Dundee Precious Metals Inc

Dundee Precious Metals Inc (TSX: DPM) is an international gold mining company engaged in acquiring, exploration, development, mining, and precious metals processing. The Company has three reportable operating segments Chelopech and Ada Tepe in Bulgaria and Tsumeb in Namibia.

Key highlights 

• Solid three-year outlook: The company continues to focus on increasing the profitability of its business by optimizing existing operating assets, which are expected to maintain higher levels of gold production. Over the next three years, gold production is expected to average approximately 280,000 ounces per year based on the current mines plan. Gold production is expected to range between 271,000 - 317,000 ounces in 2021, 240,000 - 280,000 ounces in 2022, and 265,000 - 310,000 ounces in 2023. While Copper production between 2021 and 2023 is expected to be approximately 35 million pounds per year, based on current mine plans.

Source: Company 

• Rise in cash from operating activities and free cash flows: Solid gold production and excellent cost performance derived significant free cash flow. Cash provided from operating activities in Q1 2021 stood at USD 47.6 million, increased by USD 36.6 million compared to the corresponding period. The rise was primarily due to a favorable period over period change related to working capital, and higher realized gold and copper prices. The group reported a free cash flow of USD 51 million.

Source: Company

• Ample Liquidity: As of March 31, 2021, the Company reported total liquidity of USD 394 million, consisting cash of USD 175.7 million and investments valued at USD 68.1 million; along this, it further holds an undrawn revolving credit facility of USD 150 million. We believe the Company’s cash resources and available capital under its RCF continue to provide sufficient liquidity to meet its current operating and capital expenditure requirements, all contractual commitments, as well as a number of margin improvement and growth opportunities.

Source: Company 

• Industry Beating Margins: The Company's resilient business and higher average realization price of metals helped in leaping the industry median margins on many fronts in Q1 2021, which is a key positive. The chart below gives a glimpse of this.

Source: Refinitiv (Thomson Reuters) 

Financial overview of Q1 2021 (In thousands of U.S. dollars)

Source: Company 

• Revenue posted by the company in Q1 2021 declined by USD 9.8 million to USD 138.0 million compared to USD 147.7 million in the previous corresponding period. The decline in the revenue was primarily due to the planned Ausmelt furnace maintenance at Tsumeb, partially offset by higher realized metal prices.
• EBT stood at USD35.2 million in the reported period, against USD 51.3 million in pcp. The lower revenue and increased G&A expenses and higher other expenses were the main draggers.
• On the back of higher income tax expenses and loss from discontinued operations the company clocked a net income of USD 19.8 million Vs USD 42.4 million in pcp. 

Risks associated with investment

The company’s financial performance is mostly dependent on the gold price, which directly affects its profitability, margins, and cash flows. The price of gold is subject to volatility. 

Valuation Methodology (Illustrative): Price to Cash Flow

Note: All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

The Company's first quarter was a solid start to the year. It generated significant free cash flow, driven by record quarterly gold production at Ada Tepe and excellent all-in sustaining cost performance. Based on this performance, the management says that its mining operations are on track to achieve its 2021 guidance, which is positive. Moreover, With the completion of the planned maintenance at Tsumeb during the quarter, the Company expects more robust smelter performance. Therefore, based on the above rationale and valuation, we recommend a “Hold” rating at the closing price of CAD 8.92 as on May 20, 2021. We have considered Centerra Gold Inc, Eldorado Gold Corp, Fortuna Silver Mines Inc etc. as the peer group for the comparison.

1-Year Price Chart (as on May 20, 2021). Source: Refinitiv (Thomson Reuters)

New Gold Inc

New Gold Inc (TSX: NGD) is an intermediate gold mining company having a portfolio of two producing assets: Rainy River Mine and New Afton Mine in Canada. Also, it has interests in the Cerro San Pedro Mine in Mexico. The company derives revenue from the sale of Gold, Copper, and Silver.

Key highlights 

• Making strategic investments: The company recently bought a 14.9% share in Talisker Resources for a total price of about USD 13.8 million. In addition, it paid around USD 24.8 million for a 14.9% share in Harte Gold Corp. These shares were purchased by the corporation for investment purposes. 

• Production guidance for 2021:For FY2021, the management highlighted strong production growth and expects it to be in a range of 440,000 to 490,000 ounces of gold equivalent produced on the back of healthy performance from Rainy River. Furthermore, they expect lower costs with total cash cost to be in a range of USD 810 to USD 890 per ounce, and AISC at USD 1,230-1,330.

Source: Company

• Decent liquidity position: At the end of Q1 2021, the company had ample liquidity of USD 435 million, which includes USD 131 million of cash and cash equivalents along USD 304 million of credit facility. The current liquidity seems sufficient to support the company’s short-term working capital requirements.

Source: Company

Financial overview of Q1 2021

Source: Company

• In Q1 2021, the company posted higher revenue at 164.9 million, against USD 142.3 million in the previous corresponding period. The rise in revenue was mainly due to higher gold and copper prices, which was partially offset by lower sales volume.
• The income from operations stood at USD 19.6 million, against a loss of USD 5.9 million in the previous corresponding period.
• Net income reported by the company in Q1 2021 was USD 15.1 million, against a loss of USD 28.3 million in the previous corresponding period.

Risks associated with investment

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

Valuation Methodology (Illustrative): EV to Sales 

Note: All forecasted figures and peers have been taken from Thomson Reuters

Stock recommendation

As delayed capital projects are completed and the mine switches to generating free cash flow, NGD enters 2021 as a significantly stronger business with an increasing production profile from the Rainy River Mine at reduced costs. Furthermore, the Q1 2021 performance shows that it is on track to meet its 2021 forecast for Rainy River and New Afton, which is noteworthy. Therefore, based on the above rationale and valuation, we recommend a “Hold” rating at the closing price of CAD 2.38 as on May 20, 2021. We have considered Dundee Precious Metals Inc, Endeavour Mining Corp, Galiano Gold Inc, etc., as the peer group for the comparison.

1-Year Price Chart (as on May 20, 2021). Source: Refinitiv (Thomson Reuters)

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.