KeyStone’s Your Stock Our Take is Lucara Diamond Corp. (LUC:TSX), our Star is Alacer Gold Corp. (ASR:TSX), & our Dog is Maxar Technologies Inc. (MAXR:TSX).
This week in our Your Stock, Our Take segment we look at Lucara Diamond Corp. (LUC:TSX), an independent producer of large exceptional quality Type IIa diamonds from its 100% owned Karowe Mine in Botswana. The Karowe Mine has been in production since 2012 and is the focus of the company’s operations, development and exploration activities. A listener asks if it is a buy on the recent pullback? Our Star of the week is Alacer Gold Corp. (ASR:TSX), a low-cost gold producer, with an 80% interest in the world-class Çöpler Gold Mine in Turkey. The stock is up roughly 20% since mid-December. We consider what is driving the move and whether it will it continue. Finally, our Dog of the week is Maxar Technologies Inc. (MAXR:TSX), formerly MacDonald, Dettwiler and Associates, a space technology solutions provider which provides vertically integrated capabilities and expertise including satellites, Earth imagery, robotics, geospatial data and analytics. A repeat offender in this category – we ranked it a dog on two shows last year. One year ago, it traded for $80.43 and has dropped 89% in the past 12-months. Is it a Dog or an opportunity?
Ryan Irvine is flying solo to start 2019 – Aaron Dunn will be back next week. You can hear him this weekend on Corus radio networks Money Talks with Michael Campbell at 9:00am Pacific – and in the archives after.
Your Stock, Our Take
Diamond miner Lucara pays a dividend and is profitable. Is it on sale after the recent drop?
- Manny – via twitter.
Your Stock, Our Take
Lucara Diamond Corp. (LUC:TSX)
Current Price: $1.56
Market Cap: $618.55 million
What does the company do?
Lucara is an independent producer of large exceptional quality Type IIa diamonds from its 100% owned Karowe Mine in Botswana. The Karowe Mine has been in production since 2012 and is the focus of the company’s operations, development and exploration activities. In February 2018, the company acquired Clara Diamond Solutions (“Clara”). Clara, now a wholly-owned subsidiary of Lucara, is developing a secure, digital sales platform that uses proprietary analytics together with cloud and blockchain technologies to modernize the existing diamond supply chain, driving efficiencies, unlocking value and ensuring diamond provenance from mine to finger. Lucara has an experienced board and management team with extensive diamond development and operations expertise. The company operates transparently and in accordance with international best practices in the areas of sustainability, health and safety, environment and community relations.
Key Points:
As we expected, 2018 was a challenging year for Lucara in terms of sustaining the level of profitability over the couple years prior. Revenues for the 9-months of 2018 dropped 26% to $135.6 million from $183.6 million and earnings dropped from $0.17 per share to $0.05 per share in the same period of the prior year
Management believes it has stabilized and significantly improved mining operations at Karowe in 2018. The company states that Lucara is now focused on optimizing the base business and pursuing a suite of high potential, organic growth opportunities. The completion of a feasibility study examining the potential for underground production and Life of Mine expansion at Karowe from 2026 until at least 2036, remains a top priority for 2019. In addition, the company will continue to systematically ramp up diamond sales through Clara, Lucara’s potentially transformational, proprietary digital sales platform that successfully completed its first trial sale in December 2018. At the company’s primary producing asset Karowe, 2019 will be focused on driving operational efficiencies, increased productivity and cost control, and maximizing cash flow. All this sound great – our issue with the company is the lack of concrete long-term growth in cash flow. Over the past 5-years, revenues have been flat to lower and cash flow has followed the same route. There is growth potential with the potential expansion at Karowe and the blue sky potential of Clara, but both remain speculative at this stage.
Lucara will likely have a bounce back year in 2019 in terms of cash flow and earnings. It offers some speculative value and a decent “bonus” dividend. We monitor the stock for potential entry points but would like to see a path to more certain growth long-term.
Weekly Star
Alacer Gold Corp. (ASR:TSX)
Current Price: $2.72
Market Cap: $799 million
Star Performance:
The stock is up 20% since mid-December.
What does the company do?
Alacer is a leading low-cost gold producer, with an 80% interest in the world-class Çöpler Gold Mine (Çöpler) in Turkey operated by Anagold Madencilik Sanayi ve Ticaret A.S. (Anagold”), and the remaining 20% owned by Lidya Madencilik Sanayi ve Ticaret A.S. (“Lidya Mining”). The Çöpler Gold Mine is located in east-central Turkey in the Erzincan Province, approximately 1,100 kilometers southeast from Istanbul and 550 kilometers east from Ankara, Turkey’s capital city.
What is driving the stock?
In the end, it is what drives all gold related stocks – the price of the underlying commodity.
Gold has had is best 30-day period since mid-December in the past year moving 3.2% higher to just under US$1,300/ounce.
On December 10th, the company announced a maiden mineral resource at their Ardich oxide gold deposit.
