29 Metals Limited

Company Overview: 29 Metals Limited (ASX: 29M) is engaged in the exploration and mining of copper and precious metals such as gold and silver. 29M operates two long-life producing assets - Capricorn copper (Cu) and Golden Grove mines located in Tier-1 jurisdictions and has the Redhill exploration project in Chile.

29M Details

Q1FY22 (ended 31 March 2022) Results in Spotlight:

• 29M reported ~$232.0 million gross revenue in Q1FY22 vs ~$119.8 million in Q1FY21, backed by an increase in copper, gold, and silver production on a pcp basis and consistent gold production achieved.
• Both project operations reduced site costs on a quarter-on-quarter (Q-o-Q) basis. Due to lower copper production and sales on Q-o-Q basis from both projects, unit costs increased.

Production and Key Stats, Source: Analysis by Kalkine Group

Supportive Metal Pricing: Copper prices have been rising since Q1FY21. The average copper price rose from ~US3.88/ lb in Q1FY21 to ~US$4.55/ lb in Q1FY22.

Exploration Opportunities across Portfolio:

• As per an updated Mineral Resources and Ore Reserves estimates released up to 31 December 2021, a more than 100% rise is estimated in contained metal at Cervantes at the Golden Grove project after the drilling program undertaken in 2021. The company has initiated development studies on the Cervantes deposit to explore in-mine and near-mine organic growth avenues at the project.
• 29M continues to invest in organic growth with the start of the field program at the Redhill project in Chile in FY22. It has a robust resource development pipeline at both operations and plans to progress on the near-term growth opportunities.

FY21 (Ended 31 December 2021) Highlights: Post successful listing and IPO in 2021, 29M recorded growth in key metrics in FY21. It surpassed the Prospectus Pro-forma production forecast of ~37K tonnes of copper vs ~40.7 kt of actual production. The robust demand outlook for copper and other metals that are pivotal for the global energy transition continues to witness a price increase. 

Comparative Key Metrics, Highlights; (Analysis by Kalkine Group)

Key Metrics: 29M posted a higher net margin of 20.1% in FY21 versus the industry median of 14.0% and commands a higher EBITDA Margin of 36.2% in FY21 Vs. industry median of 29.5%.

Trend of Net Margin, Highlights; (Analysis by Kalkine Group)

Top 10 Shareholders:

The top 10 shareholders together form ~76.64% of the total shareholding. EMR Capital Pty. Ltd. and AustralianSuper hold a maximum stake in the company at ~44.92% and ~9.08%, respectively. 

Source: Analysis by Kalkine Group 

Key Risks:

Outlook:  

• 29M expects to produce ~39 – 46 kt copper, ~55 – 65 kt zinc, ~27 – 34 koz gold, and ~1,370 – 1,640 koz silver in FY22. Capex requirements are estimated between ~$97–$129 million for FY22.
• The company plans to conduct the first field campaign at the Redhill project and start studies to examine the prospect of including the Cervantes and Gossan Valley resources in the mine plan at the Golden Grove project.

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of 29M gave a negative return of ~10.87% in the past three months and a negative return of ~3.78% in the past six months. The stock is currently trading lower than the 52-weeks average price level band of $1.900 - $3.350. The stock has been valued using the EV/Sales-multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers, considering the COVID-19 disruptions, a relatively higher debt-to-equity ratio, and climate risks. For this purpose of valuation, a few peers like Sandfire Resources Ltd (ASX: SFR), Northern Star Resources Ltd (ASX: NST), and Rio Tinto Ltd (ASX: RIO) have been considered. Considering a positive robust pricing & demand outlook for copper, zinc, and other metals, significant resource development pipeline across the portfolio, delivery of de-risking operations at the projects in Q3FY22, an indicative upside in valuation, associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $2.540, down by ~4.511% as of 1 June 2022.

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.

29M Daily Technical Chart, Data Source: REFINITIV

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

Note 2: Investment decision should be made depending on the investors’ appetite on 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 subject to the factors discussed above.

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 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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