3 Material Sector Stocks Under 20 Cents with Decent Long-term Growth Potential: BNR, QEM, CY5

1. Bulletin Resources Limited (Recommendation: Speculative Buy, Market Cap: ~$19.84 million)

Bulletin Resources Limited (ASX BNR) is a mineral exploration company focused on acquiring projects that have geological and economic prospectivity.

• FY21 Result Highlights: During the year ended 30 June 2021, the company earned a royalty income of $1.79 million and profit on the disposal of tenements of $4.76 million. For FY21, the company reported a net profit after income tax of $3.55 million, compared to the loss of $0.747 million in FY20.
• Multiple Exploration Opportunities at Ravensthorpe: On 10 September 2021, the company announced that it has identified multiple exploration opportunities at Ravensthorpe Lithium Project. Notably, the float outcrop mapping in creeks supports the opportunity for further pegmatites beneath shallow cover.
• Cash and Debt Scenario: As at 30 June 2021, the company had cash reserves of $971,561, compared to $1,160,916 in the previous financial year. For FY21, the company reported nil debt to equity ratio as the company has no debt in its balance sheet.
• Outlook: At the Ravensthorpe Lithium Project, the company is focused on determining the potential for additional pegmatites as well as defining higher grade mineralisation areas to develop a drill program.

Gross Margin Trend (Source: Analysis by Kalkine Group)

SWOT Analysis:

Stock Recommendation:

• Over the last six months, the stock has provided a return of ~+13.92%.
• The stock is currently trading lower than the average 52-week low and high price level band of $0.047 and $0.130, respectively.
• The company believes that it is financially well placed with an expected ongoing royalty expected from the Geko gold project and the ability to reduce expenditure.
• Key Risks: Exploration-Related Risks, Regulatory Risks, COVID-19 Uncertainties, etc.
• Considering the company’s improved financial performance in FY21, multiple exploration opportunities identified at Ravensthorpe project, current trading levels, and key risks associated with the business we give a “Speculative Buy” rating on the stock at the closing price of $0.078, up ~2.631% as on 22 October 2021.

BNR Daily Technical Chart, Data Source: REFINITIV

2. QEM Limited (Recommendation: Speculative Buy, Market Cap: ~$19.84 million)

QEM Limited (ASX: QEM)  is mainly involved in the exploration and development of its flagship Julia Creek vanadium and oil shale project. Further, the company is focused on providing innovative energy solutions to both the Australian and international markets.

• FY21 Result Highlights: For the year ended 30 June 2021, the company reported revenue of $339,327, up from the revenue of $291,734 in FY20. During the year, the company made significant steps in developing the world-class Julia Creek vanadium & oil shale project, with associated green hydrogen potential, in North Western Queensland. For FY21, the company reported loss after income tax of $1.39 million, compared to the loss of $1.089 million in FY20.
• Cash and Debt Scenario: As at 30 June 2021, the company had cash of $1.33 million, down from the cash balance of $2.64 million. Further, the company had lease liabilities of $24,172. Current ratio for FY21 stood at 5.05x, down from 10.74x in FY20. Debt to equity ratio for FY21 stood at 0.02x.

Debt to Equity ratio Trend (Source: Analysis by Kalkine Group)

• Outlook: With its existing cash reserves, the proceeds from the recent equity raise, the company seems well funded to continue the development of the oil and vanadium pilot plant and advance the next round of the Julia Creek project studies. The company is targeting to commence operational activity at the bench-scale pilot plant during 1H FY22.

SWOT Analysis:

Stock Recommendation:

• Over the last six months, the stock has corrected by ~23.40%.
• The stock is currently trading lower than the average 52-week low and high price level band of $0.070 and $0.340, respectively.
• Currently, the company is well positioned to build the positive momentum generated over the past year and deliver long-term shareholder value.
• Key Risks: Supply Chain Risks, Fluctuations in the Prices of Vanadium and Oil, Regulatory Risks, etc.
• Considering the company’s progress in developing the world-class Julia Creek vanadium & oil shale project, recent capital raising activities, modest outlook, current trading level, and key associated risks with the business, we give a “Speculative Buy” rating on the stock at the closing price of $0.180, up by ~2.857% as on 22 October 2021.

QEM Daily Technical Chart, Data Source: REFINITIV

3. Cygnus Gold Limited (Recommendation: Speculative Buy, Market Cap: ~$14.63 million)

Cygnus Gold Limited (ASX: CY5) is an exploration company engaged in the discovery of gold and base metals deposits within the Southwest Terrane, in the Wheatbelt region of Western Australia.

• H1FY21 Result Highlights: During H1FY21, the company appointed a new geological team, which completed a detailed review of the geological database review and started planning for field exploration programs. At its Bencubbin Project, the company has planned ground electromagnetic (EM) surveys to target NickelCopper-PGE sulphides over a prospective and untested Komatiite horizon. For H1FY21, the company reported net loss of $669,941, up from the loss of $107,941 in the prior year.
• Cash and Debt Scenario: As of 30 June 2021, the company had cash of $2.8 million, down from the cash of $3.1 million as at 31 March 2021. Further, the company had lease liabilities of $62.7k. Current ratio for H1FY21 stood at 12.77x, up from 3.3x in H1FY20.

Current Ratio Trend (Source: Analysis by Kalkine Group)

• Outlook: The company is currently focused on ground exploration on a number of target areas prospective for nickel, copper and gold. Looking ahead, the company is focused on implementing a strategy to find out further exploration, acquisition and joint venture opportunities.

SWOT Analysis:

Stock Recommendation:

• Over the last six months, the stock has corrected by ~9.99% and in the last nine months it has corrected by ~24.99%.
• The stock is trading lower than the average 52-week low and high price level range of $0.094 and $0.210, respectively.
• In order to enhance a significant mineral discovery, the company intends to run its renewed exploration programs in parallel with a continuous review of advanced projects that have the potential to complement its existing assets.
• Key Risks: Fluctuations in Gold Prices, Exploration Related Risks, COVID-19 Uncertainties, etc.
• Considering the company’s newly established renewed exploration strategy, its ongoing focus on the discovery of potential Ni-Cu-PGE mineralisation, current trading level, modest outlook, and key risks associated with the business, we give a “Speculative Buy” rating on the stock at the closing price of $0.135 (with no change)  as on 22 October 2021.

CY5 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.

Disclaimer

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