Fiore Gold Ltd (TSXV: F) is engaged in the production of gold and mineral exploration and development of resources. Its projects include Pan Mine, Gold Rock, and Golden Eagle, all based in the United States. 

Investment Rationale

• Robust performance on a sequential basis: In the latest quarter, the company’s gold production increased 8% to 11,751 ounces compared to Q2 2021 as heap leach pH and alkalinity levels improved during the quarter. Furthermore, it generated a revenue of USD 21.3 million, with mine operating income of USD 7.2 million at an average realized price of USD 1,815/oz.

Source: Company

• Realizing higher metal prices: The company's financials are improving on the back of increased realised metal prices. During the given period, the average realised price of gold increased 6% to USD 1,815, compared to USD 1,720 in the previous corresponding period. Despite some volatility, we anticipate that the average realised prices of the various metals to be higher, which would be providing key benefits to the company.

• Higher production guidance for FY2021: The management highlighted strong production growth and expects the production to be in a range of 44,000 to 47,000 ounces of gold in FY 2021 with a total cash cost per ounce in between USD 1,050 - 1,100. Furthermore, the company’s initial strategic goal is to create a multi-asset, 100% domestic US gold producer with 150,000 ounces in annual gold production.

Source: Company 

• Elevated commodity prices to support future earnings: Despite recent volatility in commodity prices, the firm is doing well, and we can observe a substantial influence of this movement on the balance sheet of precious and industrial metal mining companies. As prices rise, average realization prices for miners rise, resulting in a greater margin profile, higher free cash flow generation, and balance sheet deleveraging. We believe the firm is well positioned to profit from rising underlying commodity prices and end FY2021 in good financial shape.
  

• Strong liquidity profile: In Q3 2021, the company reported its current ratio at 5.24x compared to the industry median of 2.70x, while the quick ratio stood at 1.99x against the industry at 1.53x. These outperformances indicate that the company's short-term obligations are growing at a slower pace compared to its resources to cover them, which is not a healthy indication.
  

• Strong Balance Sheet with no debt: Despite a capital-intensive business model, the company is virtually debt-free with a Debt/Equity ratio of 0.02x and long-term debt to capital ratio of 0.4%, which implies negligible balance sheet risks. Further, the company has consistently deleveraged its balance sheet since December 2019, and at the end of the Q3FY21, the debt-to-equity ratio stood at 0.02x.

• Trading at discounted valuations: The company’s shares are available at an NTM EV/EBITDA multiple of 2.6x compared to the industry (Basic Materials) median of 5.0x. While, on NTM EV/Sales multiple, the stock is trading at 0.9x compared to 1.5x. This implies that the shares are trading at a deep discount against the industry. The stock is undervalued on multiple valuation parameters. The table below reflects the picture.

• Technical indicators are suggesting a potential upside: On the weekly chart, F stock prices are sustaining above the upward sloping trendline support zone and continuously taking the support of the same at CAD 1.02 level. Moreover, the prices are trading above the trend-following indicator 100-period SMA, which may act as crucial support. Furthermore, the momentum oscillator RSI (14-period) is trading at 49.18 level.

Source: REFINITIV, Analysis by Kalkine Group

• Risks associated with investment: The Company’s financial performance is mostly dependent on the price of gold, which directly affects its profitability and cash flow. Any drawdown in the gold prices would impact the group’s performance.

Financial overview of Q3 2021 (In 000’s of USD)

Source; Company 

• Mined ore production in Q3 was 12,557 tons per day with a stripping ratio of 1.8:1.0 and grade of 0.46 grams per tonne or 0.013 ounces/ton.
• In Q3 2021, the company reported marginally lower revenue at USD 21.3 million from the sale of 11,741 gold ounces at an average realized gold price of USD 1,815 per ounce, against revenue of USD 21.9 million in the previous corresponding period.
• In the reported quarter, the company’s mine operating income stood at USD 7.2 million compared to USD 8.3 million in pcp. A slight drop in mine operating income was mainly due to higher production cost at USD 11.8 million V/s USD 10.8 million in pcp
• Under other operating expenses, the company reported lower project exploration cost at USD 0.07 million V/s 0.2 million, but the G&A expenses rose to USD 1.7 million V/s USD 1.4 million in pcp.
• Income from operations stood at USD 5.4 million compared to USD 6.5 million in pcp.
• Income before income tax stood at USD 5.1 million compared to USD 5.7 million in pcp.
• Net income for the period stood at USD 4.1 million against USD 5.1 million.
  

Top-5 Shareholders

The top 5 shareholders have been highlighted in the table, which forms around 6.88% of the total shareholding. Invesco Advisers, Inc. and Brunk (Kenneth A) hold the company's maximum interests at 3.26% and 2.36%, respectively. The company's institutional ownership stood at 4.24%, and ownership of the strategic entities stood at 2.83%.

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 

The firm delivered a decent result in Q3 2021 and exited the quarter in good financial health with practically zero debt and a solid cash position. All of these elements point to the company's strong foundations, which would enable it to achieve higher growth in the future. Despite investments in the development of the Pan heap leach pad to accommodate increased mine life and ongoing drilling, it reported a cash balance of USD 18.5 million as of June 30, 2021, an increase in cash from March 31, 2021. Furthermore, management provided a positive production forecast for 2021 as part of its strategic aim to become a multi-asset, 100% domestic US gold producer with annual gold output of 150,000 ounces. This would be a significant achievement.

Given the lower interest rates and the resurgence of the Delta variant, gold prices are likely to stay robust and constant in the medium term. We believe that average realized gold prices per ounce would continue to rise, resulting in increased margins. In addition, the firm is well-positioned to profit from rising underlying commodity prices and end FY2021 in good financial shape.

Furthermore, the stock is trading at discounted valuations on multiple parameters, and the technical indicators reflect strength for the potential pullback. Therefore, based on the above rationale and valuation, we recommend a "Speculative Buy" rating on the stock at the closing price of CAD 1.16 on September 28, 2021. We have considered Gran Colombia Gold Corp, Harte Gold Corp, Dynacor Gold Mines Inc. as the peer group for the comparison.

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

Technical Analysis Summary

One-Year Technical Price Chart (as on September 28, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

*Recommendation is valid at September 29, 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.