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:

• Q1 FY22 Operational highlights: Recently, the company came up with Q1 FY22 operational highlights, wherein the group reported gold production and sales of 112,440 oz and 108,010 oz, respectively. The management highlighted that it is expecting an increase in production during the second half of FY22 and on track to deliver full year production guidance of 430,000 to 470,000 oz of gold, as mentioned earlier.

• Industry beating margins: In FY21, the company reported its gross margin and operating margin of 38.2% and 30.1%, respectively, as compared to the industry median of 49.2% and 19.4%, respectively. This indicates strong cost management and is a key positive. Moreover, the company reported its net margin of 17.7%, which is higher than the industry median of 14%.

• Result Update: The company will disclose its Q1FY22 result on May 12, 2022.

• Ample liquidity to support future operations: The group posted a higher cash equivalent balance at USD 255.7 million for the FY21 as compared to the USD 206.2 million in the FY20. Moreover, the company has an unutilized credit facility of USD 150 million. Hence, at the end of FY21, the company’s total liquidity stands at USD ~406 million, which is sufficient to find its upcoming capital expenditures and working capital expenses.

Source: Company Presentation

FY21 Financial Highlights:

FY21 Income Statement Highlights (Source: Company Report)

• TXG announced its full year result, wherein the company posted its revenue of USD 855.8 million, grew from USD 789.2 million in FY20. The company reported a higher gold sale of 468,823 oz, as compared to USD 437,310 oz in FY20. Additionally, a higher average realized gold price of USD 1,794/oz in FY21, as compared to USD 1,771/oz in FY20 also supported the growth.
• Earnings from mine operations stood higher at USD 326.5 million, surged from USD 257.2 million in FY20, supported by elevated revenue and lower depreciation and amortization expense, partially offset by a higher production cost.
• General & administrative expense stood at par with previous year, while reported an inclusion of impairment loss amounting USD 41.2 million. Income before income taxes stood at USD 261.1 million, which is significantly higher than USD 175.1 million in FY20, supported by higher earnings from mine operation coupled with a lower net finance cost.
• The company reported its net income of USD 151.7 million, which is significantly higher than USD 109 million in FY20, due to above mentioned reasons, partially offset by higher income tax expenses.

Valuation Methodology (Illustrative): Price to CF based

Analysis by Kalkine Group

Stock Recommendation:

The company reported an impressive Q1FY22 operational results and expects its performance to improve in the second half of FY22, which is encouraging. Moreover, the company has a strong cost management which has helped the company to report strong margins. 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 like New Gold Inc, IAMGOLD Corp etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock of TXG at the last closing price of CAD 14.13 on April 25, 2022. 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 25, 2022). Analysis by Kalkine Group 

 Technical Analysis Summary

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