Wallbridge Mining Company Limited

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

Key Highlights 

• Impressive Drilling Result:Recently, 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, Fenelon has evolved from a small high-grade underground deposit to a multi-million-ounce potential open pit and underground bulk mineable deposit. WM expects a chance of mineral hold from the above property in H2FY21 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.

• Guidance on Fenelon:The company's essential investigation exercises are centered around Fenelon Gold Property, which has been extended from 10.5 sq. km to 85 sq. km upon completing the acquisition transaction with Balmoral. Its full-year 2021 exploration guidance on Fenelon is expected to be approximately 170,000 m of diamond drilling and 2,500 m of underground exploration development. Exploration drilling will focus on Area 51, Tabasco, Cayenne zones.

• Positive Long-Term Prospect: Gold, as an asset class, has historically provided exponential returns, and its long-term prospects remain bright, bolstered by economic cycles, lowering interest rates, and other factors. We expect the momentum to continue, which is a good thing.

Financial overview of Q3FY21 (in CAD)

Source: Company

• Recently, the company announced its Q3FY21 result, wherein the group reported an income before income taxes of CAD 2.6 million, against a loss of CAD 2.6 million in the previous corresponding period (pcp). The change was due to other income relating to flow-through share premium. However, it reported higher general and administrative expenses and unrealized losses on marketable securities.
• Net loss for the period was minimized to CAD 1.7 million, against CAD 3.4 million in pcp.
• The group reported cash and cash equivalents of CAD 53 million.

Risks Associated with Investment

The company is still in the early stages of exploration and development. Accordingly, all expenditures associated with purchasing, exploring, and developing its mining interests are deferred. It intends to spend a lot of money on its current exploration programs and the early stages of development. Furthermore, any delay in drilling efforts or an unfavorable outcome from the drilling program could adversely impact the company's prospects. 

Stock Recommendation 

By the end of FY21, the company intends to complete 170,000 m of drilling program from Fenelon Gold Property, which has evolved from a small high-grade underground deposit to a multi-million-ounce potential open pit and underground bulk mineable deposit. Furthermore, it has ramped up its drill program to support the NI 43-101 MMRE on November 09, 2021. Moreover, the long-term prospect of gold remains bright, supported by economic cycles, declining interest rates etc. Therefore, we expect the momentum to continue, which is positive for the group. 

On the valuation front, the stock is available at a median price to book value of 1.0x on a TTM basis compared to the industry (Basic Materials) median of 1.9x. Hence considering the aforesaid facts, we recommend a "Speculative Buy" rating on the stock at the closing price of CAD 0.395 on December 02, 2021.

One-Year Technical Price Chart (as on December 02, 2021). Source: REFINITIV, Analysis by Kalkine Group 

*The reference data in this report has been partly sourced from REFINITIV.

Sierra Metals Inc.

Sierra Metals Inc. (TSX: SMT) is a precious and base metals producer in Latin America. The company acquires, explores, extracts, and produces mineral concentrates consisting of silver, copper, lead, zinc and gold in Mexico and Peru.

Key Updates

• Robust Cash Flow Generation: The company reported a strong cash flow growth of USD 62.228 million in 9MFY21, significantly higher than USD 47.172 million in pcp. The increase improved working capital management.

• Decline in Total Debt: At the end of Q3FY21, the company reported a decrease in its total borrowings, which is a key positive and indicates higher financial flexibility. Notably, it posted a total debt of USD 86.9 million, the lowest in the last five quarters.

• Expected Recovery in Precious Metal Prices: Due to the ongoing volatility in the global capital market due to the resurgence of the COVID-19 virus, we have seen higher investors' interest in defensive asset classes. There has been a tremendous rally in precious metals, especially gold and silver, since 2019. Continuation of the above trend might lead to elevated metal prices and support the company's top-line due to higher realization prices.

Q3FY21 Financial Highlights

• SMT declared its quarterly result, wherein the group posted revenue of USD 60.701 million, a slide from USD 73.211 million in pcp. The decline was primarily due to the lower grades at the Yauricocha and Bolivar mines and operational challenges at the Cusi Mine. Additionally, a slide in the realization price of gold (~7% y-o-y) and silver (~3% y-o-y) also contributed to the fall.
• Gross profit stood at USD 11.098 million, lower than USD 33.021 million in Q3FY20, due to lower sales, coupled with higher mining costs (USD 37.287 million v/s USD 29.247 million in pcp), and higher depletion, depreciation & amortization (USD 12.316 million v/s USD 10.943 million in Q3FY20).
• The period was marked by an increase in general and administrative expenses (USD 6.881 million v/s USD 4.516 million in pcp). In contrast, slightly lower selling expenses (USD 2.209 million v/s USD 2.600 million in Q3FY20) supported the profitability.
• The group reported a net loss of USD 3.727 million, compared to a net profit of USD 19.490 million in Q3FY20.

Q3FY21 Income Statement Highlights (Source: Company Report)

Risks Associated with Investment

The company's income is related to international commodity prices, and price volatility could lead to a slide in its overall performance.

Valuation Methodology (Illustrative): EV to Sales

Stock Recommendation

For 9MFY21, the company reported a higher adjusted EBITDA of USD 85.889 million, significantly higher than USD 65.855 million in pcp. The above growth was driven by a strong performance from Peru and Mexico mines. Notably, the company reported a 13% y-o-y rise in its daily throughput to 8,808 tpd in 9MFY21. A higher throughput indicates higher operational efficiency. We have valued the stock using EV to Sales-based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Largo Inc, Trevali Mining Corp, etc. Considering the aforesaid facts, we recommend a 'Speculative Buy' rating on the stock of SMT at the last traded price of CAD 1.78 on December 02, 2021.

One-Year Technical Price Chart (as on December 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.