De Grey Mining Limited

Company Overview: De Grey Mining Limited (ASX: DEG) is engaged in the exploration and development studies at the Mallina Gold Project, which is located at Port Hedland in the Pilbara region of Western Australia. The project’s tenement package is prospective for gold and other precious metals and comprises significant base metals resources (Zn-Ag-Pb) as well as lithium prospects.

DEG Details

The report is an updated version of the report published on 31^st May 2022 at 3:43 PM GMT.

Rising Mineral Resources to Fuel Future Business Growth: The company’s growth is being supported by the Hemi deposit, which is a Tier 1 gold discovery with a new gold province of over 10 million ounces. The Hemi’s value drivers include thick ore zones from shallow depths, open pittable deposits, cost-effective delineation, rapid growth in endowment and significant future resource upside. On the back of confidence from the May 2022 Mineral Resources Estimate (MRE), the company believes that Pre-Feasibility Study (PFS), which is likely to be finished in September 2022 quarter, may improve production. This would be supported by the rise in indicated resources at Hemi, the uplift in tonnage, grade and JORC classification for Diucon and Eagle.

For the next 12 months, the company will be focused on the completion of PFS and transition to DFS at Hemi. With respect to Greater Hemi, the company would be focused on the continued aircore and RC drilling of known intrusions and structural targets.

Insights of Q3FY22: The below picture provides an overview of the company’s progress in the quarter ended March 2022:

Quarterly Updates (Source: Analysis by Kalkine Group)

Key Business Updates: The following picture provides material business updates:

Business Updates (Source: Analysis by Kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form ~42.34% 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 2.10x of the industry median.

Liquidity Profile (Source: Analysis by Kalkine Group)

Key Risks:

• Regulatory Risk: Any failure in the compliances could lead to fines, penalties, etc. Hence this may hamper the company’s reputation and growth.
• Change in Climate: The company is exposed to risks arising from the extreme change in the climate, which may cause temporary suspension of its operation.
• Gold Price Volatility: DEG’s performance could be impacted by the adverse movement in the prices of gold.

Outlook: With respect to development, the company would be focused on mining and processing studies, more pilot-scale metallurgical test work on wider Hemi ore types, heritage and environmental surveys and completion of PFS in the next 12 months. In addition, the company has scheduled to finish DFS in Q2FY23. DEG is optimistic that the proposed production profile of the Mallina Gold Project shows annual production of up to 513,000 ounces in the upcoming two years, with an average production of 473,000 ounces over the initial five years and 427,000 ounces per annum over the 10-year evaluation period.

Long-Term Growth Strategy (Source: Analysis by Kalkine Group)

Technical Commentary: DEG price are trading in a bullish trend and currently hovering in a sideways range between AUD 1.00 to AUD 1.46 level. Prices have recently rebound from its lower band of the sideways trend which also lies over its 138.2% golden Fibonacci extension supply zone. RSI (14-period) came up from its oversold region and trading at ~45.63 on a daily chart that indicates the stock is gaining upside momentum. Prices are also taking support of the 21-period SMA on a daily chart that further support our bullish stance.

Stock Recommendation: The stock of DEG is trading near its 52-week low level of $0.900, offering a decent opportunity for accumulation. The stock has been corrected by ~8.29% in the past month. Considering the rising mineral resources, high recoveries at Brolga, decent cash position, nil debt, optimistic long-term outlook, current trading levels, technical factors mentioned above, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $1.080, as on 31 May 2022, 10:40 AM (GMT+10), Sydney, Eastern Australia.

Markets are trading in a highly volatile zone currently due to certain macroeconomic 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 for 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 stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in stock prices tend to find resistance when they are rising, and an 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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