Nomad Royalty Co Ltd

Nomad Royalty Co Ltd (TSX: NSR) is a royalty mining company. The company mines for silver, gold, and other base metals. The portfolio includes Woodlawn property, Blyvoor property, Gualcamayo property, Suruca property, and other properties. 

Key highlights

• Acquires Additional Royalty on the Caserones Mine: For a monetary payment of USD 27.25 million, the firm recently purchased an effective 0.351 percent net smelter return royalty on the producing Caserones mine. The Royalty was acquired in addition to the effective 0.28 percent net smelter return royalty on the Caserones mine, which was purchased in May 2021. Following the completion of the transaction, Nomad will hold an effective 0.63% net smelter royalty on the Caserones mine, having invested a total of USD 50.25 million.
• Strong focus on cash flows: Caserones royalty is the company's eighth producing asset, and on cumulative manner it generates about 64% of its cash flows from these eight assets. The firm intends to raise this percentage since near-term production assets would contribute another 9%, while the remaining 27% is still in the development stage.

Source: Company

• Elevated commodity prices to support future earnings: Although there is some fluctuation in commodity prices at the moment, we anticipate the price would rise in the near future. As prices rise, average realization prices for miners rise, resulting in a greater margin profile, higher free cash flow generation, and balance sheet deleveraging. We believe the firm is well positioned to profit from the rising underlying commodity prices and end FY2021 in good financial shape.

Financial overview of Q2 2021 (Expressed in thousands of USD)

Source: Company

• For the three months ended June 30, 2021, revenue was USD 4.6 million compared with USD 6.0 million for the corresponding period in 2020. The decrease of USD 1.4 million is primarily due to the decrease of 27% of gold equivalent ounces sold.
• Gross profit for the reported period increased to USD 1.2 million, against USD 0.2 million in pcp.
• The company earned operating loss of USD 91K compared to USD 22.6 million in pcp, primarily due to higher gross profit and there were no listing expenses in the reported period.
• Primarily due to above discussed rationales the company clocked a net loss of USD 0.2 million, against a profit of USD 7.2 million in pcp. Last period’s net profit was also supported by income tax recovery.
  

Risk 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

During the quarter, the company's portfolio continued to show its strength, with some noteworthy advancements at its main properties. The company anticipates substantial growth in the future years as the Blyvoor gold mine ramps up production and Nevada Gold Mines goes forward with the development of the Robertson site. Going forward, the company’s focus is on maintaining this positive momentum by delivering on its stated goal of delivering value through further deployment of capital in new opportunities across the globe, coupled with the strong organic growth of its current portfolio that will allow Nomad to continue to generate strong free cash flow and support further growth. Therefore, based on the above rationale and valuation, we recommend a “Speculative Buy” rating at the closing price of CAD 8.30 as on September 22, 2021. We have considered Osisko Gold Royalties Ltd, Sandstorm Gold Ltd, Lundin Gold Inc 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 September 22, 2021). Source: REFINITIV, Analysis by Kalkine Group 

Gear Energy Ltd

Gear Energy Ltd (TSX: GXE) is engaged in the business of acquiring, developing, and holding interests in petroleum and natural gas properties and assets. Its oil-focused operations are located in three core areas: Lloydminster Heavy Oil, Central Alberta Light/Medium Oil, and Southeast Saskatchewan Light Oil. 

Key highlights 

• Strong improvement in funds from operations: In Q2 2021, the company clocked an improvement in its funds from operations, which increased 48% to CAD 12.2 million compared to the previous corresponding period. The increase was because of significantly higher commodity prices, lower operating costs, and increased production. Second quarter realized prices increased from CAD 50.46 per barrel in the first quarter of 2021 to CAD 59.90 per barrel. 
• Minimizing net debts: The company reduced its net debt by 52% to CAD 33.4 million in Q2 2021 against CAD 70.2 million in Q2 2020 and 22% on a sequential basis. The debt has been lowered as a result of funds from operations significantly exceeding capital investment. Additionally, it also retired its convertible debentures worth CAD 13.2 million in the first half of 2021 through the issuance of 41.2 million common shares.
• Successfully drilled one light oil well and one heavy oil well: The group successfully drilled one light oil well in Tableland, Saskatchewan and one multi-lateral unlined heavy oil well in Wildmere, Alberta. The Tableland light oil well was completed in July and is expected to be on production in August. Additionally, during the quarter, the company received regulatory approval for three water flood projects, which is a key positive.
  

Financial overview of Q2 2021

Source: Company

• In Q2 2021, the company reported total revenue of CAD 19.7 million against CAD 3.5 million in the previous corresponding quarter. The rise in revenue was primarily due to higher realized commodity prices and increased sales volumes.
• Total expenses in the reported period stood at CAD 20.4 million against CAD 8.8 million in pcp. The expenses were on the higher side mainly due to higher operating expenses and depreciation.
• On the back of higher revenue, the company lowered its net loss to CAD 0.7 million in Q2 2021, compared to a net loss of CAD 5.3 million for the same period in 2020.

Risks associated with investment

The company is exposed to a variety of risks ranging from Commodity price risk, Currency Transition risk, and Interest rate risk. Further, the company is exposed to the next wave of covid-19 as it can hamper production. Also, production is exposed to weather condition. 

Valuation Methodology (Illustrative): EV to Sales 

Stock recommendation

For the quarter and six months ended June 30, 2021, sales production volumes averaged 5,440 and 5,388 BOE per day compared to 2,749 and 4,746 BOE per day in the same periods in 2020. At present the commodity prices are witnessing a volatility, but we believe this is for a short period only. Going forward stable commodity prices and increased production are expected to boost the company’s fund from operations in fiscal 2021. Furthermore, by deleveraging the balance sheet along with a higher commodity price realization and strong cost management will also improve the company's financial health. Therefore, based on the above rationale and valuation, we recommend a “Speculative Buy” rating on the stock at the closing price of CAD 0.73 on September 22, 2021. We have considered Crew Energy Inc, Touchstone Exploration Inc, Leucrotta Exploration 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 Technical Price Chart (as on September 22, 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.