Glencore Plc – Well Diversified with Metallurgical Sites and Oil Production Assets

Glencore Plc (LON: GLEN) is an internationally diversified natural resource company, which is into production and marketing of commodities.

Production Update for Q1 FY2020 with no Material Impact of Covid-19 Pandemic
On 30th April 2020, Glencore released an update on the production for the first quarter of the financial year 2020. The company’s operations are not materially impacted by the disruptions faced during the period. The production of own sourced copper production stood 9 per cent lower at 27,400 tonnes versus Q1 FY2019. Driven by higher grades from Canada and restart of operations in Iscaycruz mine and Antamina joint venture in the Q3 FY2019, the production of own sourced zinc surged by 13 per cent to 33,300 tonnes in Q1 FY2020 versus Q1 FY2019. The production of own sourced nickel surged by 4 per cent to 1,100 tonnes in Q1 FY2020. The production of entitlement interest oil surged by 58 per cent to 0.7 million barrels in Q1 FY2020 versus Q1 FY2019. Glencore is working closely with health agencies and governments to make sure that health care solutions are available in remote areas as well.

Share Price Performance

Daily Chart as of May 19^th, 2020, before the market close (Source: Refinitiv,Thomson Reuters)

Glencore Plc shares were trading at GBX 153.26 at the time of writing before the market close (at 8:46 AM GMT+1) on 19^th May 2020 and up by 0.79% versus the previous day closing price. Stock's 52 weeks High is GBX 282.80 and Low is GBX 109.76.

Valuation Methodology

*Peers: Antofagasta Plc, Kaz Minerals Plc, BHP Group Plc and Hochschild Mining Plc.

*Currency exchange rate taken for 1 USD = 0.82392 GBP.

Growth Catalysts
The demand for copper is consistently growing, primarily driven by urbanisation (includes demand for power generation and transmission), economic development (includes development related to infrastructure, transport, and construction), and the newly rising demand for electric vehicles and renewable energy. 

Conclusion
The production in the first quarter of the financial year 2020 is not materially impacted by the disruptions faced. The group showed higher grades from Canada and restart of operations in Iscaycruz mine and Antamina joint venture in the Q3 FY2019, which increased by Zinc production for the period. In the fiscal year 2019, the company’s operations, as well as financial performance, declined and the production of almost all the commodities reduced due to tough economic conditions. However, the company is well-positioned, and the remaining business performance remained robust. All through continued constructive collaboration, the company stay concentrated on generating sustainable long-term value for all the shareholders. The company is focused on realising the potential of its ramp-up assets and improving its operational efficiencies.

Based on the decent prospects which are supported by valuation done using the above method, we have given a “BUY” recommendation at the closing price of GBX 152.06 (as on 18^th May 2020), with high single-digit upside potential based 29.00x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).

Hochschild Mining Plc - Leading Precious Metals Producer with a Robust Financial Position

Hochschild Mining Plc (LON: HOC) is a mining company with a focus on the premium quality of gold and silver deposits. The company has operations in the regions of Argentina, Chile, and Peru.

Recent News
On 18^th May 2020, Hochschild Mining announced the restarting of operations at Pallancata and Inmaculada mine after meeting requirements established by the Government of Peru.

Q1 FY2020 Production Update - Delivered a Solid Mining Performance
During the first quarter of 2020, the company delivered a solid start to the year, with 59,425 ounces of gold; 3.0 million ounces of silver; 94,123 gold equivalent ounces; 8.1 million silver equivalent ounces. Despite the traditionally shorter operational period, San Jose again delivered a steady start to the year. The group has withdrawn its 2020 guidance. Hochschild delivered a strong financial position, with total cash of around $178 million as at 31 March 2020 (31 December 2019: $166 million) and net debt of around $36 million as at 31 March 2020 (31 December 2019: $33 million). HOC planned to withdraw its 2019 final dividend.

Share Price Performance
 
Daily Chart as of May 19^th, 2020, before the market close (Source: Refinitiv,Thomson Reuters)

Hochschild Mining Plc shares were trading at GBX 180.40 at the time of writing before the market close (at 8:48 AM GMT+1) on 19^th May 2020 and down by 0.33% versus the previous day closing price. Stock's 52 weeks High is GBX 232.20 and Low is GBX 80.40.

