Fiore Gold Ltd (TSXV: F) is a growing gold producer, developer and explorer focused on precious metal projects in the United States. Fiore operates the Fiore Gold Pan Mine (“Pan”), an open pit, heap leach mine in White Pine County, Nevada. The nearby Gold Rock project is a federally permitted evaluation stage gold project and the Golden Eagle project in Washington State is an exploratory stage project with significant identified gold mineralization.

Investment Rationale:

• A Value Pick from the Piotroski Score Standpoint: On Piotroski Score of 0-9, Fiore scored 8 which reflect that company is fundamentally very sound. The Piotroski Score is a discrete score between zero and nine that reflects nine criteria used to determine the strength of a firm's financial position. The Piotroski Score is used to determine the best value stocks, with nine being the best and zero being the worst.

Source: Kalkine Group, Thomson Reuters

• Higher Yellow Metal Prices would Benefit Fiore Gold: Gold prices have improved approximately 5.3% in a month over period and moved above USD 1,800/oz level. The recent price surge would lead to a higher realization price for the gold miner and bolstered the financial health in the near term. Also, since the beginning of 2020, gold has largely remained in a bullish trend and surged approximately 36% in the last two years, driven by the increased inflow of funds in the Gold ETFs globally. Given the resurgence in the COVID-19 cases in India and other geographies, which send India back into lockdown days and new strain also spreading in the other geographies, we assume that investors would further swap into gold ETFs as a hedging strategy against the speculative asset classes. Moreover, the recent price movement in the yellow metal prices would increase Fiore Gold realization prices in the coming quarter.

• Delivering an LTM ROA of 31.6%, Implies Optimum Utilization of Resource: Return on assets (ROA) is an indicator of how well a company utilizes its assets in terms of profitability. Businesses are ultimately about efficiency, squeezing the most out of limited resources. Comparing profits to revenue is a useful operational metric but comparing them to the resources a company used to earn them cuts to the very feasibility of that company's existence. ROA is the simplest of such corporate bang-for-the-buck measures. Fiore Gold is posing a TTM ROA of 31.6%, whereas its peers average TTM ROA stood at 11.4%, implies that within the gold mining arena, Fiore Gold is utilizing its resources in the best possible manner.

• Solid Margin Expansion Since September 2019: Since the September 2019 quarter, the group's margin profile has significantly bolstered thanks to a gold price rally in the wake of heightened demand for safe-haven Yellow metal and lower crude oil prices (mostly in the first nine months of 2020). The company's gross margin has expanded to 42.2% in the Q1FY21 from 17.2% in the September 2019 quarter. EBITDA margin nudged to 43.6% in Q1FY21 from 5.1% in September 2019, and Operating margin soared up to 30.9% and Net margin increased to 26.1% in the Q1FY21. These all were mainly driven by higher gold realization prices.

 Source: Kalkine Group, Refinitiv (Thomson Reuters)

• Demonstrate Strong Organic Growth Post Q1FY21: Following the completion of the Gold Rock Preliminary Economic Assessment, the group is conducting a program of resource expansion, metallurgical, geotechnical and condemnation drilling in support of a Gold Rock Feasibility Study. First drill results were announced in November 2020, headlined by 48.8 metres of 2.17 g/t gold and 32.0 metres of 1.41 g/t gold. Further, subsequent to quarter-end, the second set of Gold Rock drill results were issued in January 2021, headlined by 19.8 metres of 1.33 g/t gold and 12.2 metres of 1.75 g/t gold. These drill results continue to demonstrate strong intervals of oxide gold mineralization both within and outside of the current resource pit shells.

• Risk Associated to Investment: The company is exposed to volatility in gold prices, a steep plunge in the gold prices could have a significant effect on the group’s financials.

Financial Highlights: Q1FY21

Source: Refinitiv (Thomson Reuters)

• During the quarter under consideration, the company’s Gold production of 9,204 ounces was a 5% increase over fiscal Q1 2020, although lower than fiscal Q4 2020. The decrease in production compared to fiscal Q4 2020 was due to fewer ore tons placed, lower ore grade and timing of gold recovery.
• Gold extraction on the leach pad was also temporarily impacted by a drop in the pH and alkalinity of the leach solution.
• As guided, 2021 would be a year of significant reinvestment to support the longevity of the Pan Mine and to continue advancing Gold Rock. The company recently announced a two-year mine life extension at Pan, and it is immediately investing in expanding the heap leach capacity to support this extension. The group spent USD 3.8 million on capital additions in the quarter, primarily the Pan Mine heap leach pad expansion, which is expected to be ready for ore stacking in fiscal Q3.
• At Gold Rock, the group continued with the resource expansion drilling and related Feasibility Study work, spending USD 3.0 million in the quarter.
• The company made gold sales of 9,210 ounces at an average realized price of USD 1,868 per ounce.
• Q1 cash costs per ounce sold of USD 923 reflects a USD 102 per ounce decrease relative to Q1 2020, reflecting the expected benefit of a decreasing stripping ratio and consistent crusher operations.
• Q1 Pan Mine AISC per ounce sold stood at USD 1,019, and Q1 2021 Fiore consolidated AISC stood at USD 1,219.
• The company recorded quarterly revenues of USD 17.2 million with a mine operating income of USD 7.3 million.
• The closing cash balance stood at USD 19.2 million on December 31, 2020, a reduction in cash from September 30, 2020, as the group invest in the expansion of the Pan heap leach pad to accommodate added mine life and ongoing drilling and Feasibility Study activities to advance Gold Rock.

Top-10 Shareholders

The top 10 shareholders have been highlighted in the table, which together forms around 6.9% of the total shareholding. Fidelity Investments Canada ULC and The Vanguard Group, Inc holds the maximum interests in the company at 3.06% and 2.4%, respectively.  The institutional ownership in “Fiore” stood at 3.95%, and ownership of the strategic entities stood at 2.94%.

Source: Refinitiv (Thomson Reuters)

Valuation Methodology (Illustrative): EV to Sales Based Valuation Metrics

Note: Premium (discount) is based on our assessment of the company’s growth drivers, economic moat, competitive advantage, stock’s current and historical multiple against peer group average/median and investment risks.

Stock Recommendation

Value stocks command greater respect in the market because they are more likely to be a solid business with a strong competitive moat against the peers.  Profitability is important, but so is the firm's financial strength. A track record of improving finances is essential. One of the quality metrics for Fiore Gold is that it passes 8 of the 9 financial tests in the Piotroski F-Score. The F-Score is a world-class accounting-based checklist for finding stocks with an improving financial health trend. A good Score suggests that the company has strong fundamental.

While quality is important, no one wants to overpay for a stock, so an appealing valuation is vital too. With a weaker economy, earnings forecasts are unclear right across the market. But there are some valuation measures that can help, and one of them is the Price to Cash Flow multiple. A rule of thumb for a reasonable Price/cash Flow multiple should be less than 5x, and the TTM and NTM, Price/Cash Flow of Fiore, stood at 3.85x and 3.68x.

In summary, good quality and relatively cheap valuations are pointers to those stocks that are some of the most appealing to contrarian value investors. Based on technical analysis, the stock has support at CAD 0.96 level.

Therefore, based on the above rationale, considering the risk associated and valuation done, we recommend a "Speculative Buy" rating on the stock at the closing price of CAD 1.18 as of May 11, 2021.  

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level.

Technical Price Chart (as on May 11, 2021). Source: Refinitiv (Thomson Reuters)

*Recommendation is valid at May 12, 2021 price as well.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.