Altus Strategies PLC (LON: ALS)

Altus Strategies PLC is an FTSE AIM All-Share listed United Kingdom-based mining royalty company. The Company earned the revenues by generating royalties on its own discoveries, as well as through financings and acquisitions with third parties. The Company has several ongoing projects such as Zafer, Takzim & Takzim Est project, Diba (Korali Sud licence), Ammas project and Zager project, which deals with various commodities, including gold, copper, iron ore, bauxite, zinc, and silver.

Growth Prospects

• Diba Gold Project: ALS has resumed the Diba gold project in western Mali post the end of the rainy season. Furthermore, the gold resources had exceeded One Million Ounces at Tabakorole in Southern Mali.
• Discovery in Egypt: ALS had 37 hard rock artisanal gold workings across two Projects in Egypt. Moreover, the Company’s subsidiary had obtained gold exploration licences totalling 1,565 km.
• Royalty from Caserones Mine: The Company will receive significant quarterly royalty income and will have long-term exposure to copper. ALS will receive 0.418% NSR royalty attributable to Q2 FY21 at Caserones copper mine in Chile.
• Increasing Footprints in Morocco: ALS had obtained exploration licences adjacent to existing projects, totalling 221 km for three new projects in Morocco. The Company would target high-grade copper and silver from these three projects.
• Decent Results from Tabakorole Project: ALS had produced decent results from diamond drilling at 11 holes.

Key Risks 

• Decline In Royalty Income: The Company had seen a massive decline in royalty revenue during H1 FY21.
• Failure to Discover Substantial Reserves: The failure in discovering substantial reserves could adversely affect the ALS’s future performance as exploration and development are capital-intensive activities.
• Financial Risk: ALS is exposed to the financial risks associated with fluctuation in the foreign exchange & interest rates, availability of adequate working capital, and credit defaults.
• Increase in US Dollar & Rising Treasury Yields: The strengthening of the US dollar and rise in the treasury yields may create pressure on the gold price.

Gold Industry Dynamics

• The economic slowdown in China during Q3 FY21 and fears of stagflation around the world may benefit gold price in the near term.
• The Central Banks held around 35,527 tonnes of gold as of July 2021, approximately 17.6% of the above-ground gold stock.
• The geopolitical uncertainty and prolonged lower interest rates had made gold strategically important for the central banks.
• However, the Federal Reserve meeting minutes had indicated that tapering would begin by mid-November 2021. It may be confirmed in the next Federal Meeting scheduled for 02 November 2021.
• Nonetheless, the rise in US inflation caused a surge in Gold Price and touched USD 1,800 levels recently as gold can be used as a hedging instrument against inflation.
• Global gold ETFs had shown a net outflow of around 15.2 tonnes during September 2021, equivalent to USD 830 million, narrowed down from the prior month levels.

Now, we will analyze the Key Fundamental Statistics & Shareholding Pattern of Altus Strategies PLC.  

LA Mancha Holding S.A.R.L.  is the most significant shareholder as it holds nearly 28.20 million shares as of 30 September 2021.   

H1 FY21 Financial & Operational Highlights (for six months ended 30 June 2021 as of 20 August 2021)

(Source: Company result)

• Robust Cash Balance: ALS had a sufficient cash balance of £10.8 million as of 30 June 2021. Meanwhile, the cash outflow for operating activities remained £1.2 million for H1 FY21.
• Change in Senior Management Team: The Company had appointed Amilha Young as Company Secretary and Legal Counsel in the UK. Moreover, Boubacar Thera got appointed as Corporate Manager (Mali) and David Hall as Strategic Advisor (Egypt).
• Widening of net loss: The net loss came out to be negative £2.34 million for H1 FY21.
  

Share Price Performance Analysis

  (Source: REFINITIV; Analysis done by Kalkine Group)

On 18 October 2021, at 09:56 AM GMT+1, ALS’s shares were trading at GBX 65.50, down by around 1.50% from the previous day closing price. Stock 52-week High and Low were GBX 94.99 and GBX 50.00, respectively.

From a technical perspective, the stock is hovering between the lower Bollinger band and middle Bollinger band, indicating an upside potential in the stock price. Meanwhile, the 14-days RSI stood at ~35.29, approaching oversold territory.

Valuation Methodology: Price/Book Approach (NTM) (Illustrative)

Business Outlook

ALS is currently assessing several potential royalty acquisitions globally, alongside the on-going royalty generation programmes in Africa. Moreover, ALS had managed to discover high grade copper and silver from reconnaissance exploration at recently granted Azrar, Izougza and Tata projects in Morocco. Furthermore, the Company had collaborated with NYSE American, and TSX-V listed EMX Royalty Corp to earn royalty worth 0.836% NSR interest in Caserones. In a nutshell, the Company aimed to generate a long-term return for the shareholders, driven by the impressive exploration activities and the royalty acquisitions pipeline.

Considering the solid operational progress, decent cash balance, impressive exploration pipeline, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Altus Strategies PLC at the current price of GBX 65.50 (as on 18 October 2021 at 09:56 AM GMT+1), with lower-double digit upside potential based on 2.47x Price/Book Value per share (approx.) on FY21E book value per share (approx.).

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

*All forecasted figures and Peer information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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