Goldstone Resources Limited (LON: GRL)

Goldstone Resources Limited is an FTSE AIM All-Share 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

• Accelerated Progress for Homase Mine: GRL had commenced the final phase of hot commissioning of its newly constructed 1-tonne elution plant, together with the electrowinning plant and smelting plant at the Homase Mine.
• Extension of Debt Facility: The Company had extended a maturity date on the USD 3 million secured gold loan announced on 22 June 2020 to 31 August 2022 and agreed upon a repayment schedule.
• 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.
• Decent Leverage Position: The debt-to-equity ratio of GRL remained significantly lower than the industry median since H1 FY19, implying that GRL had more ability to raise funds when compared with the industry.

Key Risks

• Zero Revenue: The Company had not reported any revenue yet as the projects remained in the exploration phase.
• 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.
• 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.
• UK GDP: The UK economy witnessed a slowdown as the GDP grew quarter-on-quarter by around 1.30% during Q3 2021, which remained merely lower-than-expected growth of around 1.50%.

Gold Industry Dynamics

• Recent Surge in Gold Price: The US inflation reaching a 30-year high during October 2021 caused a surge in the gold price. Furthermore, the gold price gained as much as USD 110 since 03 November 2021, supported by fears of inflation and conservative comments from key central banks regarding the interest rate hike.
• Adverse Impact of Tapering: Meanwhile, the recent Federal Reserve meeting had indicated that tapering would begin by the end of November 2021. It could have an adverse impact on the global gold price.
• Loss of Investors’ Appetite: Global gold ETFs had shown a net outflow of around 25.5 tonnes during October 2021, equivalent to USD 1.40 billion, widened up from the prior month levels. Moreover, the global Gold ETF holdings had dropped to 3,567 tonnes and reached year-to-date low levels. Furthermore, it reflects the loss of investors’ appetite in the gold ETF space.

(Source: REFINITIV; Analysis done by Kalkine Group)

On a daily chart, COMEX Gold Futures' price (USD 1,867.90) is sustaining above the 20-days Exponential moving average of USD 1,811.00, indicating an upside direction for the commodity. At the same time, the MACD line remained above the signal line, suggesting an upside potential in the commodity price.

Now, we will analyze the Key Fundamental Statistics & Shareholding Pattern of Goldstone Resources Limited.

Asian Investment Management Services Ltd 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 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; Analysis done by Kalkine Group)

On 15 November 2021, at 11:08 AM GMT, GRL’s shares were trading at GBX 13.10, down by around 2.06% from the previous day closing price. Stock 52-week High and Low were GBX 15.50 and GBX 7.00, respectively.

From a technical perspective, the stock is hovering above its 20-days exponential moving average of GBX 12.80, indicating an upside potential in the stock price. Meanwhile, the MACD line remained above the signal line, supporting the upside movement in the stock price.

Over the last one year, GRL’s stock price had delivered a positive return of around 68.94%, while the FTSE AIM All-Share index (benchmark index) had produced a return of about 24.39% and the FTSE All-Share Industrial Metals & Mining index (benchmark sector) generated a return of approximately 68.34%. 

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

Business Outlook

The Company had experienced a prolonged wait for approval from the Minerals Commission of Ghana to start irrigation at the Homase Mine, which was awarded, post period end, on 12 July 2021. GRL had mined 133,000 tonnes of ore and 385,700 tonnes of waste from the first four benches of the Krodua Pit within the Homase Mine as of 17 September 2021. Furthermore, GRL will update the detailed production schedule from the successful commissioning of the New Plant very soon. Considering the penny nature of the stock, GRL may undergo sizeable corrections because of the rising interest rates prospect, global inflation, and Evergrande fiasco. Thus, it would depend on the risk appetite of the investors’ to take a reasonable position on this Company having decent operational growth catalysts.

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 Goldstone Resources Limited at the current price of GBX 13.10 (as on 15 November 2021 at 11:08 AM GMT), with lower-double digit upside potential based on 3.34x 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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