Maverix Metals Inc.

Maverix Metals Inc. (TSX: MMX) is a resource company that is engaged in acquiring and managing royalties and metal purchase agreements on projects that are in an advanced stage of development or on operating mines producing precious or other metals.

Recently, the Company has reduced its royalty from 7.5% to 4.75% at Karora's Beta Hunt mine from July 1, 2020. The reduced royalty burden on the Beta Hunt mine will allow both Karora and Maverix shareholders to benefit from a renewed focus on exploration, development and potential future production growth at Beta Hunt.   As consideration for the reduction, Karora will pay USD 5 million in cash and issue 35.1 million common shares at CAD 0.506 per share to Maverix.

Q1FY20 Financial Highlights: Maverix Metals declared its first quarter results, wherein the Company reported total revenue of USD 9.29 million as compared to USD 5.66 million in Q1FY19.An increase in revenue was driven by the higher average realized price coupled with improved royalty revenue. Average realized price stood at USD 1,582 in Q1FY20 against USD 1,301 in the previous corresponding period (pcp). The Company reported average cash costs per ounce sold at USD 167 as compared to USD 152 in the previous corresponding quarter. The quarter was marked by higher cash costs coupled with higher depletion expense. Gross profit stood at USD 5 million significantly higher than USD 2.9 million in Q1FY20, thanks to the higher revenue. The Company reported income from operations at USD 2.42 million as compared to USD 1.83 million in pcp, thanks to higher gross profit, while considerably higher administration expenses and project evaluation expenses remained a drag. The Company failed to retain the momentum in the bottom-line, and reported net income of USD 0.86 million, declined from USD 1.15 million, a year ago. The decrease was primarily attributable to a higher finance cost and an elevated foreign exchange loss. The company ended the quarter with a cash balance of USD 16.8 million, while total assets stood at USD 307.4 million.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Valuation Methodology (Illustrative): EV/Sales based relative valuation

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

Risk: The income of the company is directly correlated with the international gold prices and the royalty income from the gold mines. Thus, a decline in the gold prices due to some unprecedented events might take a toll on the company’s income and cash flows.

Stock Recommendation: The Stock of MMX has generated a return of ~3% so far this year.  The company derives its royalty income from the existing mining interest on several gold mines located United States, Mexico, Canada etc. The group is likely to face some pressure on the royalty revenue as some of its partners have temporarily shut down their operations, especially in Mexico owing to COVID-19 Pandemic. A pressure on royalty income is likely to offset by the elevated gold prices. Further, we expect the momentum in gold prices to continue as the investors are moving to defensive asset class owing to a challenging economic environment and volatility in the equity market. Higher gold prices bode well for the company’s topline and cash flow. The stock is currently trading above its 100-days simple moving average of CAD 5.71, indicating a bullish trend. We have valued the stock using EV to Sales value-based relative valuation method and have arrived at a target upside of lower double-digit (in percentage terms). We have taken peers like Sandstorm Gold Ltd (TSX: SSL), Wheaton Precious Metals Corp (TSX: WPM), Franco-Nevada Corp (TSX: FNV) etc. as a peer group. Hence, considering the aforementioned points and risk mentioned, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of CAD 5.76 on July 13, 2020.

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

Dundee Precious Metals Inc

Dundee Precious Metals Inc (TSX: DPM) is a gold mining company based out of Canada. The Company is engaged in the business of exploring, developing, mining, processing and acquiring precious metals. The Group operations are located in Canada, Namibia, Bulgaria and Serbia.

The Company will announce Q2 and H1 results on 30^th July 2020.

Strong Production Update for Q2 and H1 FY2020 (8^th July 2020)

The Company announced the robust production results for the second quarter and six months period ending 30^th June 2020 from its mines and smelter. The Group remained on track to meet the set guidance for FY2020. The Ada Tepe delivered a solid performance and achieved record production in the consecutive second quarter. Driven by higher ore volumes treated and strong gold grades, the Gold production surged to 32,300 ounces more than the planned production levels. Chelopech showed consistent performance in the Q2 with gold production of around 49,100 ounces and copper production of 9.4 million pounds. With the optimization of the mining sequence resulted in mill’s higher gold grades and higher pyrite concentrate’s gold recoveries, the production in Q2 stood more than Q1 FY2020. The performance from Tsumeb smelter remained strong in Q2 of the financial year 2020 and processed 58,500 tonnes of complex concentrate.  The DPM delivered robust operating results and remained on track to meet set guidance for 2020 based on outstanding efforts taken at all sites and strong management focus to tackle the impact of the covid-19 pandemic. The Group’s operations are not materially impacted by the outbreak of covid-19 and are focused on maintaining the health and safety of the employees and proactively managing the supply chains. The Company has decided not to pay any dividend to shareholders until the situation gets normal again.

Share Price Performance

Daily Chart as of 13 July 2020, after the market closed (Source: Refinitiv, Thomson Reuters)

Dundee Precious Metals Inc shares closed at CAD 8.89 at the time of writing after the market closed on 13 July 2020. Stock's 52 weeks High is CAD 9.83 and Low is CAD 3.20.

Key Risks

Any change in regulations and government policies could affect the overall business of the Company. 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 can be negatively impacted due to outbreak of Covid-19 Pandemic.

Conclusion

The Group has witnessed an increase in production in the second quarter and the first half of the financial year 2020. The performance has improved across all the mines and smelter in the Q2 of the financial year 2020. The Company remained on track to achieve set guidance for the FY2020. At present, the Group’s activities are not materially impacted by the outbreak of covid-19, but any disruption in the supply chain can adversely impact the operational and financial performance. The recent increase in the gold prices in the global markets will improve financial performance and bring operational stability.

Based on the above rationale, we have given a “Hold” recommendation at the closing price of CAD 8.89 (as on 13 July 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.