Champion Iron Ltd

Champion Iron Ltd (TSX: CIA) is engaged in the exploration and development of iron ore properties in Quebec, Canada. The company's operating segment include Mine Site, Exploration and Evaluation, and Corporate.

Key Highlights

• Organic acquisitions:On 16th November 2020, the Company announced an acquisition of Alderon Iron Ore Corp and certain of its affiliates, located in the Labrador Trough geological belt in southwestern Newfoundland, near the Québec border at CAD 15 million. This acquisition would further position the Company to service the rising demand for high-grade iron ore concentrate globally.

• Record ore recovery: In Q2 2021 the Company had a record ore recovery resulting from the stability of concentrator and ore milled during the period. The group managed to cross the recovery target of 83%, which is impressive.

Source: Company

• Improving cash operating margin: This is the fourth consecutive quarter where the company has improved its cash operating margin. In Q2 2021 the group posted the cash operating margin of 61.9%, while the EBITDA margin posted by them stood at 63.6%.

Source: Company

Financial overview OF Q2 2021 (Expressed in thousands of Canadian dollars)

Source: Company

• In Q2 2021, the company had a record production of 2.26 M wmt of high-grade 66.1% Iron ore concentrate, compared to 2.18 M wmt of high-grade 66.3% concentrate in 2Q 2020.
• The company's revenues in Q2 2021 stood at CAD 311.0 million, compared to CAD 160.4 million in Q2 2020. The increase in revenue was primarily due to an improvement in Net average realized selling price by 75%.
• EBITDA stood at CAD 197.8 million in Q2 2021, represented an EBITDA margin of 64%, compared to an EBITDA of CAD62.6 million (margin 39%) in the previous corresponding period.
• The group recorded net income of CAD112.2 million in Q2 2021, compared to a net loss of CAD1.7 million in the previous corresponding period. The increase in net income was primarily due to higher revenue and low finance cost in the reported quarter.

Risks associated with investment

The company is exposed to various risks and uncertainties, including the changes in the assumptions used to prepare feasibility studies, project delay, general economic conditions, prices of iron ore, the demand of iron ore, foreign exchange rate, etc.

Valuation Methodology (Illustrative): Price to Cash Flow

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

Stock recommendation

Company is rapidly gaining global recognition for its ability to deliver quality iron ore products. Improving macro conditions has turned positive as the company has witnessed a rise in iron ore prices in the period with robust demand emerging from china. Along with this trend, the company is in a healthy stage where it has decreased the debt by almost 20%, which would reduce the interest expense and boost its bottom line. Therefore, based on the above rationale and valuation, we have given a "Hold" rating at the closing price of CAD 4.73 as on December 23, 2020. We have considered Lundin Mining Corp, Turquoise Hill Resources Ltd, Altius Minerals Corp etc. as the comparison's peer group.

Source: Refinitiv (Thomson Reuters)

Silvercorp Metals Inc.

Silvercorp Metals Inc. (TSX: SVM) is a mineral mining company and is engaged in the explores, develops, and mines precious and base metal mineral properties at its producing mines and exploration and development projects in China.

Key Highlights:

• Stable Silver Production: The company reported a stable silver production over the years, which is a key positive. Moreover, an elevated price of silver in the international market has supported the company’s overall performance. The Management expects an improved silver production in the foreseeable future.

Silver Production (Source: Company Presentation)

• Filing of Base Shelf Prospectus: Recently, the company has issued a prospectus with the securities regulators in each province of Canada which provides the company to issue of common shares, preferred shares, debt securities, warrants, subscription receipts or any combination up to US$ 200 million. With the above funds, the company would get additional liquidity and would support to meet the company’s working capital requirements and capital investments.

Q2FY21 Financial Highlights:

• SVM announced its quarterly results, wherein the company posted revenue of USD 56.372 million, higher than USD 49.886 million in the previous corresponding period (pcp). The increase was primarily attributable to an improved realized price of silver and gold, partially offset by a lower income from lead.
• Income from mine operations stood at USD 26.672 million, higher than USD 22.667 million in Q2FY20, supported by a higher income.
• Income from operations stood at USD 24.777 million, as compared to USD 20.118 million in pcp.
• Net income stood at USD 19.557 million, versus USD 15.661 million in Q2FY20.
• The company posted cash and cash equivalent of USD 95.320 million, while total assets stood at USD 603,885 million.

Source: Company Reports

Risks: The company’s income is correlated to the international metal prices, and volatility in the metal prices would affect the performance of the group.

Valuation Methodology (Illustrative): Price to Cash Flow

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

Stock Recommendation:

We expect the company’s future revenue would be benefited by the elevated gold and silver prices, due to the lack of investment options and lower interest rate scenario. Further, the company does not have any debt component in its balance sheet, which reduces the balance sheet risk. Furthermore, the company reported a lower cash mining cost of USD 12.00 per tonne, as compared to CAD 13.27 in the same prior-year period, would further support the company’s margin. We have valued the stock using Price to CF based relative valuation approach and arrived at a target price offering single-digit upside potential (in % terms). We have peers like Equinox Gold Corp, Hecla Mining Co etc. Hence considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 8.34 on December 23, 2020.

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

Disclaimer

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