Wallbridge Mining Co Ltd

Wallbridge Mining Co Ltd (TSX: WM) is a Canada-based company engaged in discovery, development and production of gold, copper, nickel, and platinum group metal (PGM) mineral deposits. The Company is focused on development of its Fenelon Gold Property (Fenelon Gold), located in northwestern Quebec.

Key highlights 

• Impressive Drilling result: As of late, the organization announced new outcomes from its definition drill program at the Fenelon Gold Property. The outcome incorporates solid gold convergences and affirms the evaluation and calculation of the focal parts of the Tabasco-Cayenne and Area 51 Zones. Strikingly, the Company expects a chance of mineral hold from the above property from Q3FY2021 onwards. In addition, the land package Detour–Fenelon territory offers long-haul natural development potential, with the capacity to investigate multi-million ounces of gold.

Source: Company 

• Guidance on Fenelon Gold: The Company's essential investigation exercises are centered around Fenelon Gold, which has been extended from 10.5 km square to 85 Km square endless supply of the securing exchange with Balmoral. For FY2021, the administration expects around 170,000 m of diamond drilling and 4,800 m of underground investigation advancement. Investigation drilling would focus on Area 51, Tabasco, Cayenne, Reaper and Ripley zones.

• Positive Long-term Prospect: Gold, as an asset class, has given exponential return in the past, and the long-term prospect of Gold remains bright, supported by economic cycles, declining interest rates etc. We expect the momentum to continue, which is positive for the group. 

Financial overview of FY2020 (expressed in Canadian Dollars)

Source: Company 

• Recently, the company announced its FY2020 result, wherein the group reported a loss before income taxes of CAD 15.7 million, significantly higher than CAD 2.1 million in the previous corresponding period (pcp). The increase in losses was due to higher general and administrative expenses (CAD 3.7 million V/s CAD 2.2 million in pcp), higher provision for closure plan costs (CAD 2.6 million V/s CAD 1.9 million in FY19), coupled with a significantly higher impairment on exploration properties (CAD 10.1 million V/s CAD 0.4 million in pcp).
• Net loss for the period stood higher at CAD 19.8 million, against CAD 3.1 million in pcp.
• The group reported cash and cash equivalents of CAD 85.0 million. 

Risks associated with investment

The Company is still primarily in the exploration and development stage, and accordingly, all costs related to the acquisition, exploration and development of its mining interests are deferred. It expects to incur considerable costs in its ongoing exploration programs and the initial stages of development. Moreover, any setback to the drilling activities or negative outcome of the drilling program would affect the business prospect. 

Stock recommendation

In 2021, the Company intend to complete 170,000 metres of drilling program from Fenelon Gold Property. Furthermore, it ramps up its drill program from six to nine drill rigs in support of a maiden NI 43-101 Mineral Resource. In addition to the diamond drilling activities, the Company plans to complete 4,800 m of the 10,000 m, two-year underground development program to provide access to and establish underground drilling platforms. On the valuation front, the stock is available at a median price to book value of 1.7x on a TTM basis compared to the industry (Basic Materials) median of 2.3x. Considering the aforesaid facts, we recommend a “Speculative Buy” recommendation on the stock at the closing price of CAD 0.65 on April 20, 2021.

One year-Price Chart (as on April 20, 2021). Source: Refinitiv (Thomson Reuters) 

Golden Star Resources Ltd

Golden Star Resources Ltd (TSX: GSC) is a gold mining company. The Company owns and operates the Wassa underground mine in Ghana, West Africa. Wassa mine has mineral proven and probable mineral reserves of approximately 1.5 million ounces (oz).

Key Highlights

• FY20- A Transformation Year: FY 2020 was a transformational year as a result of achieving significant milestones, including: the transition of the corporate office to London, the implementation of a new management team, the sale of Bogoso-Prestea, refinancing of the Macquarie Bank credit facility, delivery of increased production guidance at Wassa and completion of key infrastructure projects that are expected to support increased production rates in the future. All of these were achieved while managing challenges posed by COVID-19.
• Substantial Jump in Free Cash Flow: Free cash flow from continuing operations totaled USD 5.9 million in Q4 2020, a 259% jump from the pcp and USD 36.8 million for FY 2020, representing a surge of 675% on YoY basis.
• Reduction in Net Debt: Despite increase in total debt position, the net debt has reduced by 16% on YoY basis to USD 45 million at the end of FY20 as compared to USD 53.4 million reported at the end of FY19. This was largely driven by significant improvement in the group’s cash position led by higher free cash flow from the continuing operations.

Key Financials

FY21 Production and Cost Guidance

Source: Company Filing

• The guidance of USD 660 /oz to USD 700 /oz cash operating cost guidance for 2021 shows a slight increase over 2020 due to the planned commissioning of the paste fill plant in Q1 2021.
• The 2021 AISC guidance at Wassa increases relative to 2020 due to the continued investment in underground development which is reflected in higher sustaining capital partly offset by reduced power cost from Genser Energy. 

Q4FY20 and FY20 Financial Highlights

• Revenue from continuing operations reported a decent increase of 28% in the fourth quarter of FY20 to USD 68.8 million against USD 53.6 million reported a year-ago. Full-year revenue jumped by 34% on a YoY basis to USD 272.5 million.
• During the quarter under consideration, the group’s adjusted EBITDA nudged by 40% to USD 36.5 million driven by higher revenue and higher commodity prices vs comparable period of the previous financial year. Full year adjusted EBITDA soared by 68% to USD 131.6 million, led by higher commodity price realization in the second and third quarter of FY20.
• Cash position from continuing operations jumped 14% YoY to USD 60.8 million at the end of FY20.
• In Q4FY20, average gold realization price increased by 28% to USD 1,579/oz, as compared to USD 1,237/oz in the previous financial year. Full-year gold realization price increased by 25% to USD 1,627/oz vs USD 1,297/oz in FY19.

Source: Company Filings

Risk Associated to Investment: The company’s business is significantly exposed to the volatility in the gold prices. A plunge in the gold price would have a major effect on the group’s financials and margins.

Valuation Methodology (Illustrative): EV to EBITDA 

*Note: All forecasted figures have been taken from Refinitiv (Thomson Reuters)

Stock Recommendation:  The company reported decent performance in the 2020, led by increase in the underlying commodity prices. The group’s average gold realization price improved by 25% in 2020, which helped in margin expansion, significant jump in free cash flow and strengthened balance sheet as well. However, the company is significantly exposed to an adverse movement in the gold prices. Therefore, based on the above rationale, the risk associated and valuation, we suggest a “Speculative Buy” recommendation at the closing price of CAD 4.41 on April 20, 2021.

1-Year Price Chart (as on April 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.