Goldstone Resources Limited

Goldstone Resources Limited (LSE: GRL) is an FTSE AIM All-Share index listed company focused on gold exploration and development through the commencement of the production in the Homase Mine in the Ashanti Region of Ghana.

Growth Prospects

• Drilling of Diamond: GRL had made an accelerated progress regarding a drilling and trenching programme at and around the former Akrokeri Underground Mine. The diamond drilling got commenced during March 2022.
• Successful Fundraising: The Company had recently raised £1 million to be utilised in the exploration and a drilling programme at the former underground mine at Akrokeri. GRL will also use these funds towards the expansion of the mining lease area for the Homase Mine.

Key Risks

• Failure to Discover Substantial Reserves: The failure in discovering substantial reserves could adversely affect the GRL’s future performance as exploration and development are capital-intensive activities.
• Ukraine Tension: The mounting concern over the Russian invasion in Ukraine can continue to weigh on the equity market.
• Financial Risk: GRL is exposed to the financial risks associated with fluctuation in the foreign exchange & interest rates, availability of adequate working capital, and credit defaults.
• Record UK Inflation: British inflation hit a 30-year high of around 6.2% during February 2022, which may cause a further interest rate hike.

Gold Industry Dynamics

• Growth Catalysts: Gold price got support from three key factors such as the Russia-Ukraine war, strong industrial demand, and rising inflation worldwide. Since the Russian president is seeking payment for natural gas sales in roubles from unfriendly countries. Thus, it would lead to a further supply crunch and support the gold price.
• Gold ETF: Gold ETF witnessed a net inflow of 35.3 tonnes (equivalent to USD 2.1 billion representing around 1% of AuM) in February 2022 amid high inflation and geopolitical risk.
• Several Risks: The rising US treasury yield and strengthening of US Dollar may adversely impact the gold price.

 (Source: REFINITIV; Analysis done by Kalkine Group)

On a daily chart, COMEX Gold Futures' price (USD 1,953.80) is sustaining above the 50-days simple moving average of USD 1,885.80 and 100-days simple moving average of USD 1,845.80, indicating an upside direction for the commodity. Meanwhile, the 14-days RSI stood at ~55.31.

Key Fundamental and Shareholders Statistics of Goldstone Resources Limited.

Asian Investment Management Services Ltd is the most significant shareholder as it holds nearly 122.00 million shares as of 31 December 2021.    

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

(Source: Company result) 

• Increase in Net Assets: GRL’s net assets had increased to USD 15.5 million as of 30 June 2021, while it was USD 10.8 million as of 31 December 2020.
• Fund Raising Activity: The Company had raised USD 409,000 from the exercise of 10,000,000 Warrants at 3 pence per Ordinary Share.
• Widening of Net Loss: The net loss came out to be negative USD 0.46 million for H1 FY21.
  

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 28 March 2022 at 11:31 AM GMT+1, GRL’s shares were trading at GBX 8.81, down by around 4.76% from the previous day closing price. Stock 52-week High and Low were 15.50 and GBX 7.50, respectively.

From a technical perspective, the stock price is hovering above the 20-days exponential moving average of GBX 8.56, indicating an upside potential in the stock price. Moreover, the MACD line remained above the signal line. Hence, there could be an uptick in the stock price.

Valuation Methodology: Price/Book Approach (FY20)

Business Outlook

The Company had posted its maiden production at Homase mine at the start of FY22 and managed to provide impressive full-year guidance. Moreover, the Company aims to drive the production growth over the coming years and commence drilling at the Akrokeri mine during the second half of 2022. Furthermore, GRL had anticipated achieving a cash cost of around USD 840 per ounce for the remainder of 2022, with an all-in sustaining cost of USD 970 per ounce. In a nutshell, the Company aims to generate resilient financial performance by enhancing production efficiencies and supervision to minimise dilution & improve gold recovery.

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Considering the maiden production at the Homase mine, accelerated operational progress, solid guidance, strong balance sheet, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Goldstone Resources Limited at the current market price of GBX 8.81 (as on 28 March 2022 at 11:31 AM GMT+1), with lower-double digit upside potential based on 3.29x Price/Book value per share (approx.) on FY20 book value per share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

Note 3: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 4: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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