New Gold Inc

New Gold Inc (TSX: NGD) is an intermediate gold mining company and has operations across the globe. The company has a portfolio of four producing assets,  the New Afton Mine in Canada, the Mesquite Mine in the United States, and the Cerro San Pedro Mine in Mexico.

Key Highlights:

• Q2FY21 Production Highlights: For Q2FY21, the company reported its gold equivalent production of 105,705 oz, higher than 98,079 oz in Q2FY20. Gold production stood at 66,989 oz, increased from 64,294 oz in pcp. The company reported copper production of 18.2 Mlbs, increased from 16.2 Mlbs in pcp. The company expects higher gold grades during the second half of FY21, supported by the company’s focus on higher-grade areas of the pit. 
  

• Drilling Update: On July 12, 2021, the company reported drilling update from its Golden Sky Project, which is located adjacent to the Eagle River Mine of Wesdome Gold Mines Ltd., in Wawa. NGD has planned to drill 20,000-metre on two target areas within the property which has historical gold resource with high-grade gold assays in surface sampling. The management believes that the above areas have the potential to report positive results in the coming quarters.

Q1FY21 Financial Highlights:

• NGD announced its quarterly results, wherein the company posted revenue of USD 164.9 million, higher than USD 142.3 million in the previous corresponding period (pcp). The increase was driven by higher gold prices, partially offset by lower sales volumes of both gold and copper.
• Income from operations stood at USD 19.6 million compared to a loss of USD 5.9 million in pcp. The improvement was aided by higher revenue coupled with lower depreciation and depletion costs. Meanwhile, a higher corporate administration expense and increase in operating expenses remained a drag,
• The company turned profitable and reported a net profit of USD 15.1 million as compared to a net loss of USD 28.3 million in Q1FY20, supported by higher operating income coupled with lower finance costs and lower income tax.

Q1FY21 Income Statement Highlights (Source: Company Report)

Risks: Volatility in gold prices would affect the realization prices, which would dampen the company’s margin and cash flows. Moreover, the company reported higher cash costs and ASIC costs in Q1FY21, and the continuation of the above trend would dampen the company’s profitability.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendations:

The company has ample liquidity of USD 435 million, which includes USD 131 million of cash and cash equivalent and USD 304 million of undrawn credit facility. This seems to be sufficient enough to fulfil the company’s short-term and long-term capital needs. We have valued the stock using Price to CF-based relative valuation method and have arrived at a target upside of single-digit (in percentage terms). For the said purposes, we have considered peers like Kinross Gold Corp, Iamgold Corp etc . Hence, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 1.93 on July 23, 2021.

One-Year Technical Price Chart (as on July 23, 2021). Source: REFINITIV, Analysis by Kalkine Group

Dundee Precious Metals Inc.

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

Key Highlights:

• Encouraging Q2 Production: In Q2FY21, the group reported its production of 85,100 koz of gold and 10 Mlbs of copper, which is in line with the FY21 production guidance of 271-317 koz of gold and 34-39 Mlbs of copper.
  

• Improving financial metrics amidst economic jolt: The company reported a constant decline in its all-in sustainable cost and cash cost during the last five quarters, which is noteworthy and indicates higher operational efficiency. Moreover, the company has successfully increased its net cash balance during the same time frame, which is a key positive. Notably, cash flow from operating activities surged to USD 47.591 million in Q1FY21 from USD 10.995 million in pcp. Net debt to market capitalization also reduced consistently during the last five quarters.

• Ample Liquidity: The corporation reported higher available liquidity of USD 325.706 million in Q1FY21, as compared to USD 299.532 million in Q4FY20, which is impressive. Moreover, the above funds seem to be sufficient to fulfil the company’s working capital and capital investments.

Q1FY21 Financial Highlights:

• DPM announced its quarterly results, wherein the company posted revenue of USD 138.030 million, down from USD 147.787 million in the previous corresponding period (pcp). The decrease was primarily due to a lower income from the copper segment.
• Earnings before income taxes were reported at USD 20.714 million, declined from USD 45.689 million in Q1FY20. The decline was due to higher general and administrative expenses, an increase in exploration and evaluation expenses coupled with a steep rise in other expense. However, significantly lower finance and lower cost of sales partially supported the profitability.
• Net earnings stood at USD 19.822 million, as compared to USD 42.436 million in the previous corresponding period (pcp).

Income Statement Highlights (Source: Company Report)

Risks: Volatility in the gold prices would lead to lower realization and subsequently would take a toll on the company’s revenue and profitability.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation:

The company is focusing on the Loma project, located in Ecuador, which has high-quality growth assets and has the potential to add meaningful growth and generate significant value over time. The above mine is expected to produce ~200k oz. Au of minerals in the first five years. Moreover, due to the low-cost production profile, the group is expected to report operational efficiency as well. The company is virtually debt-free entity, which is encouraging considering the capital-intensive nature of the business. We have valued the stock using P/CF based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered peers like New Gold Inc, Oceana Gold Corp, etc. Hence, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 7.19 on July 23, 2021.

One-Year Technical Price Chart (as on July 23, 2021). Source: REFINITIV, Analysis by Kalkine Group

*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.