Calibre Mining Corp. (TSX: CXB) is a Canadian-listed, Americas-focused, growing mid-tier gold producer with a strong pipeline of development and exploration opportunities across Nevada and Washington in the USA, and Nicaragua.  Its project includes Pavon Gold Project, Borosi Gold Project, IamGold, and Santa Rita. 

Investment highlights

• Sequentially improving financial matrices: The company maintained its pace and witnessed spirited performance across its revenue, Income from mining operations and gold produced in Q1 FY 2022. During Q1 2022, it achieved high gold production, which resulted in USD 99.6 million in revenue, an increase of 13% over the immediately preceding Q4 2021 mostly due to the additional gold production generated by the United States assets. The Company is continuously working closely to carry this winning momentum and has witnessed higher scale on the sequential basis, which is appreciable.

• Acquired Fiore Gold: The announcement of the acquisition of Fiore Gold, which was completed on January 12, 2022, strengthened management's commitment to the company's growth. By adding a diverse asset base, immediate production, and substantial growth and exploration upside in Nevada, this deal continues the company's emphasis on consistently creating value for shareholders.

• Robust 2022 Guidance: Due to sustained strong production growth and operational execution, the Company achieved the high end of its 2021 output projection. The company produced good operational cash flows and self-funded considerable exploration and mine development while increasing cash flow year after year. In addition, it will reinvest in Nicaragua and Nevada to expand the asset base and improve yearly output. As a result, the company has released robust gold production estimates for FY 2022, which range from 220,000 to 235,000 ounces.

• Trading at discounted valuations: The company’s shares are available at an NTM EV/Sales multiple of 0.8x compared to the sector (Basic Materials) median of 1.6x. while on NTM Price to Cash Flow multiple the stock is trading at 3.6x compared to 4.3x. This implies that the shares are trading at deep discount against the sector. The stock is undervalued on multiple valuation parameters. The table below reflects the picture.

Risks associated with investment

The company’s financial performance is mostly dependent on the price of gold, which directly affects the company’s profitability, margins, and cash flows. The price of gold is subject to volatility. It is affected by various factors, such as the strength of the US dollar, Interest rates, Inflation rates, demand and supply, all of which are beyond the company’s control.

Financial overview of Q1 2022 (Stated in thousands of USD)

Source: Company Filing

• During Q1 2022, the Company achieved high gold production, which resulted in USD 99.5 million in revenue, an increase of 21.5% over the Q1 2021 mostly due to the additional gold production generated by the United States assets.
• Total cost of sales in the reported period increased to USD 68.0 million against USD 52.0 million in pcp. An increase was mainly due to higher production cost and higher depreciation expenses on the back of higher production.
• The company posted an operating profit of USD 20.2 million in the reported period of Q1 2022 against USD 27.1 million in pcp. The decline was mainly due to higher G&A expenses and transaction cost.
• Net income in Q1 2022, stood at USD 11.7 million compared to 16.6 million in pcp, offset by lower operating profit and higher interest expenses in the reported period.

Valuation Methodology (Illustrative): Price to Cash Flow based Valuation Metrics

Analysis by Kalkine Group 

Stock Recommendation 

The company had an excellent start to the year, responsibly delivering record gold production at a total cash cost of USD 1,060 per ounce and AISC of USD 1,199 per ounce positioning the Company well to deliver on full year guidance, despite the current inflationary environment. During the quarter the group continued making excellent progress advancing the higher-grade open pit mines at Pavon Central and Eastern Borosi which will fuel grade driven production growth in 2023 and 2024, a key positive. Furthermore, Fiore Gold was acquired, giving a diverse asset base, immediate production, and substantial growth and development upside in Nevada, which is a critical plus.

Therefore, based on the above rationale and valuation, we recommend a "Hold" rating at the last closing price of CAD 1.33 as on May 3, 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 May 3, 2022). Source: REFINITIV, Analysis by Kalkine Group

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