Torex Gold Resources Inc

Solid Operational Quarter and Well Management of Costs:  Torex Gold Resources Inc. (TSX: TXG) is an intermediate producer of gold and other precious metals, engaged in the exploration, development, and exploration of its wholly owned Morelos Gold Property. As on 15 June 2020, the market capitalization of the company stood at CAD1.58 billion.

Quarterly Performance (For the Period Ended 31 March 2020): The company has reported a solid operational quarter with the production of 108,537 ounces of gold. The company has also implemented cost control measures, resulting in a reduction of 25% in cyanide consumption since the start of the program. For the quarter, the accounting changes to stockpiled ore resulted in an increase of ~USD100 per ounce to TCC and AISC. During the quarter, the plant availability increased to 90% and through put averaged to 12,464 tpd. In the same time span, the company sold 108,064 ounces at an average realized gold price of USD1,571/oz. During the quarter, adjusted EBITDA of the company stood at USD67.4 million and adjusted net earnings of the company were USD19.9 million.

Quarterly Financial and Operational Highlights (Source: Company Reports)

Impact of COVID-19: As the spread of COVID-19 increased, the company undertook measures to for various cost controls. It undertook proactive measures to shore up the supply chain, as some of its critical consumables are sourced from affected regions. Despite the gloomy situation, TXG was able to achieve design gold recovery levels.

Key Risks: As the pandemic continues to prevail, it is uncertain to measure the impacts on the company. Several factors are to be considered including the visibility of production and costs which are still unclear. These risks may cause the actual results, level of activity, performance or achievements of the company to be materially different from those expressed earlier.

Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow Multiple Based Relative Approach (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The uncertainty around the timing of a re-start of full operations is probably decreased. TXG ended the quarter with cash balance of USD134.8 million and repaid USD21.8 million of outstanding debt. As per TSX, the stock is moving towards its 52-weeks’ high level of CAD22.46. It gave a return of 65.86% in the past three months. We have valued the stock using the price to cash flow multiple based illustrative relative valuation and have arrived at a target price offering an upside of lower double-digit (in percentage terms). For the said purposes, we have considered Osisko Gold Royalties Ltd, Lundin Gold Inc etc. as peers. Considering the current trading levels, decent returns in the past three months, cost control measures and decent financial performance of the company amidst the pandemic, we recommend a ‘Buy’ rating on the stock at the current market price of CAD18.51, up by 9.3325% on 15 June 2020.

TXG Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Dundee Precious Metals Inc.

Record Quarterly Net Earnings: Dundee Precious Metals Inc. (TSX: DPM) is an international gold mining company which is engaged in acquisition, exploration, development, mining, and processing of precious metals. As on 15 June 2020, the market capitalization of the company stood at CAD1.35 billion.

Quarterly Performance (For the Period Ended 31 March 2020): The company managed to evolve the COVID-19 situation and strived to maintain the continuity of its operations. During the quarter ended 31 March 2020, the company produced 72,963 ounces of gold and achieved near record throughput of 65,010 tonnes at Tsumeb. The company recorded all-in sustaining cost per ounce of gold of USD593 and a cash cost per tonne of complex concentrate smelted of USD357. In the same time span, cost of sales was USD25.9 million higher than the pcp and stood at USD90.6 million. The increased costs were primarily due to increased deliveries because of the start of commercial operation at Ada Tepe, partially offset by the favourable impact of a stronger U.S. dollar relative to the ZAR and Euro. During the quarter, it generated USD9.4 million in cash flow from operating activities and reported net earnings of USD43.2 million. DPM ended the quarter with ample liquidity and no debt. The company has also announced a dividend of USD0.02 per common share which is to be paid on 15 July 2020.

Quarterly Financial Highlights (Source: Company Reports)

What to Expect: The company is on track to meet its guidance for 2020 and is managing to evolve through COVID-19 situation. Despite the challenging times, the company delivered an exceptional first quarter. With the full operating capacity, the company is likely to achieve its set guidance for the period. It expects to produce 257,000 to 299,000 ounces of gold and 35 to 40 million pounds of copper. It is also anticipating all-in sustaining cost of USD700 to USD780 per ounce, and cash cost per tonne of complex concentrate smelted of USD370 to USD450. It has undertaken several measures to weather the highly uncertain and evolving nature of this situation.

Key Risks: The softer market conditions may jeopardize the business activities of the company. The expectations of the futuristic performance are highly based on the historical facts and, hence, involves certain risks. The investment in company may subject to government regulations regarding mining and smelting operations; environmental risks; reclamation expenses.

Valuation Methodology: Price to Cash Flow Multiple Based Relative Method (Illustrative)

Price to Cash Flow Multiple Based Relative Approach (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Given the high severity of the global pandemic, the financial and operational results may face a decline. As per TSX, the stock of DPM is trading close to its 52-weeks’ high level of CAD7.95, still holds the potential for growth. The stock of DPM gave a return of 34.59% on the YTD basis and a return of 68.76% in the last three months. We have valued the stock using the price to cash flow multiple based illustrative relative valuation and have arrived at a target price offering an upside of middle single-digit (in percentage terms). Considering the current trading levels, attractive returns in the past three months, resilience of the business amidst the pandemic and positive guidance for the coming period, we recommend a ‘Hold’ rating on the stock at the current market price of CAD7.51, up by 3.8728% on 16 June 2020.

DPM Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer

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