SSR Mining Inc.

SSR Mining Inc. (TSX: SSRM) is a mining company, which focuses on the operation, development, exploration and acquisition of precious metal projects.

Key highlights

• New appointment on board: Recently, the company announced the appointment of Alison White as Executive Vice President and Chief Financial Officer.

• Acquired Alacer Gold Corp: The company completed the transaction with Alacer to create a leading intermediate precious metals producer with robust margins, strong free cash flow generation and long mine lives across four mining-friendly jurisdictions.

• Robust free cash flow:In FY 2020, the company generated record cash flow from the operation at USD 348.61 million, against USD 145.84 million in FY 2019. Free cash flows clocked by it stood at USD 179.28 million, against USD 10.07 million against the previous corresponding period.

• Guidance on 2021 production: The management focuses on generating peer-leading free cash flow in the foreseeable time frame. For 2021, the company would be advancing and executing its organic growth portfolio to increase production, reduce costs, and extend mine lives. The company would continue to demonstrate its capability to sustain 720,000 to 800,000 gold-equivalent ounces of production for the next 5+ years.

Source: Company

• Enhanced balance sheet and liquidity: The robust production and the higher average realization cost helped the company strengthen its balance sheet. Its consolidated cash balances at year-end increased to USD 897.0 million. 

• Announced inaugural dividend: The company announced its first quarterly cash dividend of USD0.05 per share.

Financial overview

• In FY 2020 the company reported revenue of USD 853 million, against USD 606.8 million in the previous corresponding period. The increase of 41% in revenue was primarily due to increase in the average realized gold price and increase in the volume of gold ounces sold.
• Income from mine operations stood at USD 308.6 million, against USD 170.8 million in FY 2019. The increase was mainly due to higher income, partially offset by higher cost of sales.
• The company posted operating income of USD 202.7 million, against USD 122.3 million in the previous corresponding period.
• On the back of healthy operations, the company’s net income jumped to USD 140.4 million, against USD 55.7 million in the previous corresponding period. 

Risks associated with investment

The market prices of gold and silver are key drivers of our profitability. These metals' prices can fluctuate widely and are affected by a number of macroeconomic factors, including global or regional consumption patterns, the supply of, and demand for gold, interest rates, exchange rates, inflation, etc.

Valuation Methodology (Illustrative): EV to EBITDA

Note: All forecasted figures and peers have been taken from Thomson Reuters

Stock recommendation

The company exited 2020 with strong operational and financial momentum across all four operating assets. Furthermore, it holds a strong balance sheet, with USD 897.0 million in consolidated cash to support its growth pipeline. The company would continue to demonstrate its capability to sustain 700,000 to 800,000 gold-equivalent ounces of production for the next 5+ years. Therefore, based on the above rationale and valuation, we recommend a “Buy” rating at the closing price of CAD 18.95 on March 12, 2021. We have considered Alamos Gold Inc, Agnico Eagle Mines Ltd, Kirkland Lake Gold Ltd, etc. as the peer group for the comparison.

1-Year Price Chart (as on March 12, 2021). Source: Refinitiv (Thomson Reuters)

Alamos Gold Inc.

Alamos Gold Inc. (TSX: AGI) is a Canada based gold producer which operates in Canada and Mexico. The company has three operating mines, Young-Davidson Mine in Canada and Mulatos & El Chanate Mines in Sonora, Mexico.

Key highlights

• Raised the production guidance for 2021: Year 2020 has been a solid year for the company as it came out with the robust performance. For FY2021, the management highlighted strong production and expects it to be in a range of 470,000 to 510,000 ounces of gold, a 19.4% increase from 2020 numbers. Furthermore, they expect lower costs with total cash cost to be in a range of USD 710 to USD 760 per ounce, a 6.7% decrease from 2020 guidance.

Source: Company

• Record cash flow from operating activities: In FY 2020, the company generated record cash flow from the operation at USD 383 million, increased by 31% against USD 293 million in FY 2019 and free cash flows stood at USD122 million compared to a negative free cash flow of USD 3 million in 2019. 

• Became debt-free along with significant liquidity:The Company is maintaining strong consolidated liquidity of USD 721 million, with USD 221 million of cash and cash equivalents. After repaying the debt in October 2020, the group became debt-free. Moreover, the group believes to fund its growth initiatives from internal sources on the back of strong cash flows.

Source: Company

• Industry Beating Margins: The Company's resilient business helped them leaping the industry median margins on many fronts. The matrix below gives a glimpse of this.

