De Grey Mining Limited

Company Overview: De Grey Mining Limited (ASX: DEG) is a gold exploration company, mainly involved in the development of its 100% owned Mallina Gold Project in the Pilbara region of Western Australia. At Mallina Gold Project, the company has made a large scale, high value, near-surface gold discovery at an area called Hemi. Hemi currently comprises six main zones – Aquila, Brolga, Crow, Diucon, Eagle and Falcon. The company was listed on ASX in 2002.

DEG Details

Committed To Increase the Resource Base with Ongoing Drilling Programs:

The main objective of De Grey Mining Limited (ASX: DEG) is to become a Tier 1 gold producer at Hemi. Since the discovery of Hemi, the company has conducted several exploration and drilling activities in the area and have made new discoveries that have further improved the prospectively of the Mallina Gold Project.

• Extending The Hemi Resource: The company is currently operating multiple rigs at Hemi to extend and upgrade the resources in the area. Notably, the recent diamond drilling at Diucon, one of the main zones of Hemi, has intersected broad zones of mineralisation. Further, the company received significant drilling results from the Eagle deposit, which have demonstrated clear potential to increase the 6.8Moz Hemi mineral resource estimate (MRE).
• Well-funded with Decent Cash Reserves: With a cash balance of $71 million as at 30 June 2021, significantly up from the cash balance of $28.2 million as at 30 June 2020, DEG seems well funded for the next phase of growth.

June Quarter 2021 Highlights:

• Positive Results from Metallurgical Testwork: From the metallurgical testwork at the Aquila zone, one of the main zones of Hemi, metallurgical recovery of 94.0% was achieved on a bulk composite of primary mineralisation.
• Announced Maiden Mineral Resource Estimate for Hemi: During the quarter, the company announced Maiden Mineral Resource Estimate for Hemi of 6.8Moz, increasing the Global Mallina Gold Project (MGP) Mineral Resource to 9.0Moz.
• Regional Exploration Activities Outside Greater Hemi Corridor: During the quarter, the company continued regional exploration activities outside of the greater Hemi corridor to identify new, large scale, high value, intrusion- hosted deposits like Hemi and new structural shear zone targets.

Cash Balance Trend (Source: Analysis by Kalkine Group)

Key Metrics: The Current ratio for H1FY21 stood at 24.96x, up from 4.31x in H1FY20, demonstrating that the company has improved its ability to pay short-term obligations. For H1FY21, the company had nil debt to equity ratio. The company’s accounts receivable turnover stood at 0.3x in H1FY21, up from 0.1x in H1FY20.

Liquidity Profile (Source: Analysis by Kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form around 45.39% of the total shareholding, while the top four constitutes the maximum holding. DGO Gold Ltd. and Jupiter Asset Management Ltd. are holding a maximum stake in the company at 15.75% and 6.03%, respectively, as also highlighted in the chart below: 

(Source: Analysis by Kalkine Group)

Latest Developments:

• Significant Drill Results Received from Eagle Deposit: On 9 August 2021, DEG revealed drilling results at Eagle, which successfully extended the footprint of Eagle to the west and north. The results demonstrate the potential for DEG to rapidly and cost effectively grow the footprint and depth extent of the mineral resource at Hemi. Notably, Eagle intersected mineralisation 240m to the west and 320m to the north of the Maiden Hemi mineral resource estimate (MRE).
• Compelling New Results from Diucon: On 22 July 2021, DEG released the latest exploration results from the Diucon deposit, which demonstrated similar alteration and sulphide development as seen at the adjacent deposits of Aquila, Brolga, Crow, Falcon and Eagle. Notably, the drilling has intersected internal zones of higher-grade material.

Key Risks:

• COVID-19 Uncertainties: The restrictions and temporary lockdowns caused by the COVID-19 pandemic could disrupt the company’s operations and impact its cost of doing business.
• Exploration Related Risks: Since the company is currently in the exploration stage, its future performance is highly dependent on the results of its ongoing drilling exploration programs.

Outlook:

Looking ahead, the company is focused on growing its resources at a discovery cost below the industry average of A$20/oz, expanding the Hemi discovery and progressing its development studies.  In line with its objective of becoming a tier 1 gold producer at Hemi, DEG is continuing its RC and diamond drilling programmes at Hemi to extend deposits and upgrade Inferred Resources to Indicated level. The company intends to continue the resource definition drilling at Eagle and Diucon to increase the confidence level of the resource estimate and to follow up higher-grade mineralisation. The company is also progressing its mining studies, and its ongoing scoping study is expected to be completed in the September 2021 quarter.

Stock Recommendation: The stock has corrected by ~16.9% in the last three months and is trading lower than the average 52-week price level band of $0.685 -$1.67. Considering the company’s ongoing focus on growing its resource base, positive exploration, and drilling results from different zones of Hemi, robust balance sheet, technical levels mentioned in the below para, and associated key risks, we give a “Speculative Buy” rating on the stock at the current market price of $1.18, down by ~1.256% as on 10 August 2021.

Technical Commentary:

Technical Commentary: On the weekly chart, DEG stock prices are trading above the upward trend-line support level of AUD 1.10 and continuously taking support of it. After taking the support of its rising trend-line, the price has witnessed a sharp upside move. The momentum oscillator RSI (14-Period) is trading at ~47.32 levels, indicating positive momentum. A crucial support level for the stock, is placed at AUD 0.98, while the key resistance level is placed at AUD 1.405.

DEG Daily Technical Chart, Data Source: REFINITIV

Note: The purple color line in the chart shows RSI (14-period) and the yellow color line represents trend line.

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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