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

• Record annual production: In FY 2021, the firm produced 468,203 ounces of gold, breaking the previous record of 454,811 ounces established in 2019. Production for the entire year was at the top end of the projected range of 430,000 to 470,000 oz. It also set a new high for gold sales, with 468,823 ounces sold at an average realized gold price of USD 1,794 per ounce, bringing in USD 855.8 million in revenue.
• Recorded solid margin expansion: The company has recorded solid improvement in margin profile over the last five quarters backed firm underlying commodity prices and decent production.

Source: Refinitiv, Analysis by Kalkine Group

• Improving cash flows: Through agile management and operational efficiency, the company is elevating its operating cash flow and free cash flow on the continuous basis, which is a key positive.

Source: Company Presentation, Analysis by Kalkine Group

• Strong liquidity with virtual debt free balance sheet: As of December 31, 2021, the company's net cash position was USD 252.4 million, consisting of USD 255.7 million in cash and USD 3.3 million in lease obligations, with no debt and an undrawn USD 150 million credit facility, providing more than USD 405 million in available liquidity. In addition, the company's momentum increased sequentially, which is a significant plus.

Source: Company Presentation, Analysis by Kalkine Group

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

Financial overview of FY 2021

Source: Company Filing

• In FY 2021, the company’s revenue increased to USD 855.8 million against USD 789.2 million in pcp. This increase was mainly due to a higher number of oz of gold sold and a higher average realized price.
• Earnings from mining operation increased to USD 326.5 million in FY 2021, compared to USD 257.2 million in pcp, primarily due to higher revenues, partially offset by higher production cost.
• In FY 2021, the company’s net income increased robustly to USD 151.7 million, against USD 109.0 million in pcp, primarily due to higher earnings from mining operations, partially offset by impairment loss of USD 68.8 million.

Valuation Methodology (Illustrative): Price to Cash flow multiples Based

 *1USD=1.25CAD

Analysis by Kalkine Group

Stock recommendation

Torex had another strong year in terms of operational and financial performance in 2021, meeting full-year operational targets for the third year in a row. It produced a record amount of gold, 468,203 ounces, thanks to record milling rates and underground mining rates.

Record gold production combined with strong margins resulted in a financial year-end result of USD 491 million in adjusted EBITDA and USD 98 million in free cash flow. As a result, the Company ended the year with USD 256 million in cash and no long-term debt, giving them more than USD 405 million in available liquidity when combined with an undrawn USD150 million credit facility.

Therefore, based on the above rationale and valuation, we recommend a “Buy” rating at the last closing market price of CAD 14.75 on April 5, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on April 05, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary

Disclaimer

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