Source: Refinitiv (Thomson Reuters)

Financial Overview of FY 2020

• In FY 2020, the Company sold 424,535 ounces of gold at an average realized price of USD 1,763 per ounce and generated revenue of USD 748.1 million, increase by 9.5% against USD 683.1 million in FY 2019. The rise in revenue was primarily based on higher realized gold prices.
• Cost of sales were USD 482.0 million in 2020, down from USD 521.4 million in 2019 due to the lower mining and processing rates at all sites, partially offset by incremental COVID-19 costs incurred at the Company's operating sites.
• The Company recognized earnings from operations of USD 227.6 million, 80.6% higher against USD 126 million in the previous corresponding period, based on improved operating margins driven by an increase in realized gold prices and a reduction in total cash costs.
• Net earnings for the reported period stood at USD 144.2 million, against USD 96.1 million in FY 2019.

Key risk in 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.

Valuation Methodology (Illustrative): EV to Sales

Note: All forecasted figures and peers have been taken from Thomson Reuters

Stock recommendation

FY2020 was a solid year for the company as it came out with the robust performance, strong cash position, zero debt, increase in dividend and completion of lower mine expansion at Young-Davidson All these factors give a glimpse of strong foundations laid by the company to achieve higher growth in future. The management raised the production guidance for 2021 with lower operating cost, which is a key positive. Therefore, based on the above rationale and valuation, we recommend a “Buy” rating at the closing price of CAD 10.2 as on March 12, 2021. We have considered B2Gold Corp, Kirkland Lake Gold Ltd, Eldorado Gold Corp. as the peer group for the comparison.

1-Year Price Chart (as on March 12, 2021). Source: Refinitiv (Thomson Reuters)

Golden Star Resources Ltd

Golden Star Resources Ltd (TSX: GSC) is a gold mining company which owns and operates the Wassa underground mine in Ghana, West Africa. The mine has mineral proven and probable mineral reserves of approximately 1.5 million ounces (oz). 

Key Highlights 

• Production guidance for 2021: For FY 2021, the company sets its production guidance at 165-175koz, where costs are expected to remain in line with recent performance. Moreover, it would also maintain the level of capital spending in 2021, with a focus on increasing development and drilling activities, to support further volume increases for production growth and enhanced cash flow generation.

Source: Company 

• Increase in free cash flows: Free cash flow from continuing operations totalled USD 5.9 million in Q4 2020 and USD 36.8 million for FY 2020, represented a USD 43.1 million increase against FY 2019. Furthermore, for FY2021, the company expect to clock a free cash flow of USD 70 million.

Source: Company 

• Disposed Prestea: The sale of Prestea strengthened the company’s balance sheet as it eliminated the negative net working capital position, deferred revenue and rehabilitation liabilities, and this transaction is expected to provide a cash inflow of ~USD 30 million by 2023. 

• Healthy liquidity: The company is holding strong liquidity of USD 140 million, under which its cash increased by USD 12.5 million in Q4 2020 to USD 60.8 million on December 31, 2020. Moreover, it reduced its net debt by USD 5.1 million to USD 45 million, which is a positive step.

Source: Company 

Financial overview of FY2020

Source: Company

• Gold revenues for 2020 amounted to USD 272.5 million, 34% higher compared to USD 203.8 million in 2019, primarily driven by higher gold spot prices and increased volumes.

• Mine operating profit increased by 62% or USD 47.8 million to USD 124.3 million, while the mine operating margin increased from 38% to 46%. These increases were driven by higher gold spot markets combined with higher sales volumes, which translated into higher revenues.

• In FY2020, net income from continuing operations stood at USD 38.1 million, against USD 10 million in the previous corresponding period. The loss from its discontinued operations dragged this to the net loss of USD 18.2 million, against a loss of USD 78 million in pcp.

Risks associated with investment

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

Stock recommendation

The company as it came out with a robust performance in FY 20. Gold sold during the period increased by 7% due to improved production rates and the processing of lower grade stockpiles. The management also shared increased production guidance at Wassa and completed key infrastructure projects that are expected to support increased production rates in the future, which would further propel the company's cash flows. Moreover, the group also disposed of Prestea, which strengthened its balance sheet as it eliminated the negative net working capital position, deferred revenue, and rehabilitation liabilities. This transaction is expected to provide a cash inflow of ~USD 30 million by 2023. On the valuation front, the stock is available at a forward EV/Sales multiple of 1.06x against the industry median of 2.21x. Hence, considering the aforesaid rationale, we recommend a "Speculative Buy" rating in the stock at the closing price of CAD 3.99 on March 12, 2021.

1-Year Price Chart (as on March 12, 2021). Source: Refinitiv (Thomson Reuters)

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.