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 strengthened the company’s balance sheet as it eliminated the negative net working capital position, deferred revenue and rehabilitation liabilities, and this transaction is expected to provide a cash inflow above USD 30 million by 2023.

• Production guidance for 2021: For FY 2021, the company sets its production guidance at 165-175koz, where costs are expected to remain in line with recent performance. Moreover, it would also maintain the level of capital spending in 2021 similar to 2020, 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 decent 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.

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

Source: Company

• During Q1 21, the company reported higher revenues, 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 price combined with higher sales volumes, which translated into higher revenues.

• In Q1 2021, net income stood 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

Stock recommendation

Q1 2021 was a steady quarter with the mining rate at approximately 4,500tpd 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 increased production guidance at Wassa and completed key infrastructure projects that are expected to support increased production rates in the future, which would further propel the company's cash flows. Moreover, the group also disposed Prestea, which strengthened its balance sheet, and its total liquidity stands at USD 136 million. Based on technical analysis, the stock has support at CAD 3.2 level. Therefore, based on the rationale discussed above and valuation, we recommend a "Speculative buy" rating on the stock at the closing price of CAD 3.91 on June 25, 2021. We have considered Roxgold Inc, Galiano Gold 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 or if the price closes below the support level.

One-Year Technical Price Chart (as on June 25, 2021). Analysis by Kalkine Group 

CloudMD Software & Services Inc 

CloudMD Software & Services Inc (TSXV: DOC) is digitizing the delivery of healthcare by providing patients access to all points of their care from their phone, tablet or desktop computer. The company offers SAAS based health technology solutions to medical clinics across Canada and has developed proprietary technology. 

Key highlights 

• Planning to grow aggressively: Across North America, the company presently serves a combined ecosystem of over 500 clinics, almost 4,000 licensed practitioners, and 8 million patient charts. Furthermore, over the next 12 months, it intends to aggressively expand the patient base through acquisition and organic growth, as well as acquire and/or partner with other firms and technologies that complement its business plan, which is commendable.
  

• Acquired VisionPros: VisionPros, a vertically integrated digital eyewear platform with almost 1 million unique consumers across North America, was recently acquired by the group. VisionPros' digital platform has numerous synergies with CloudMD's current platform, allowing for considerable cross-selling and integration potential. The company now has direct access to almost 1 million unique customer accounts through the eCommerce platform, securing the company's footprint across North America. For FY2020, VisionPros' revenue reached CAD22 million, with an Adjusted EBITDA margin of more than 10%.
  

• Change in management: Recently, the Board of Directors announced the appointment of Ms Karen Adams as President of the Company effective June 21, 2021. 
  

  Financial overview of Q1 2021 (in thousands of Canadian Dollars)

Source: Company

• In Q1 2021, the Company reported healthy revenue of CAD 8.7 million, an increase of 187% compared to CAD 3.0 million in the previous corresponding period. The increase was primarily attributable to acquisition growth, with five acquisitions completed in the quarter and 11 acquisitions completed in the last twelve months.
• The gross profit increased to CAD 3.5 million in the reported period against CAD 1.1 million in pcp. The increase was primarily attributable to a revenue mix where higher margin revenues from Enterprise Health Solutions and Digital Services made up a stronger overall revenue percentage.
• The Company witnessed an increase in its total operating expenses, which stood at CAD 9.1 million against CAD 2.7 million in pcp. The rise in expenses was mainly due to higher G&A expenses, higher sales and marketing expenses, and share-based compensation.
• On the back of higher operating expenses, as discussed above, the Company’s net loss increased to CAD 5.2 million in Q1 2021, compared to CAD 1.6 million in pcp.
  

Risks associated with investment

The company is exposed to various market risks in the ordinary course of operations that could impact its earnings and cash flows. Some important risk factors are General Healthcare Regulation, Reliance on third-party service providers, Competition, Shortage of Healthcare Professionals, Cybersecurity, etc. 

Valuation Methodology (Illustrative): EV to Sales 

Stock recommendation

The Company is committed to transform the healthcare sector by utilizing technology to digitalize healthcare delivery, resulting in improved access to treatment and health outcomes. Its growth strategy is multi-pronged, focusing on organic growth, accretive mergers and acquisitions. Q1 was also a watershed moment for the firm, as it completed five acquisitions, bringing in CAD 13 million in annualized revenue and laying the groundwork for the Enterprise Health Solutions segment. It also has a solid financial sheet, which would allow company to continue investing in a promising pipeline of accretive, synergistic acquisitions. Based on technical analysis, the stock has support at CAD 1.52 level. Therefore, based on the rationale discussed above and valuation, we recommend a "Speculative Buy" rating on the stock at the closing price of CAD 1.87 on June 25, 2021. We have considered WELL Health Technologies Corp, Precipio Inc, Quisitive Technology Solutions 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 or if the price closes below the support level.

One-Year Technical Price Chart (as on June 25, 2021). Analysis by Kalkine Group

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

Disclaimer

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