrates the significant potential of operating assets. As per TSX, the stock of DPM is trading close to its 52-week high of CAD 10.27. The stock of DPM gave a return of 55.62% in the past three months and a return of 12.98% in the last one month. We have valued the stock using the EV/EBITDA multiple based illustrative relative valuation and arrived at a target upside of middle single-digit (in percentage terms). Considering the current trading levels, attractive returns in the past three months, guidance for FY20 and growth opportunities, we recommend a ‘Hold’ rating at the current market price of CAD 10.19, up by 0.8911% on 4 August 2020.

DPM Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Agnico Eagle Mines Ltd

Agnico Eagle Mines Ltd (TSX: AEM) is a mining company based out of Canada. The Group is engaged in the business of producing gold with operating mines in Mexico, Finland and Canada. The Company is also engaged in development and exploration activities in Sweden and the United States.

Financial Highlights – Q2 and H1 Financial Year 2020 (30 June 2020, USD, thousand)

(Source: Quarterly Report, Company Website) 

In the first half of the financial year 2020, driven by higher revenue from mining operations, the revenue increased to USD 1,229,053 thousand (H1 FY2019: USD 1,058,834 thousand), and revenue in Q2 FY2020 increased to USD 557,175 thousand. The income before mining and income tax stood at USD 140,882 thousand in H1 FY2020 (H1 FY2019: USD 95,341 thousand) and income before mining and income tax stood at USD 117,551 thousand in Q2 FY2020 (Q2 FY2019: USD 42,820 thousand), reflecting lower operating and non-operating expenses. The net income in the first half of the financial year 2020 stood at USD 83,736 thousand (H1 FY2019: USD 64,804 thousand). The basic earnings per share stood at $0.35 in H1 FY2020 (H1 FY2019: $0.28), and diluted earnings per share stood at $0.35 in H1 FY2020 (H1 FY2019: $0.27). The cash balance as on 30 June 2020 stood at USD 329,557 thousand (31 December 2019: USD 321,897 thousand). The total assets as on 30 June 2020 stood at USD 9,059,029 thousand (31 December 2019: USD 8,789,885 thousand).

Share Price Performance

Agnico Eagle Mines Ltd shares closed at CAD 108.62 at the time of writing after the market close on 4 August 2020. Stock 52 week High and Low were CAD 108.75 and CAD 43.25, respectively.

Key Risks

The market conditions in which the Company operates is full of challenges and might impact the operational performance and reduce financial performance as well. The Company’s operations may be negatively impacted by risks related to interest rate and Liquidity. Overall business of the Company may be affected by a change in government policies and regulations.

Conclusion

The Company has shown an increase in financial performance in the second quarter and the first half of the financial year 2020. Both the top-line and the bottom-line performance have increased, with improved profitability for the period. The liquidity position of the company has improved, and the balance sheet remained well-positioned. The recent increase in the gold prices in the global markets will improve financial performance and bring operational stability. The Group operations are impacted by the outbreak of covid-19 pandemic and have been focusing on strengthening the balance sheet and reducing costs to preserve cash. The Group expects production in the second half of the FY2020 to improve as it manages to ramp up all operations post temporary shutdowns.

Based on the above rationale, we have given a “Hold” recommendation at the closing price of CAD 108.62 (as on 4 August 2020).

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.