SSR Mining Inc.

SSR Mining Inc. (TSX: SSRM) is a minerals company focused on mining precious metals in the Americas. More than half of the company’s revenue is attributable to the production of gold, with a significant portion derived from silver production.

Key Highlights:

• Positive Mining Results: Recently, the company reported positive results of its independently prepared Master Plan study of the Çöpler District. The above mining results would likely to enhance the company’s overall mineral reserves and it would support the company’s upcoming production. The group expects ~266,000 ounces of gold over the first five years, which is likely to add free cash flow of USD 224 million during the same time period.
• Robust Production with lower costs: The company has reported a solid production growth over the years along with lowering cash costs, which is a key positive. The decline in the cash costs is likely to support the company’s margins in the foreseeable future.

Source: Company Presentation

Q3FY20 Financial Highlights:

• SSRM announced its quarterly results, wherein the company posted revenue of USD 225.412 million, higher from USD 147.848 million in the previous corresponding period (pcp). The increase was driven by the higher realized price of gold at USD 1,914/oz, as compared to USD 1,480/oz in pcp. The group reported an average realized price of silver at USD 26.69/oz, as compared to USD 17.31/oz in Q3FY19.
• Income from mine operations stood higher at USD 83.226 million, as compared to USD 51.906 million in Q3FY19. The increase was driven by higher income, partially offset by higher cost of sales (USD 142.186 million versus USD 95.942 million in pcp).
• Operating income stood at USD 52.725 million, as compared to USD 39.891 million, a year ago.
• Net income stood at USD 25.113 million, as compared to USD 18.132 million in pcp.
• The company posted cash and cash equivalents USD 733.571 million, while total assets stood at USD 5,081.054 million.             

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: The company’s revenue is correlated with international gold, copper and silver prices. Price volatility in the international market would take a toll on the company’s performance.

Valuation Methodology (Illustrative): P/CF based

Note: All forecasted figures and peers have been taken from Thomson Reuters

Stock Recommendation:

Cash generated from operating activities for 9MFY20 stood at USD 131.232 million, stood higher than USD 93.927 million, a year ago, which indicates improved operational efficiency. The group maintains strong liquidity with ample cash flows, which further supports the company’s financial flexibility through financial discipline. Further, we expect the gold price to remain elevated in the near term, which would support the margin expansion. We have valued the stock using P/CF based relative valuation approach and arrived at a target price offering double-digit upside potential (in % terms). We have considered peers like Pan American Silver Corp, Kirkland Lake Gold Ltd etc. Hence considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the closing price of CAD 24.43 on December 22, 2020.

SSRM Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Pembina Pipeline

Pembina Pipeline (TSX: PPL) is an integrated midstream energy infrastructure company in western Canada and North Dakota, highlighted by its regional pipeline network. The company operates over 9,000 kilometers of conventional hydrocarbon pipelines, coupled with 1,650 kilometers of heavy oil and oil sands pipelines.

Key Updates:

• An income Play: The group has a strong track record of dividend payment backed up by its ability of strong cash flow generation, which indicates operational resiliency. At the last closing price, the stock was offering a solid dividend yield of ~8.16%, which is lucrative, considering the current interest rate environment.

Source: Refinitiv, Thomson Reuters

• Impressive Guidance: The company expects its FY21 adjusted EBITDA in the range of CAD 3.2 billion to CAD 3.4 billion, while capital investment is expected at around CAD 785 million. The capital investment is expected to be funded through the cash flow from operating activities. Moreover, the company would refocus on the Phase VII Peace Pipeline Expansion and Empress Co-generation Facility growth projects.

Source: Company Presentation

• Long-term opportunities: As far as the long-term demand scenario is concerned, global energy demand is likely to remain elevated. Both oil & natural gas and energy demand are likely to grow driven by an increase in the world’s population and rising per capita energy use, coupled with improved global living standards. The company is well-positioned to cater to the growing demand for natural gas and natural gas liquids.                 

Source: Company Presentations

Q3FY20 Financial highlights:

• PPL announced its quarterly results, wherein the company posted revenue of CAD 1,569 million compared to CAD 1,700 million in the previous corresponding period (pcp). The decline was primarily attributable to a lower income from Marketing & New Venture (CAD 825 million versus CAD 1,106 million in pcp), while an improved performance from Pipelines and Facilities segments supported the top-line.
• Gross profit stood at CAD 563 million, lower than CAD 613 million in Q3FY19, due to lower revenue, partially offset by a lower cost of sales (CAD 1,068 million versus CAD 1,221 million).
• Results from operating activities stood at CAD 511 million, lower than CAD 551 million in pcp, supported by a lower general and administrative costs ( CAD 56 million versus CAD 64 million in pcp).
• The company posted net earnings of CAD 318 million, as compared to CAD 370 million in pcp.
• Cash and cash equivalent stood at CAD 31 million, while total assets were recorded at CAD 33,995 million.

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risk: Lower demand for oil and gas and natural gas might dampen the business prospect of the company.

Valuation Methodology (Illustrative): Price to Cash Flow

Note: All forecasted figures and peers have been taken from Thomson Reuters

Stock Recommendation:

The company has strong operational metrics and maintains a target of 80% fee-based contribution to adjusted EBITDA, which ensures business stability.  Moreover, its shares are offering a lucrative dividend yield of ~8% amid lower interest rate environment, that too, with a consistent track record of dividend payment regardless of the economic cycle. We have valued the stock using P/CF-based relative valuation approach and arrived at a target price offering double-digit upside potential (in % terms). We have considered peers like TC Energy Corp, Enterprise Products Partners LP etc. Hence considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the closing price of CAD 30.89 on December 22, 2020.

1-Year Daily Price Chart (as on December 22, 2020). Source: Refinitiv, Thomson Reuters)

Disclaimer

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