Champion Iron Limited

Record Net Income and Additional Growth Opportunities: Champion Iron Limited (TSX: CIA) is engaged in the exploration and development of iron ore properties in Quebec, Canada. As on 31 July 2020, the market capitalization of the company stood at ~CAD 1.03 billion.

Quarterly Performance (For the Period Ended 30 June 2020): During the first quarter ended 30 June 2020, the company reported strong operational and financial results, wherein it reported revenues of CAD 244.6 million as compared to CAD 277.9 million for the comparative period in 2019. In the same time span, EBITDA stood at CAD 127.7 million, representing an EBITDA margin of 52%, against an EBITDA of CAD 166.9 million in the pcp, representing an EBITDA margin of 60%. During the quarter, the company reported record quarterly net income of CAD 75.6 million and reported a stable balance sheet with cash of CAD 347.5 million, up from CAD 298.7 million.  During the quarter, the company produced 1,798,800 wmt of high-grade 66.5% Fe iron ore concentrate at a free on-board total cash cost of CAD 58.4/dmt.

Key Risks: The company is exposed to a variety of risks and uncertainties, including the changes in the assumptions used to prepare feasibility studies; project delays; continued availability of capital and financing and general economic, market or business conditions; general economic, competitive, political and social uncertainties; future prices of iron ore; failure of plant, equipment or processes to operate as anticipated.

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: The company seems to be well-positioned for additional growth opportunities by increasing its exploration mineral rights adjacent to the Bloom Lake mining lease. Despite the economic impact of the COVID-19 pandemic, prices of iron ore were robust, providing an attractive operating margin environment. As per TSX, the stock of CIA is inclined towards its 52-week high level of CAD 2.86 and appears to hold the potential for further growth. The stock of CIA gave a return of 50.56% in the past three months and a return of 1.13% in the last one month. We have valued the stock using the EV/EBITDA multiple based illustrative relative valuation method and have 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 financial and operational performance and growth opportunities, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 2.68, down by 0.3717% on 31 July 2020.

CIA Daily Technical Price Chart (Source: Refinitiv, Thomson Reuters)

Golden Star Resources Ltd

Several Operational Initiatives and Reduction in Net Debt: Golden Star Resources Ltd (TSX: GSC) is a Canadian-based gold mining and exploration company. As on 31 July 2020, the market capitalization of the company stood at ~CAD 658.71 million.

Quarterly Performance (For the Period Ended 30 June 2020): During the second quarter ended 30 June 2020, the company reported a total production of 50.6 thousand ounces as compared to 48.4koz in Q2 2019 and AISC averaged to USD 1,186 per ounce. In the same time span, gold sales stood at 52.7koz in Q2 2020 and 98.3koz in H1 2020. During the quarter, cash flow from operations were USD 27.1 million, more than double the USD 13.4 million achieved in the first quarter of 2020 and cash totaled at USD 45.1 million, reflecting an increase of USD 3.1 million during the quarter. In the same time span, the company reduced its debt by USD 4.7 million to USD 102.6 million and net debt went down by USD 7.8 million to USD 57.5 million as at June 30, 2020. The company has also announced the signing of a binding agreement for the sale of the Bogoso-Prestea Mine to Future Global Resources  for an aggregate purchase price of USD 55 million with an additional contingent consideration of up to USD 40 million upon the occurrence of certain milestones.

Quarterly Highlights (Source: Company Reports)

Key Risks: The company is exposed to a variety of risks including gold price volatility; discrepancies between actual and estimated production; mineral reserves and resources and metallurgical recoveries; mining operational and development risks; liquidity risks; suppliers suspending or denying delivery of products or services; the speculative nature of gold exploration; ore type; the global economic climate; share price volatility; the availability of capital on reasonable terms etc.

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

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

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

Stock Recommendation: The company has tightened its AISC guidance and expects it to be in the range of USD 1,100 to 1,180/oz. It is focusing on the delivery of operational initiatives which targets on improving the consistency of the operations and visibility of longer-term potential. As per TSX, the stock of GSC is trading close to its 52-weeks’ high level of CAD 6.10 but retains potential for further growth. The stock of GSC gave a return of 82.32% in the last three months and a return of 51.39% in the past one month. We have valued the stock using the EV/Sales multiple based illustrative relative valuation and have arrived at a target upside of middle single-digit (in percentage terms). Considering the current trading levels, decent returns in the past three months, improving financial and operational performance and AISC guidance, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 5.98, up by 1.8739% on 31 July 2020.

GSC Daily Technical Chart (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.