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 proven and probable mineral reserves of approximately 1.5 million ounces (oz).

• Production guidance for 2021: For FY 2021, the company sets its production guidance at 165-175 koz, where costs are expected to remain in line with recent performance. 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.

Source: Company

• 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.

• 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 of more than USD 30 million by 2023.

• Healthy liquidity: The company is holding 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.

Source: Company

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 to 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 the profitability and cash flow. Any drawdown in the gold prices would impact the group’s performance.

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 increased production guidance at Wassa and completed key infrastructure projects that are expected to support increased 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, and its total liquidity stands at USD 136 million. On the valuation front, the stock is available at a forward EV/Sales multiple of 1.17x against the industry median of 2.74x. Based on technical analysis, the stock has support at CAD 3.45 level. Hence, considering the aforesaid rationale, we recommend a "Speculative Buy" rating in the stock at the closing price of CAD 4.25 on May 18, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock if the price closes below the support level.

1-Year Price Chart (as on May 18, 2021). Source: Refinitiv (Thomson Reuters)

Kelso Technologies Inc.

Kelso Technologies Inc. (TSX: KLS), is a railway equipment supplier that produces and sells tank car service equipment used for the safe loading, unloading and containment of hazardous materials during transport. 

Key Highlights

• Bright future business prospects: The Company’s future business prospects over the next three years are encouraging despite the current uncertainties. It holds unique products to service the new regulatory guidelines affecting a fleet of more than 30,000 ethanol tank cars that must be regulatory compliant in early 2023. In addition, the Company has new products that can service a fleet of approximately 85,000 pressure tank cars.

• Development plans for “KXI”:The Company’s KXI Suspension System is going through a detailed engineering design analysis to move from innovative concept to a viable commercial vehicle for a variety of markets. The Company has secured the services of several OEM suspension experts that will support the Company’s R&D schedules to produce prototypes in late 2021 with the goal of pilot production and sales in 2022. Moreover, this Heavy-Duty platform represents a much larger and more accessible commercial market opportunity to pursue.

• Healthy working capital: The Company’s working capital remained at a healthy level of USD 10.18 million on March 31, 2021 compared to USD 6.25 million as on December 31, 2020. Moreover, there is no long-term interest-bearing debt, and the Company can currently operate without the need for new equity capital or credit facilities. This implies negligible balance sheet risk.

Financial overview of Q1 2021 (Expressed in US Dollars) 

Source: Company

• In Q1 2021, the company reported revenue of USD 1.2 million, compared to USD 5.60 million in the previous corresponding period. The decline in revenue was impacted by the unfavorable circumstances surrounding the COVID-19 pandemic.
• Gross profit stood at USD 0.45 million (36.9% of revenues) in Q1 2021 compared to USD 2.6 million (46.1% of revenues) in the previous corresponding period.
• On the back of lower revenues, coupled with higher office & administration cost, consulting and filling fees and accounting & legal expenses dragged the company to post a net loss of USD 0.8 million against a profit of USD 1.2 million in the previous corresponding period.

Risks associated with investment

The company is prone to many risks associated with its business's nature, which could hamper its performance. Some of these risks include fall in demand from automobile manufacturers, disruptions from the supply chain, technological change, increased prices of raw materials and commodities, etc.

Stock recommendation

The return to pre-pandemic business volumes is happening slowly. The negative trends from diminished rail tank car activity in 2020 continued to be problematic throughout the first quarter of 2021. This accounts for the Company’s weak financial performance for the three months ended March 31, 2021. However, the future looks bright as the tank car market is entering a period of modest fleet growth coupled with growth in rail tank car utilization. New tank car demand is expected to grow to 14,800 tank cars in 2022 and 19,100 tank cars in 2023. The anticipated upswing in new build and retrofit activity expected to provide new longer-term financial growth opportunities from rail operations. On the valuation front, the stock is available at forward EV/Sales multiple at 0.84x against the peers mean of 1.90x. Based on technical analysis, the stock has support at CAD 0.67 level. Hence, considering the aforesaid rationale, we recommend a “Speculative Buy” rating in the stock at the closing price of CAD 0.82 on May 18, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock if the price closes below the support level.

One-Year Price Chart (as on May 18, 2021). Source: Refinitiv (Thomson Reuters)

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.