Golden Star Resources Ltd

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

• Disposed Prestea: The sale of Prestea improved the company's balance sheet by eliminating negative net working capital, deferred revenue, and rehabilitation obligations, and it is anticipated to generate cash inflows of more than USD 30 million by 2023.
  

• Revised production guidance for 2021: The company's projected ore tonnes for 2021 would be reduced by 21% due to a delay in the completion of the paste plant. The Company has reduced its production target to 145-155 koz, with expenses projected to rise to USD 1,150-1,250 per ounce. Moreover, it would also maintain the level of capital spending in 2021, with a focus on increasing development and drilling activities, to support further volume increases for production growth and enhanced cash flow generation.

• Improving geological confidence: The 86% increase in measured mineral resource and 98% increase in proven mineral reserve at Wassa underground demonstrate the improving geological confidence that has been delivered by recent infill drilling programs. Furthermore, the optimized underground mineral reserve has increased by 21% to 1.1 Moz of gold.

• Healthy liquidity: The company is holding a health liquidity of USD 136 million, under which its cash increased by USD 5.2 million in Q1 2021 to USD 66.1 million. Moreover, it reduced its net debt by USD 3.9 million to USD 39.5 million, which is a positive step.

• Event update: The company will release its second quarter 2021 financial results after market close on Wednesday, July 28, 2021.

 Financial overview of Q1 2021 (Stated in thousands of U.S. dollars)

Source: Company

• The company reported higher revenues in Q1 2021, which increased by 20% to USD 64.9 million, compared to USD 54.0 million in the previous corresponding period, primarily driven by higher gold spot prices and increased volumes.

• Mine operating profit increased by 14% to USD 26.2 million, while the mine operating margin decreased from 42.4% to 40.4%. The rise in operating profit was driven by higher gold spot markets combined with higher sales volumes, which translated into higher revenues.

• In Q1 2021, net income amplified at USD 10.8 million, against USD 12,000 in the previous corresponding period, partially offset by higher other expenses.

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

*1USD=1.26CAD

Stock recommendation 

Q1 2021 was a steady quarter with the mining rate at approximately 4,500 tpd and the grade close to the reserve grade. Gold sold during the period increased by 6.6% to 38,942 due to improved production rates and the processing of lower grade stockpiles. The management also shared production guidance at Wassa and completed key infrastructure projects that are expected to support the production rates in the future, which will further propel the company's cash flows. Moreover, the group also disposed of Prestea, which strengthened its balance sheet. Therefore, based on the rationales discussed above and valuation, we recommend a "Speculative buy" rating on the stock at the closing price of CAD 2.80 on July 21, 2021. We have considered Galiano Gold Inc, Aura Minerals Inc, etc., as the peer group for 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 Technical Price Chart (as on July 21, 2021). Source: REFINITIV, Analysis by Kalkine Group

BTB Real Estate Investment Trust

BTB Real Estate Investment Trust (TSX: BTB.UN) is a Canada-based unincorporated, open-ended real estate trust, which owns approximately 64 commercial, office and industrial properties in primary and secondary markets. It operates through four segments: office, commercial, industrial, and general-purpose, with properties in Quebec and eastern Ontario.

Key highlights 

• Strong rent collections:Despite the challenges faced by the evolving events attributable to the pandemic, the trust collected 99.6% of its Q1 2021 invoiced rents, incredibly in line with its previous collection record. The trust reported a significant reduction of the balance of receivables, from CAD 5.2 million at the end of Q4 2020 to CAD 4.8 million at the end of Q1 2021, which is notable.
  

• Healthy occupancy rates:The group reported an impressive occupancy rate of 95.6% in Q1FY21 in the industrial segment V/s 93.6% in Q1FY20. The office segment and the retail segments reported a slight decline in occupancy. On a consolidated basis, the occupancy rate stood at 91.0% V/s 92.4% in Q1FY20. Despite the tepid conditions the trust has solidified its operations throughout the past year and continues to improve the leasing activity, reflects the resilience with solid foundations.

• An income play: The trust has reported a stable dividend payment over the years, aided by consistent cash flows. Recently, it announced a monthly cash distribution of CAD 0.025 per unit for July 2021, representing CAD 0.30 per unit on an annualized basis. Moreover, at the last closing price, the stock was offering a dividend yield of 7.4%, which is lucrative considering the current interest rate scenario.

Source: REFINITIV

• Event update: The REIT would release its financial results for the second quarter 2021 on August 10, 2021, before the market open.

Financial overview of Q1 2021 (Expressed in thousands of CAD dollars)

Source: Company

• In Q1 2021, the trust posted rental revenue of CAD 23.5 million against CAD 23.8 million in the previous corresponding period.
• On the back of marginally increased total operating expenses at CAD 11.11 million v/s CAD 11.10 million in Q1 2020, the trust reported lower operating income of CAD 12.4 million, against CAD 12.7 million in the previous corresponding period.
• Net income stood at CAD 2.5 million, against a net loss of CAD 5.5 million in pcp. The turnaround was mainly due to the lower financial expenses and the absence of fair value adjustment loss.
  

Risks associated with investment

The Company's revenue and operating results depend significantly on the occupancy levels and rent collection; hence, fluctuations in occupancy levels or delay in rent collection would affect the financial metrics. 

Valuation Methodology (Illustrative): EV to EBITDA

Stock recommendation

Despite the current COVID-19 pandemic, the trust maintains its stability in the first quarter of 2021, thanks to portfolio diversification, excellent rent collection rates, and active lease renewal and leasing activities. The REIT's ability to adapt and embrace change has been a critical factor in its long-term viability over the last year, and we believe it is now ready to embrace the changes and opportunities that have been made available to them, and it is confidently approaching the second quarter. Furthermore, the stock offers a dividend yield of 7.4%, which is lucrative for long-term investors considering the current environment. Therefore, based on the above rationale and valuation, we recommend a "Speculative Buy" rating on the stock at the closing price of CAD 4.07 as on July 21, 2021. We have Boardwalk REIT, Inovalis REIT, PRO REIT 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 Technical Price Chart (as on July 21, 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.