Valuation Methodology


*Peers: Centamin Plc, Petra Diamonds Ltd, Pan African Resources Plc and Gem Diamonds Ltd.

*Currency exchange rate taken for 1 USD = 0.82394 GBP.

Growth Catalysts
The company is investing in expansion projects, which would enhance its production rates. By lowering costs through deploying new technologies and deploying rigorous cost minimising programs, the company seeks to maximise output from its portfolio in an efficient way.

Conclusion
Currently, the international situation is tremendously challenging for every industry. The company has many value-accretive projects in the pipeline with low risk and higher production. Although, the group’s output was of course, impacted from the middle of March 2020. Further, the exploration programmes have been imposing a restriction across the Americas. The ongoing Coronavirus outbreak could affect the company’s performance. Hochschild Mining reported a robust financial position with an increase in cash and low net debt. HOC is supposed to be firmly back on track once this provisional period of disruption is resolved. The company expects another year of ambitious exploration and has again discovered a substantial amount of resource additions at Inmaculada.

Based on the above rationale, which is supported by valuation done using the above method, we have given a "Hold" recommendation at the current price of GBX 176.20 (as on 19^th May 2020, before the market close at 8:20 AM GMT+1).

Tullow Oil Plc – Independent Oil & Gas Producer with focus on African and South American Regions

Tullow Oil Plc (LON: TLW) is a leading oil & gas exploration and production company. The Company manages production activities and developments across Africa, South America, Europe, and Kenya.

Recent News
On 23rd April 2020, Tullow Oil Plc announced the sale of Uganda based Lake Albert

Development Project to Total Uganda (Total E&P Uganda B.V.) for cash of USD 575 million along with payments of first oil contingent.

Trading Update - Operational and Financial Performance Not Impacted by Covid-19 Outbreak
On 23^rd April 2020, Tullow Oil Plc released an update on the trading performance and impact of covid-19 on business performance. The group with the sale of Uganda interests is moving towards its target to raise over USD 1 billion in proceeds and appointed new CEO, Rahul Dhir, to be joining in July 2020. The production remained in line with the expectations in Q1 FY2020 with 75,800 averagedbopd.The group successfully managed to secure RBL facility with headroom of around USD 700 million at the beginning of Q2 FY2020. The Company has taken required steps to reduce cost base and has completed a review, which resulted in a more efficient and smaller organisation.

Share Price Performance
 
Daily Chart as of May 19^th, 2020, before the market close (Source: Refinitiv,Thomson Reuters)

Tullow Oil Plc shares were trading at GBX 25.51 at the time of writing before the market close (at 8:50 AM GMT+1) on 19^th May 2020 and up by 0.75% versus the previous day closing price. Stock's 52 weeks High is GBX 251.31 and Low is GBX 7.17.

Valuation Methodology 

 
Growth Catalysts
The company has many value-accretive projects in the pipeline with low risk and higher production capabilities. The company using its cost synergies, had optimized its operational structure to achieve sustainable growth in the future.

Conclusion
The Financial year 2019 was challenging for Tullow Oil and was facing multiple internal as well as external issues such as a change in management, economic factors, etc. which are hindering its growth. In the Q1 FY2020, the group made material progress despite low oil prices and Covid-19 pandemic. The group with the sale of Uganda assets to Total is moving towards its target to raise proceeds of USD 1 billion to strengthen the balance sheet with more conservative capital structure and reduced net debt. Driven by cost-based reduction, changes to the structure and improvements put in place by Ghana-based asset team, the group has delivered strong operational performance and increased production. The group successfully managed to secure RBL (Reserves Based Lending) facility, which will strengthen liquidity position and further support its assets. The company’s fundamentals have remained intact, and it retained a high-quality exploration portfolio.

Based on the decent growth prospects and the valuation done using the above method, we have given a “Speculative Buy” recommendation at the current price of GBX 25.10 (as on 19^th May 2020, before the market close at 8:10 AM GMT+1) with lower double-digit upside potential based on 0.81x NTM Price/Cash Flow (approx.) on FY20E cash flow per share (approx.).
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.
*The “Buy” recommendation is also valid for the current price as covered in the report (as on 19^th May 2020).

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