Please note in reading this post, I am not a financial advisor, nor am I an expert in the valuation of listed miners. I also feel guilty opening a new thread, but I couldn't see this topic discussed in recent times. This post is purely a summary of research I have completed and should be taken with a grain of salt (or an ounce of gold).
I believe Nova to be extremely undervalued, driven primarily by sentiment following recent ‘ASX query’ announcements and the Sunday Cap Raise, and missed deadlines in 2021. For this reason, I see large opportunity to accumulate shares, prior to an inevitable re-rate in price.
My initial price target for Nova in 2022 is $2.60, an increase of 118.9% on the last closing price and which lands us at a Market Cap of $450m.
To put this in perspective, if you took the Market Cap $ per Oz Au of De Grey (i.e. Divided the MC by the total Gold Deposit), and multiplied this by our Deposit, and divided it by 4, you would land at roughly the same figure. In other words, I believe this to be a conservative target to start.
Firstly, to summarise the achievements of the last 12 months, we have the following as major milestones achieved in 2021 by Nova;- Increase in the total gold resource by 55% to 9.6Moz;
- Bonanza drill hole at RPM, with 3.5g/t over 400m including 10g/t for 132m (insane, a top tier intercept worldwide);
- RPM Maiden Resource of 1.5Moz;
- Resource Upgrade at Korbel to an Indicated Resource of 3Moz, Inferred of 5.1Moz;
- Successful IPO of Snow Lake on the NASDAQ under the code LITM, which gives us exposure to Lithium in the midst of a Lithium boom. This has been a volatile launch, however I see the valuation of LITM climbing significantly higher in 2022 through the Lithium bull run.
These achievements can’t be ignored, they are a tremendous step forward for Nova and an excellent platform from which we can grow. Now, we have seen a large backlash from two major events in the year, being the Sunday Capital Raising at a heavy discount and the delay of the Scoping Study, and these also can’t be ignored. The Capital Raising is acknowledged to have been a brutal undertaking, and it certainly set the SP back for a while. Coupled with the queries from the ASX, this has no doubt beaten down the sentiment around the stock considerably, and I for one would be extremely disappointed to see it play out like this again.
Secondly, the delay in the Scoping Study no doubt raised the alarm bells for many an investor as to whether the deposit is viable. As you’ll see in my further analysis below, the Australian market doesn’t understand the low-grade Deposit we have with Nova, so the delay to the SS would have only added to these concerns. However, I believe the reasoning to be sound for the delay (to include additional drilling results to further define the resource), as we have seen in the upgrade. I am content to capitalise on the beaten down SP in light of the Upgrade.
I have taken a snapshot of 9 Gold Miners on the ASX (including NVA), to compare a number of metrics to Nova, namely Market Cap, Total Gold Deposit, Resource & Reserve Grade, and the MC $/Oz Au across the field. In reviewing these metrics, I believe we are valued where we are purely based on the low-grade nature of the deposit and the yet-to-be proven economic viability therein. Based on a positive Scoping Study, and recent Director buying boosts my confidence in the result we can expect there, I believe the brakes will be released.
Firstly, comparing the Market Cap versus the Total Deposit, we see Nova significantly undervalued amongst the field;
I have singled out De Grey, as I believe this resource to be an excellent comparison point given they have not yet defined any Reserves (to the best of my knowledge). Now, not all of these companies are purely gold Miners, hence it is not fair to view this graph in isolation (and most are also Producing gold miners, which significantly derisks the investment due to cashflow), however I thought it a good starting point.
Secondly, I wanted to review the Market Cap per Ounce of Gold (again, ignoring other Minerals mined by these companies);
Nova is once again clearly undervalued (assuming viability of the deposit to be mined), though again a consideration is that the majority are Producing miners with Reserves. Still, an interesting comparison to make, especially considering De Grey in isolation. Nova’s MC $/Oz Au of $21 is 9-times less than De Grey’s at $190.
Thirdly, if we compare the grade, this is clearly an element of comparison that doesn’t work in Nova’s favour;Resources:
Reserves:
On the basis of these metrics, I see a huge disparity between the Nova Share Price against the Market. I believe at the very least we should see our Market Cap reflect a higher value per ounce of Gold, and as an initial target I have chosen 25% of the valuation of De Grey – this leads to a Share Price of roughly $2.60 for a Market Cap of $450m. This, in my opinion, is goal 1.
In addition to this, we of course have our exposure to Snow Lake, which is sitting at a valuation of $145m AUD (NVA share of 57.52% equates to $83m). Now, there are two scenarios I see as likely. The first is that Nova progressively reduces the LITM exposure through share sales at the cessation of the escrow period, which will fund the growth of RPM and further economic studies at Korbel (feasibility studies are expensive!). Or, they will hold onto this investment for the next 3 or so years, at which stage I’d predict (as would any Lithium analyst) that they will be worth a fair whack more than currently. The downside for that scenario is that we as shareholders in Nova will be diluted through Capital Raisings for growth. I am hopeful for scenario 1.
In any case, what the combination of the above leads me to believe is the following:- Based on the MC $/Oz gold, our Market Cap is undervalued;
- Based on a comparison to similar Miners (such as DEG), we are significantly undervalued;
- Comparing the average Grade, we are significantly undervalued on the assumption our deposit will be viable. I am bullish on the prospects here;
- I don’t believe the Market has priced in our LITM exposure even remotely, so as this company grows we will see immense benefit, and;
- Based on recent Director buying, I think we should befollowing the leader.
I apologise for the long post, I am progressively educating myself through research on this company and our peers, in efforts to understand what we are, and should be worth. I am bullish (as you might have noticed!), however I also hope to be objective about the issues. I have seen a strong improvement in our Director behaviour following the backlash for the Cap Raising, and I believe they are managing expectations a fair way better than before. But, I keep my eyes open.
I am a buyer at these prices, I see a $500m MC in our near future, and I notice that every other competitor I looked at had a MC exceeding $1.4Bn. I think this comes eventually.
Feel free to comment with challenges to my (relatively basic) analysis and offer up views of your own. I look forward to hearing other views on our value.
(20min delay)