January 10th News Release
Full-year 2018 production and unaudited All-in Sustaining Costs1. Guidance for 2019 will be released later this month.
Rod Antal, Alacer’s President and Chief Executive Officer, stated, “We had a productive last quarter which resulted in us producing 170,8652 ounces of gold in 2018 at unaudited All-in Sustaining Costs of $615 per oxide ounce. Last year’s gold production represented a key milestone for the Company as it included the first production from the newly constructed sulfide plant. The performance of the sulfide plant continues to meet our expectations. After the initial gold inventory build in the sulfide plant, 21,916 ounces were poured in December which was the first full month of sulfide plant operations.”
December 10th News Release
The size of the Ardich deposit is highly prospective, with this maiden Mineral Resource representing the first estimate of a potentially larger deposit. The Mineral Resource is based on only the first 55 diamond core drill holes completed and does not include drill assays received after October 1, 2018. An additional 42 diamond core drill holes have been drilled since the cut-off date for the Mineral Resource. These additional holes indicate that the current resource estimate will grow.
Financial Results – Last quarter not so positive.
Q3 2018 compared to Q3 2017
- Revenue was $35.5 million compared to $49.8 million, down 29%.
- Net income was a loss of $32.3 million compared to a gain of $37.9 million, down 185%
- On a diluted per share basis, a loss of $0.09 compared to a gain of $0.10.
- Adjusted EBITDA of $17.7 million compared to $28.8 million, down 39%.
- On a diluted per-share basis, $0.06 compared to $0.10.
2018 Highlights (100%)
- 170,865 ounces produced from the Çöpler Gold Mine
- 147,619 ounces produced from the oxide plant
- 23,246 ounces produced from the sulfide plant
- Preliminary unaudited oxide only All-in Sustaining Costs of $615 per ounce
Balance Sheet
- Cash balance of $106 million3 and debt of $350 million at year end
Fourth quarter and full-year 2018 financial statements and the related management’s discussion and analysis are planned to be released on or about February 5, 2019 (North America) with a conference call the same day. Conference call details will be announced in due course.
Conclusion:
P/E: EPS is breakeven for TTM
P/EBITDA: 7.16x
Current Ratio: 1.93
Cash Ratio: 1.04
D/E: 0.38
Weekly Dog
Maxar Technologies Inc. (MAXR:TSX)
Current Price: $8.23
Market Cap: $967.32 million
Dog Performance:
The stock has been in decline for much of the past 12 months. One year ago, it traded for $80.43, and has since fallen 89%.
What does the company do?
As a global leader of advanced space technology solutions, Maxar Technologies
(formerly MacDonald, Dettwiler and Associates) is at the nexus of the new space economy, developing and sustaining the infrastructure and delivering the information, services, systems that unlock the promise of space for commercial and
government markets. As a trusted partner, Maxar Technologies provides vertically integrated capabilities and expertise including satellites, Earth imagery, robotics,
geospatial data and analytics to help customers anticipate and address their most
complex mission-critical challenges with confidence. With more than 6,500 employees in over 30 global locations, the Maxar Technologies portfolio of commercial space brands includes MDA, SSL, DigitalGlobe and Radiant Solutions.
What is driving the stock?
On October 31st, the company released their Q3 earnings that missed investor expectations once again, continuing the trend from their Q2 release, once again reporting net losses and the second consecutive quarter of EBITDA lower than the previous quarter.
Financial Results
Q3 2018 compared to Q3 2017
- Revenue was $508.2 million compared to $337.4 million, up 51%.
- Net income was a loss of $432.5 million compared to a gain of $12.3 million.
- On a diluted per share basis, a loss of $7.31 compared to a gain of $0.34.
- Adjusted EBITDA of $146.3 million compared to $68.7 million, up 113%.
- On a diluted per-share basis, $0.75 compared to $1.00, down 25%.
Biggs Porter – CEO
“We recognized impairment losses of $345.9 million and an inventory obsolescence charge of $37.7 million related to the GEO Comsat business this quarter. This non-cash charge reflects the decline in the business and our decision to evaluate strategic alternatives for GEO Comsat.”
JANUARY 7th – Maxar reported that its WorldView-4 satellite experienced a failure in its control moment gyros, preventing the satellite from collecting imagery due to the loss of an axis of stability.
WorldView-4 was acquired by GeoEye prior to its merger with DigitalGlobe in 2013. It was launched in November 2016 and generated revenues of approximately $85 million in fiscal year 2018. The satellite had a net book value of approximately $155 million, including related assets, as of December 31, 2018. If the satellite is not recoverable, then the net book value will be written off in Q4-2018. The satellite is insured – so Maxar should be able to recover funds – but it is not a positive for the embattled company.
The company has and has had debt issues and recently had to amend a credit agreement to stay onside.
It has funded growth through huge share issuances and just too much debt. We do not like the model and have called it a dog in this segment in the $60 range and again in the $30 range and due to its cratering over the past week, month and year we repeat its status as our Dog of the Week.
