Torex Gold Resources Inc. (TSX: TXG) is a gold mining company engaged in the exploration, development, and exploration of its wholly owned Morelos Gold Property.

Key Updates:

• On track of achieving the upper end of FY21 production guidance: Till 9MFY21, the company reported total production of 3,58,792 oz, significantly above its previous period production of 2,99,835 oz. The above is impressive, and the management is positive to reach the upper range of its FY21 production guidance of 4,30,000 oz to 4,70,000 oz. Additionally, the company reported improved operational efficiency and posted its total cash costs and all-in sustainable costs of USD 646/oz and 883/oz, respectively, in 9MFY21, significantly lower than its FY21 guidance of 680 to 720/oz and 920 to 970/oz, respectively.

Source: Company Presentation

• Positive technical: On a daily chart, the TXG stock closed near the lower range of its 20-days Bollinger band, which indicates a possible price appreciation in the coming trading sessions. Moreover, the 14-days RSI is at 30.6380, which represents an oversold territory and might give a price up move from the current level.

Technical Price Chart (as on December 07, 2021). Source: REFINITIV, Analysis by Kalkine Group

• Zero-debt balance sheet with healthy liquidity profile: Despite being a capital-intensive business, the company is virtually debt-free, which indicates prudent capital management as the CAPEX is being funded through its cash flows. Moreover, at the end of Q3FY21, the company has available liquidity of ~USD 370 million, which is sufficient to meet its upcoming working capital and CAPEX. Notably, the company reported a net cash balance of USD 218 million, which is the best in recent years.

Source: Company Presentation

Q3FY21 Financial Highlights:

• TXG announced its quarterly result, wherein the group reported its metal sales of USD 216.7 million, down from USD 256.5 million in the previous corresponding period (pcp). The slide was primarily due to lower gold sales (118,989 oz v/s 133,036 oz in pcp), coupled with lower average realized gold prices (USD 1,786/oz vs/ USD 1,884/oz in Q3FY20).
• Earnings from mine operations were reported at USD 74.1 million, lowered from USD 103.0 million in pcp, due to lower topline, coupled with an increase in production costs.

• The company reported a net income of USD 36.5 million, slide from USD 60.3 million in pcp. General & administrative costs remained at par with the previous year, while the company reported a minor surge in exploration & evaluation expenses.

Q3FY21 Income Statement Highlights (Source: Company Report)

Risks: Volatility in international prices would likely hinder the realization and would subsequently dampen the overall performance of the group. The company reported a lower production on y-o-y basis, and the continuation of the above trend would likely dampen the upcoming performance.

Valuation Methodology (Illustrative): Price to CF based  

Stock Recommendation:

The group commands a higher profit margin as compared to the industry median, which indicates improved cost efficiency. Notably, the company reported its EBITDA margin and operating margin of 56% and 31.8%, respectively, higher than the industry median of 39.9% and 27%. Additionally, the net margin was recorded at 16.8%, which is higher than the industry median of 13.3%. We have valued the stock using the Price to CF-based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers Dundee Precious Metals Inc, OceanaGold Corp etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock of TXG at the last traded market price of CAD 13.15 on December 07, 2021.

*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 December 07, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

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