De Grey Mining Limited

Company Overview: De Grey Mining Limited (ASX: DEG) is engaged in the exploration and development of gold at the Mallina Gold Project. The company currently owns a considerable tenement package comprising over 1,500km². The tenement package is highly prospective for gold, and other precious metals and comprises significant base metals resources (Zn-Ag-Pb) and lithium prospects.

DEG Details

Key Milestones Achieved at Hemi to Aid Future Business Growth: The company possesses tier 1 gold discovery “Hemi”, which has world-class mining infrastructure. Hemi is in the central region of the 1,500km² Mallina Gold Project. The company achieved key milestones in the past, which include completion of scoping study and capital raising of $125 million in October 2021, submission of mining lease application in November 2021, and completion of mineral resource estimate in 1HFY22. 

Update on Feasibility Studies: The company is focused on finishing Pre-Feasibility Studies in 2HFY22. In addition, the company is also seeking to commence DFS and funding options in 2HFY22-2023 and the approval & permitting process in 2022-23. During 1HFY22, the company released the Mallina Scoping Study, which stated about the average gold production of ~473,000oz per annum for the first five years to ~ 427,000oz per annum over the 10-year evaluation period. This positions the project in the top five Australian gold mines and a top three global gold development projects based on the average annual output as claimed by the company.

Insights of 1HFY22: During the half-year, the company released Brolga Stage 1 pit, which comprises 1.29Moz @ 1.3g/t Au of the overall JORC Mineral Resource (23 June 2021) of 9.0Moz @ 1.2 g/t Au. The Mallina Gold Project has attractive financials, including Pre-Tax NPV of $2.8 billion, Pre-Tax IRR of ~60%, and unleveraged payback of approx. 1.5 years.

Financial Summary (Source: Analysis by Kalkine Group)

Key Business Updates: The following table gives an overview of the key business events & developments.

Business Updates (Source: Analysis by Kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form around ~42.13% of the total shareholding, while the top 4 constitute the maximum holding. DGO Gold Ltd and Jupiter Asset Management Ltd. are holding a maximum stake in the company at ~14.45% and ~7.03%, respectively, as also highlighted in the chart below:

Top 10 Shareholders (Source: Analysis by Kalkine Group)

Key Metrics: During 1HFY22, the company recorded a current ratio of 12.72x as compared to 2.13x of the industry median.

Liquidity Profile (Source: Analysis by Kalkine Group)

Key Risks:

• Volatility in Gold Price: DEG’s operational and financial performance is exposed to risk arising from the adverse movement in the prices of gold.
• Regulatory Risk: The company’s performance is exposed to a more complex regulatory environment; any failure in the compliances could lead the business to fines, penalties, etc.
• Change in Climate: Any extreme change in climate may cause the temporary suspension to its operation, which may result in disruption to business growth.

Outlook: Looking forward, the company would be focused on numerous targets across tenements Intrusion and shear-hosted, very low discovery costs and resource extensions and the next discovery at the Mallina Gold Project (MGP). The company believes that the proposed production profile of the Mallina Gold Project shows annual production of up to 513,000 ounces in two years, with an average production of 473,000 ounces over the first five years and 427,000 ounces per annum over the 10-year evaluation period. The pre-feasibility studies at MGP intends to enhance the Scoping Study production profile, aiming at 500koz Au for 12 years mainly via resource extensions at Hemi, particularly at Diucon and Eagle.

Annual Gold Projection at MGP (Source: Analysis by Kalkine Group)

Technical Commentary:

DEG prices broke the downward sloping trend line, and the prices are sustaining above the breakout level with good volume support from past one week that is further supportive for the stock prices. Prices are trading above its 21-period and 50-period SMA that is also support our bullish stance. RSI (14-period) is hovering at ~53 on a weekly chart that indicates stock is trading in a positive momentum. Immediate support levels are AUD 1.150 and 1.050 AUD while immediate resistance levels are AUD 1.460 and AUD 1.600.

Stock Recommendation: The stock of DEG has a 52-week low-high range of $0.900 - $1.670, respectively. The stock has provided a return of ~+8.33% in the past three months. Considering the milestones achieved at Hemi, decent scoping study results at MGP, recent capital raising, rising cash position, optimistic long-term outlook, current technical levels mentioned above, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of $1.270, down by ~3.423% as on 05 April 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

DEG Daily Technical Chart, Data Source: REFINITIV 

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

Note 2: Investment decisions 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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

Kalkine New Zealand Limited is authorised to provide general advice only. The information on this website does not take into account any of your investment objectives, financial situation or needs. Before you make a decision about whether to acquire a financial product, you should obtain the Product Disclosure Statement from the product issuer. You should consider the appropriateness of advice taking into account your own objectives, financial situation and needs and seek independent financial advice before making any financial decisions.