OceanaGold Corp

OceanaGold Corp (TSX: OGC) is engaged in the exploration, development, and operation of gold and other minerals, with a presence in the Philippines, New Zealand, and, to a lesser extent, the United States.

Key highlights

• Vigorous production outlook: The company's asset bases are functioning well, and numerous recent good events are supporting this. Consequently, the company intends to boost output and profitability while decreasing expenses in the future, which is a huge plus. In addition, the company expects that restarting "DIDIPIO" mine would contribute around 120 koz gold and around 12 kt copper each year.

Source: Company

• Improving operating matrix on sequential basis: Despite the present turmoiled period, the Company maintained its pace and witnessed spirited performance across its gross margin, operating margin and net margin. We believe the momentum to continue in the foreseeable future. Higher average realized prices of the commodity also played a crucial role in achieving healthy revenues and margin.

• Industry beating margin profile:The group reported strong operational efficiency during Q2 2021, on the back of healthy production and increased average realization price of gold, which helped the company leaping the industry median numbers on many fronts, which is a key positive. The chart below gives a glimpse of this.

• Healthy guidance on FY2021: Based on year-to-date performance, the company have refined its expectations for the full year. Currently, it expects consolidated production of 350,000 to 370,000 gold ounces excluding Didipio mine’s output at AISC of USD1,200 -1,250 per gold ounce sold at cash costs of USD825 - 875 per ounce sold. Strong first half performance at Haile has put the group firmly on track to deliver ahead of 160,000 gold ounces for the full year at moderately higher AISC.
  

Financial overview of Q2 2021

Source: Company

• In Q2 2021, the revenue reported by the company increased 91% to USD 182.6 million compared to USD 95.8 million, primarily due to improved performance from Haile and higher average gold prices received.
• Operating profit stood at USD 53.1 million in Q2 2021, against a loss of USD 26.9 million in pcp, primarily due to higher revenue and controlled expenses.
• The company reported a Profit before income tax of USD 47.2 million in Q2 2021 compared to a loss of USD 27.3 million in the previous corresponding period.
• Primarily due to higher revenue and controlled operating expenses along with higher average realization price of metal helped the company to clock a net income of USD 31.4 million, against a loss of USD 31.4 million in pcp.
• In Q1 2021, gold production stood at 93.8 kilo ounces at All-In Sustaining Costs (“AISC”) of USD 1,892 per ounce on sales of 95.9 kilo ounces of gold.
  

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

Q2 2021, was a transformational period for the company as it came out with robust performance, strong cash position, revised healthy outlook for FY2021; all these factors give a glimpse of solid foundations led by the company to achieve higher growth in future. Furthermore, the company is excited about the next few years, and the opportunity to drive value from internal growth with the lower operating cost is a key positive. Additionally, the relentless focus on delivering restarting Didipio mine and advancing organic growth is expected to create value over the long term. Furthermore, the company is continuously showing spirited performance across margin matrix on sequential basis, which is a key positive. Therefore, based on the above rationale and valuation, we recommend a “Speculative Buy” rating on the stock at the closing price of CAD 2.22 on August 09, 2021. We have considered Dundee Precious Metals Inc, and Pretium Resources 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 Price Chart (as on August 09, 2021). Source: REFINITIV, Analysis by Kalkine Group

Canacol Energy Ltd

Canacol Energy Ltd (TSX: CNE) is a natural gas and oil exploration and production company. Primarily it operates in the Lower & Middle Magdalena Basins of Colombia.

Key highlights 

• Lucrative Dividend yield: Recently, the Corporation declared a dividend of CAD 0.052 per share, which was paid on July 15, 2021, to shareholders. Moreover, at the last closing price, the stock was carrying an impressive dividend yield of ~6.7%, which is lucrative amid low interest rate environment.

• Increase in demand for spot market volumes: Subsequent to June 30, 2021, demand for spot market volumes increased, as evidenced by realized contractual natural gas sales volumes of approximately 190 MMscfpd in July 2021, owing primarily to improved conditions in recent political unrest in Colombia, as well as the weakened La Nia climate phenomenon, thanks to these factors which results in higher natural gas demand.

• Drilling more wells: The Corporation plans to drill up to twelve exploration, appraisal, and development wells in a continuous program for the balance of 2021, with the goal of achieving a 2P reserves replacement ratio of more than 200%. As of now, it has drilled six exploration and development wells, with Aguas Vivas producing a substantial gas finding that is now being evaluated.

• Improving Dynamics despite challenging macros: While the industry's proved reserves are on the decline, the firm has reported positive exploration and drilling operations in recent years, with a 40% CAGR rise in gas sales over the last seven years. As a result, the firm has risen to become one of Colombia's most powerful players. The total gas supply in the sector has been slow in recent years and is likely to continue to do so in the coming years. However, due to a high reserve base, CNE supply is likely to stay elevated in the coming days.

Financial overview of Q2 2021 (In thousands of USD)

Source: Company

• In Q2 2021, the company reported total revenue at USD 69.28 million against USD 60.51 million in the previous corresponding period. The revenue increased primarily due to higher sales volume of natural gas and liquefied natural gas.
• Total operating expenses in the reported period increased to USD 53.21 million against USD 39.46 million in pcp. Higher transportation expenses along with exploration expense and natural gas trading purchase cost resulted in higher total operating expenses.
• Income before tax in Q2 2021, came down at USD 7.19 million against USD 13.96 million in pcp, primarily due to higher operating expenses and increased finance expenses.
• Due to above stated reasons the net income in Q2 2021, stood at USD 2.42 million compared to USD 17.7 million in pcp, which was partially supported by tax recovery.
  

Risks associated with investment

The company’s operations are correlated with the prices of oil & gas. Hence, a voltility in the commodity prices would affect the company’s overall realization and cash flow. 

Valuation Methodology (Illustrative): EV to Sales

Stock recommendation

The company is well positioned to produce consistent cash flows. Furthermore, the firm does not have any large debt obligations until FY24, reducing the company's immediate repayment load. Morover, the company is the leading supplier to the Caribbean Coast and has a competitive cost structure, which helps its profitability and margins. Furthermore, the company is in process of drilling more wells which would open fresh avenue for cash flows. Also, the company is delivering a healthy dividend yield, which is another positive aspect for long term value investors. Therefore, based on the above rationale and valuation, we have given a “Speculative Buy” rating at the closing price of CAD 3.11 on August 09, 2021. We have considered Nuvista Energy Ltd, Cardinal Energy Ltd, Tamarack Valley Energy Ltd, 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 Price Chart (as on August 09, 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.