Yamana Gold Inc.

Yamana Gold Inc. (TSX: YRI) is a Canada based precious metals company which is engaged in the production of precious metals like gold and silver, from its development stage properties, exploration properties, and land positions throughout the Americas, including Canada, Brazil, Chile and Argentina. 

Key Highlights:

• Healthy 3-Year production guidance: Robust momentum at Canadian Malartic, Jacobina, and El Peón, as well as expected strong fourth quarters at El Peón and Cerro Moro, keep the Company on track to meet its 1,000,000 GEO projection for the year. Furthermore, the business aims to grow gold production to 889k oz by FY2023 from 780k oz in FY2020 over the next three years.

Source: Company

• Robust rise in Cash flows from operating activities: The company's cash flows from operating activities were USD 190.6 million in the reporting period, and cash flows from operating activities before net change in working capital were USD 202.9 million, representing strong increases of 24% and 21%, respectively, over the second quarter results. The key factors for increased cash flows were increased output and sales.
  

• Operational Update: The Company has already discovered potential to speed production ramp-up and shorten the time it takes to build the processing facility, which would greatly improve the production profile. With the Wasamac deposit remaining open at depth and along strike, there is considerable potential for further exploration success and mineral resource conversion. The proposed infill and exploration drilling campaign has the potential to provide additional mineral reserves, allowing the company to maintain a 200,000-ounce production level for a long period of time.

• Strong liquidity along reducing debt: As on September 30, 2021, the Company had cash and cash equivalents of USD 460.2 million and available credit of USD 750.0 million, for total available liquidity of approximately USD 1.2 billion. Furthermore, the company reduced its debt to USD 772.8 million from USD 993.8 million is a key positive.
  

Financial overview of Q3 2021

Source: Company

• The company's revenue in Q3 2021 was USD 452.2 million, up from USD 439.4 million in the same quarter of 2020. Higher gold sales volumes in the current quarter offset lower realized prices compared to the third quarter of 2020.
• Mine operating earnings in the reported period fell slightly to USD 154.0 million against USD 157.3 million in the previous corresponding period. The fall in mine operating earnings was partially due to higher depreciation.
• On the back of higher finance cost at USD 75.9 million compared to USD 17.5 million in pcp, the company’s earnings before tax stood at USD 57.0 million against USD 107.1 million in Q3 2020.
• Primarily due to above discussed rationales the company’s net income fell to USD 25.9 million compared to USD 55.6 million in pcp.

Risks associated with investment

The company’s performance is correlated with the gold prices. Hence, volatility in the commodity prices would dampen the company’s income and cash flows. 

Valuation Methodology (Illustrative): Price to Cash Flow

Stock recommendation

With strong operational results, the Company is well positioned to meet its 1,000,000 gold equivalent ounces "GEO" guidance for the year, which is supported by momentum at Canadian Malartic, Jacobina, and El Peón, as well as a strong fourth quarter performance at El Peón and Cerro Moro, as previously guided. Furthermore, the firm has substantial liquidity, with USD 460.2 million in cash and cash equivalents and USD 750.0 million in available credit, which appears to be sufficient to fund its planned projects and pay dividends. Additionally, the company is deleveraging its balance sheet by cutting debt, which is a critical positive that might lower finance costs, resulting in improved margins in the near future. For the said purposes, we have considered peers like Centerra Gold Inc, B2Gold Corp, Endeavour Mining PLC, etc. Hence considering the aforesaid facts, we recommend a “Speculative Buy” rating on the stock at the closing price of CAD 5.23 on November 08, 2021.

*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 November 08, 2021). Source: REFINITIV, Analysis by Kalkine Group 

5N Plus Inc.

5N Plus Inc. (TSX: VNP) is a Canadian based company, which is engaged in the manufacturing of specialty metal and chemical products. The group operates through two segments Electronic Materials and Eco-Friendly Materials. The Electronic Materials segment manufactures and sells refined metals, compounds and alloys, which are primarily used in a number of electronic applications.

Key Highlights:

• Recent Acquisition update: On November 08, 2021, the company reported 100% acquisition of AZUR SPACE Solar Power GmbH (AZUR), which operates  in the development and manufacturing of multi-junction solar cells based on III-V compound semiconductor materials. The company has a strong portfolio of intellectual property of more than 120 patent families. As per the management, the above is expected to add moe than EUR 50 million yearly revenue and upto ~EUR 7 million of EBITDA. The above acquisition would help the group to expand its total addressable market into high-power electronics, electric mobility, wireless charging and advanced communications, and would reduce the dependence on a single revenue stream.

• Surge in backlog and bookings: The company reported constant growth in backlog and its total bookings, which is a healthy sign. Notably, backlog stood at USD 96.681 million in Q3FY21, higher than the USD 74.603 million in pcp. Additionally, the company reported a higher booking of USD 43.340 million, significantly higher than USD 23.268 million in pcp, supported by solid growth from both Electronic Materials and Eco-Friendly Materials operations.

• Improved working capital management: The company reported a prudent capital management, which has led to improved quick ratio and current ratio of 1.96x and 3.75x, respectively, in Q3FY21, as compared to the industry median of 1.39x and 2.10x, respectively. The above indicates that the company has the group is able to meet its short-term liabilities through its current assets.
  

Q3FY21 Financial Highlights:

• VNP announce its quarterly result, wherein the company posted revenue of USD 50.839 million, jumped from USD 39.872 million in pcp. The increase was driven by higher income from Eco‐Friendly Materials (USD 31.449 million vs USD 19.257 million in pcp).
• The group reported higher cost of sales, increase in Selling, general and administrative expenses, partially offset by lower other expenses. Total costs stood higher at USD 48.835 million, as compared to USD 34.714 million in pcp.
• Operating earnings stood at USD 2.004 million, slide from USD 5.158 million in pcp, due to the surge in the input costs.
• The reported a net loss of USD 0.792 million, as compared to net profit of USD 2.709 million in pcp.

Q3FY21 Income Statement Highlights (Source: Company Reports)

Risks: The company reported a surge in the input costs (Total expenses at USD 137.101 million in H1FY21, v/s USD 118.079 million in pcp. The continuation of the above trend remains as a major concern for the company as it would hamper the group’s margins and cash flows.

Valuation Methodology (Illustrative): Price to Earnings based 

Stock Recommendation:

The company has an improved debt to equity ratio of 0.47x in Q3FY21, as compared to the industry median of 0.75x. A lower D/E ratio provides higher financial flexibility. Moreover, the company reported its net debt to EBITDA of 4.75x in Q3FY21, as compared to the industry median of 7.13x. The above indicates better debt-protection metrics. We have valued the stock using the Price to Earnings based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Savaria Corp, Ferro Corp etc. Considering the aforesaid facts, we give a ‘Speculative Buy’ rating on the stock of VNP at the last traded price of CAD 2.70 on November 08, 2021.

*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 November 08, 2021). Analysis by Kalkine Group

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

Disclaimer

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