Jaguar Mining Inc (TSX: JAG) operates in gold mining, and is engaged in the acquisition, exploration, development, and operation of gold producing properties in Brazil. 

Key Updates:

• Impressive FY22 Guidance: For FY22, the company expects its gold production in between 86,000-94,000 oz, which is higher than the gold production of 84,638 oz in FY21. This is supported by an expected higher contribution from the Tourmaline Gold Mine Complex. Moreover, the company expects All-in-sustainable costs in between USD 1250 to USD 1350 per ounce.

• Strong Operating Highlights: During Q1FY22, total definition, infill and exploration drilling stood at plan at 26,305 metres, which was 38% higher than pcp with 19,090 metres drilled. The surge was primarily contributed by strong drilling activity from the Turmalina mine, which increased 78% on y-o-y basis from 8,868 metres in Q1FY21 to 15,766 metres in Q1FY22.

• Robust Cash flow generation: The company reported strong cash flow growth in Q1FY22 and posted cash from operating activities of USD 7.7 million v/s USD 6.4 million in pcp. Moreover, free cash flow surged to USD 2.6 million, soared from USD 0.1 million in pcp. Notably, Free cash flow per ounce stood higher at USD 161 in Q1FY22, as compared to USD 11 million in pcp. This is likely to support the company’s overall liquidity.

Risks associated with the Investment:

Volatility in the international commodity prices is likely to dampen the realization of the company. Moreover, the company registered a lower gold production in Q1FY22, and the continuation of the above trend is likely to impact the company’s upcoming performance. 

Q1FY22 Financial Highlights:

Q1FY22 Income Statement highlights (Source: Company Report)

• In Q1FY22, JAG posted its revenue of USD 30.6 million, compared to USD 31.6 million in pcp. The slide was primarily due to a sales volume of 16,507 ounces, as compared to 17,677 ounces in pcp.

• The gross profit declined to USD 6.3 million from USD 12.1 million in pcp, due to a surge in the operating costs and along with lower sales.

• The company witnessed a significant rise in exploration & evaluation expense along with a higher. general & administrative expense while a decline in Other operating expenses partially supported by profitability. The group’s operating income fell to USD 2.3 million from USD 7.7 million in pcp.

• The period was marked by a foreign exchange loss of USD 4.5 million v/s a gain of USD 2.2 million in pcp. Income tax expense also stood higher at USD 2.3 million v/s USD 1.8 million in pcp. Hence, the company posted a net loss of USD 6.0 million v/s a net profit of USD 6.1 million in pcp.

Valuation Methodology Illustrative: Price to Cash Flow based

Analysis By Kaline Group

Stock Recommendation:

During the quarter, the group witnessed an intense flooding Turmalina region, the operations were shut down for five days, and having an impact on the infrastructure in the region that is still ongoing. Despite the above natural calamity, the company’s overall production stood in-line with previous corresponding period, which is encouraging. Moreover, during the period, the company dedicated efforts and identified opportunities in the form of data for starting key projects on the Turmalina site to improve and grow production in the future years. This is expected to result better yield in the coming days. Lastly, the stock of JAG is carrying an annualized dividend yield of ~5.128%, which looks impressive considering the persisting interest rate scenario.

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 B2Gold Corp, Mandalay Resources Corp and Karora Resources Inc. Considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock of JAG at the last closing price of CAD 3.12 on June 06, 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 June 06, 2022). Analysis by Kalkine Group

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

  Technical Analysis Summary

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