Torex Gold Resources

Torex Gold Resources (TSX: TXG) Inc is an intermediate producer of gold and other precious metals, engaged in the exploration, development, and exploration of its wholly owned Morelos Gold Property.

Key Highlights 

• FY2021 operational outlook: On the back of continuous pattern of consistent and reliable operational performance, the gold production in 2021 is expected to be between 430,000 - 470,000 ounces. Capital expenditures would be in a range of USD 70 – USD 85 million, of which USD 40 million to USD 45 million is related to capitalized waste.

Source: Company 

• Healthy operating matrix: The company deliveredrecord financial performance in FY2020, driven by high gold price and operational execution. It Produced 430,484 ounces in 2020, surpassing the high end of its revised guidance and sold 437,310 ounces at an average realized gold price of USD 1,771/oz, which resulted in a record total revenue of USD 789 million, increased by 23% over 2019. EBITDA recorded by the company stood at USD 413.0 million for the same period. 

Source: Company 

• Improving cash flows: Through agile management and operational efficiency, the company increased its operating cash flow and free cash flow. In FY 2020, the group generated record operating cash flows of USD 342 million and reported a free cash flow of USD 168 million.

Source: Company 

• Strengthening balance sheet: The on-going robust performance of the Company’s operations and continuous improvement has strengthened its balance sheet. In 2020, the group madedebt repayments of USD 230.0 million and repaid the remaining outstanding on the term facility before time; this brought the Company’s debt to USD 43.4 million at year-end. Moreover, the group exited 2020 with USD 206 million of cash and short-term investments and plan to repay the remaining debt in Q1 2021.

Source: Company 

Financial overview

Source: Company 

• In FY 2020, the Company posted revenue of USD 789.2 million, up by 23.2% compared to USD 640.8 million in FY2019. The increase in revenue was primarily due to higher average realized prices per ounce, which was USD 1,771 in 2020 against USD 1,408 in 2019.

• Cost of sales stood at USD 532 million in 2020, compared to USD 480 million in the pcp, primarily due to higher depreciation and amortization.

• The Company posted a net income of USD 109 million, up by 53.1% against USD 71.2 million in the pcp, primarily due to higher average realized gold prices, partially offset by higher income tax expense and higher other expenses. 

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. 

Valuation Methodology (Illustrative): Price to Cash Flow 

Note: All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

FY2020 was a transformational year for the company as it came out with robust performance, a strong cash position and almost negligible debt. Higher gold realization cost is helping the company to drive the revenues as well as the cash flows. Furthermore, the management expects the gold production in 2021 to be between 430,000 - 470,000 ounces and aims to be debt-free by Q1 2021. Therefore, based on the above rationale and valuation, we recommend a “Buy” rating at the closing price of CAD 15.74 on March 2, 2021. We have considered Dundee Precious Metals Inc, Endeavour Mining Corp, New Gold Inc, etc. as the peer group for the comparison.

1 Year Daily Price Chart (As on March 2, 2021) Source: Refinitiv (Thomson Reuters)

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