OceanaGold Corp

OceanaGold Corp (TSX: OGC) is engaged in the exploration, development, and operation of gold and other minerals, with a presence in the Philippines, New Zealand, and, to a lesser extent, the United States.

Key highlights

• Vigorous production outlook for multi-years: The company's asset bases are functioning well, and numerous recent good events are supporting this. Consequently, the company intends to boost output and profitability while decreasing expenses in the future, which is a huge plus. In addition, the company expects that restarting "DIDIPIO" mine would contribute around 120 koz gold and around 12 kt copper each year.

• Improving operating matrix on sequential basis: Despite the current turbulent environment, the Company maintained its momentum and achieved strong results in gross margin, operating margin, and net margin. We expect the current trend to continue in the near future. Higher average realized commodity prices were also important in attaining healthy revenues and margins.
• Recommencement of New Zealand operations: At Macraes and Waihi, the Company is resuming mine production, processing, and exploration while adhering to rigorous public health procedures. These limitations, along with the recent two-week closure, are projected to result in a drop in gold production of 4,000 to 5,000 ounces per New Zealand operation in 2021. Additionally, the firm would continue to search for ways to compensate for the drop in output over the next few months.
• Industry beating margin profile:The group reported strong operational efficiency during Q2 2021, on the back of healthy production and increased average realization price of gold, which helped the company leaping the industry median numbers on many fronts, which is a key positive. The chart below gives a glimpse of this.
  

Financial overview of Q2 2021

Source: Company

• In Q2 2021, the revenue reported by the company increased 91% to USD 182.6 million compared to USD 95.8 million, primarily due to improved performance from Haile and higher average gold prices received.
• Operating profit stood at USD 53.1 million in Q2 2021, against a loss of USD 26.9 million in pcp, primarily due to higher revenue and controlled expenses.
• The company reported a Profit before income tax of USD 47.2 million in Q2 2021 compared to a loss of USD 27.3 million in the previous corresponding period.
• Primarily due to higher revenue and controlled operating expenses along with higher average realization price of metal helped the company to clock a net income of USD 31.4 million, against a loss of USD 31.4 million in pcp.
  

Risks associated with investment

The Company’s financial performance is mostly dependent on the price of gold, which directly affects their profitability and cash flow. Any drawdown in the gold prices would impact the group’s performance.

Valuation Methodology (Illustrative): EV to Sales 

Stock recommendation

Q2 2021, was a transformational period for the company as it came out with robust performance, strong cash position, revised healthy outlook for FY2021; all these factors give a glimpse of solid foundations led by the company to achieve higher growth in future. Furthermore, the company is excited about the next few years, and the opportunity to drive value from internal growth with the lower operating cost is a key positive. Furthermore, the company is continuously showing spirited performance across margin matrix on sequential basis, which is a key positive. Therefore, based on the above rationale and valuation, we recommend a “Speculative Buy” rating on the stock at the closing price of CAD 2.35 on September 2, 2021. We have considered Dundee Precious Metals Inc, and Pretium Resources Inc., Argonaut Gold Inc, etc., as the peer group for the comparison.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary

One-Year Price Chart (as on September 2, 2021). Source: REFINITIV, Analysis by Kalkine Group 

Canacol Energy Ltd

Canacol Energy Ltd (TSX: CNE) is a natural gas and oil exploration and production company. Primarily it operates in the Lower & Middle Magdalena Basins of Colombia.

Key highlights 

• Lucrative dividend yield: The Corporation recently announced a dividend of CAD 0.052 per share, which was paid to stockholders on July 15, 2021. Furthermore, the company had an exceptional dividend yield of ~6.2%, which is advantageous in a low-interest-rate market.
• Improving dynamics despite challenging macros: Despite the fact that the industry's proved reserves are declining, the company has claimed successful exploration and drilling activities in recent years, with a 40% CAGR increase in gas sales over the previous seven years. As a result, the company has emerged as one of Colombia's most prominent players. The sector's overall gas supply has been sluggish in recent years and is expected to remain so in the future. However, due to a high reserve base, CNE supply is likely to stay elevated in the coming days.
• Increase in demand for spot market volumes: Subsequent to June 30, 2021, demand for spot market volumes increased, as evidenced by realized contractual natural gas sales volumes of approximately 190 MMscfpd in July 2021, owing primarily to improved conditions in recent political unrest in Colombia, as well as the weakened La Nia climate phenomenon, thanks to these factors which results in higher natural gas demand.
• Drilling more wells: In order to achieve a 2P reserves replacement ratio of more than 200 percent, the Corporation expects to drill up to twelve exploration, appraisal, and development wells in a continuous program for the remainder of 2021. It has drilled six exploration and development wells so far, with Aguas Vivas yielding a significant gas discovery that is currently being assessed.

Financial overview of Q2 2021 (In thousands of USD)

Source: Company 

• In Q2 2021, the company reported total revenue at USD 69.28 million against USD 60.51 million in the previous corresponding period. The revenue increased primarily due to higher sales volume of natural gas and liquefied natural gas.
• Total operating expenses in the reported period increased to USD 53.21 million against USD 39.47 million in pcp. Higher transportation expenses along with exploration expense and natural gas trading purchase cost elevated total operating expenses.
• Income before tax in Q2 2021, came down at USD 7.19 million against USD 13.96 million in pcp, primarily due to higher operating expenses and increased finance expenses.
• Due to above stated reasons the net income in Q2 2021, stood at USD 2.42 million compared to USD 17.7 million in pcp, which was partially supported by tax recovery.
  

Risks associated with investment

The company’s operations are correlated with the prices of oil & gas. Hence, a voltility in the commodity prices would affect the company’s overall realization and cash flow. 

Valuation Methodology (Illustrative): EV to Sales 

Stock recommendation

The company is well positioned to produce consistent cash flows. Furthermore, the firm does not have any large debt obligations until FY24, reducing the company's immediate repayment load. Furthermore, the company is the leading supplier to the Caribbean Coast and has a competitive cost structure, which helps its profitability and margins. Furthermore, the company is in process of drilling more wells which would open fresh avenue for cash flows. Also, the company is delivering a healthy dividend yield, which is another positive aspect for long term value investors. Therefore, based on the above rationale and valuation, we recommend a “Speculative Buy” rating on the stock at the closing price of CAD 3.35 on September 02, 2021. We have considered Advantage Energy Ltd, Peyto Exploration & Development Corp, Cardinal Energy Ltd (Alberta), etc. as the peer group for the comparison.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary

One-Year Price Chart (as on September 02, 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.