Chaarat Gold Holdings Ltd

Chaarat Gold Holdings Ltd (LON: CGH) is a FTSE AIM All-Share listed Gold Mining Company with operating assets in Armenia and other development stage assets in the Kyrgyz Republic.

Investment Rationale – SPECULATIVE BUY at GBX 21.20

• Encouraging Gold Price Trend: The Gold prices has bounced back to near US$1,800 level amid rising macroeconomic uncertainties induced by increase in Covid-19 cases in the UK, global supply chain crunch, and recent dip in the US Dollar.
• Solid Growth: Chaarat reported a 61% revenue growth in H1 FY21 vs H1 FY20 and remained EBITDA positive. Moreover, its cash balance has significantly increased to pursue upcoming market opportunities.
• Financing: On 21 October 2021, CHG secured the extension regarding maturity of the convertible loan notes 2021 until 31 October 2022, which shall provide continued support to pursue organic growth plans.
• Technical Indicator: From a technical standpoint, 14-day RSI (~42.74) is in the oversold territory, while the stock price is hovering close to the lower standard deviation of the Bolling Bands.

Risk Assessments

• Macroeconomic Uncertainty: The Gold prices shall remain subdued in the short-term due to the strengthening of the US Dollar and apprehensions regarding the early asset tapering by the Federal Reserve. Moreover, the recent upsurge in cryptocurrency could also outshine the prices of gold and other precious metals.
• Pandemic Impact: The resurgence in Covid-19 cases due to the delta variant has significantly impacted consumer sentiments.

Recent News

Appointment of Chief Executive Officer: On 24 September 2021, Chaarat appointed Mike Fraser as Chief Executive Officer with effect from 17 January 2022.

Interim Results (for the six months ended 30 June 2021, as on 09 September 2021)

 (Source: Company Website)

• Top-line Growth: During H1 FY21, revenue surged 61% year-on-year, reflecting the impact of strong commodity prices and increased production.
• Operational Performance: On the back of improved operational delivery, adjusted Group EBITDA increased US$10.4 million in H1 FY21 (H1 FY20: US$0.5 million).
• Cash Balance: As on 30 June 2021, the Company held US$24.6 million in cash and cash equivalents.

Share Price Chart

 (Data Source: Refinitiv, Analysis by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative) 

Conclusion

Kapan remained on track to deliver 57 kilo-ounce of production in FY21. Moreover, the Company has been exploring financing opportunities to pursue Tulkubash project. In a nutshell, the Company has stable operations, solid project financing, and favourable commodity prices to generate increase value for its shareholders.  The stock made a 52-week high and low of GBX 31.90 and GBX 20.20, respectively.

Based on the revenue increase, positive EBITDA, favourable commodity prices, and supported by the valuation conducted above, we have given a “SPECULATIVE BUY” recommendation on Chaarat Gold Holdings Ltd at the current market price of GBX 21.20 (as on 25 October 2021, as on 8:46 AM GMT+1) with lower double-digit upside potential based on 37.01x Price/NTM Earnings (approx.) on FY21E Earnings Per Share (approx.).

Caledonia Mining Corporation PLC

Caledonia Mining Corporation PLC (LON: CMCL) is a FTSE AIM All-Share index listed gold producer. It operates through the Blanket Mine in Zimbabwe.

Investment Rationale – HOLD at GBX 980.00

• Reiterated Production Guidance: Caledonia Mining reported excellent production in FY21 thus far, without compromising on safety. Subsequently, FY2021 production guidance has been maintained at 61,000 to 67,000 ounces. It also expects to reach its target of 80,000 ounces in FY2022.
• Attractive Dividend: The Group paid a total dividend of 14 US cents per share in Q3 FY21 (reflecting a seventh increase in the quarterly dividend since October 2019). CMCL appeared confident about sustaining a higher level of dividend with good cost control, firm gold prices, and ramped up production.
• Technical Indicator: From a technical standpoint, the current market price is sustaining above the 20-day EMA (952.00), reflecting a bullish price momentum.
• Undervalued Multiples: On a forward 12-month basis – EV/EBITDA, Price/Earnings, and Price/Cash Flow valuation multiples are undervalued against the median of the Basic Materials sector. Adjacently. Dividend Yield is higher than the industry median.

Key Risks

• Gold Price Volatility: The strengthening of the US dollar and US Treasury Yield may cause a decline in the gold price, affecting the revenue of the Company.
• Subdued Activity Level: British’s final manufacturing Purchasing Managers' Index sank for a fourth month in a row in September 2021 to 58.6 in September from August's 61.4.
• Supply Chain and Inflation Concerns: There has been facing significant supply chain inflationary pressures, high material, and freight costs. It can impact the Company’s gross margins.

Recent News 

Acquisition: On 23 September 2021, CMCL acquired mining claims over the Maligreen project, which shall create significant exploration opportunities. 

Q3 FY21 Trading Update (for the quarter ended 30 September 2021, as on 13 October 2021)

• Production: During Q3 FY21, CMCL reported a record quarterly production of 18,965 ounces (oz) of gold. Reflecting a 25% increase on Q3 FY20.
• Annual Guidance: The Group reiterated its production target of 80,000 ounces in FY22.
• Operational Achievement: The Group completed its Central Shaft and acquired Maligreen to boost production.

One Year Share Price Chart

 (Source: REFINITIV, Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative) 

Conclusion

In Q3 FY21, the Company also reported the seventh increase in quarterly dividend and 104% increase from the dividend per share of 6.875 US cents paid in October 2019. Moreover, the central shaft is now operating, which shall support the production guidance.

Despite the macroeconomic uncertainties, CMCL has delivered strong performance in FY21 so far and it has kept guidance unchanged for FY21, reflecting confidence in CMCL’s prospects. The stock made a 52-week High and Low of GBX 1,400.00 and GBX 850.00, respectively.

Based on sound profitability, sustainable dividend trend, decent growth prospects, and support from valuation as done using the above method, we have given a “HOLD” recommendation on Caledonia Mining Corporation PLC at the current market price of GBX 980.00 (as on 25 October 2021, as on 8:00 AM GMT+1).

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

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

*Dividend Yield may vary as per the stock price movement.

*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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