Equinox Gold Corp.

Collaborations and Mine Developments to Aid Business Growth: Equinox Gold Corp. (TSE: EQX) operates in exploration and production of gold and has a diversified asset base across USA, Mexico and Brazil. Currently, the company is indulged in operational activities from its Mesquite Gold Mine, located in California and Aurizona Gold Mine in Brazil.

Operational Highlights, growth catalysts and outlook:

• The Group expects ~700 Koz Gold production in FY20 while targeting 1 million oz of gold production in FY21E

• The Management informed the completion of the strategic investment of US$130 million by Mubadala Investment Company.

• The group announced its merger with Leagold Mining, which would significantly expand Equinox Gold’s asset portfolio. The Management seeks to commence exploration programs across the combined operations. Further, the group intends to undertake preliminary economic assessment for the potential development of an underground mine at Aurizona.

• The group reported a 6,735 meters of drilling activity on the Tatajuba target at Aurizona and update on resources will be out in H1FY20.

• The company posted drilling of 48,045 metres on mineralized waste material at Mesquite and piled 13.1 million tonnes of economic mineralized material.

FY19 Financial Highlights for the Period Ended on 31^st December 2019: EQX came up with its full-year results, wherein the company reported a revenue of US$ 281.7 million, as compared to US$ 30.2 million in FY18, aided by higher gold sales of 196,803 oz vs 24,384 oz in the previous financial year. The realized gold price during the year under consideration stood at US$ 1,431/oz, significantly improved from US$ 1,237/oz a year-ago period. The business turned profitable and posted Adjusted EBITDA of US$ 98.2 million, as compared to a loss of US$ 11.8 million reported in the previous financial year. Income from operations for FY19 was US$ 55.1 million, as compared to a loss of US$ 35 million in FY18.

Key FY19 Operational Highlights (Source Company Reports)

Valuation Methodology: Price/Cash Flow - Based Relative Valuation

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation:  At the 23^rd March 2020 traded level, shares of EQX quoting a YoY price return of 48%, where the broader market is in steep bearish trend. The YoY relative outperformance of EQX’s stocks against the benchmark index stood at 112%, which is considerably high amid this challenging time. Gold miner usually set to benefit amidst turmoil in equity market, as price for their offering shot up as people rush to swap on safe haven gold assets from speculative assets.  In a year over period, its shares have registered a 52-week high of CAD 13.5 and a 52-week low of CAD 4.9. Further, its shares have relatively outperformed the broader index by 40% in a month-over period and 31% on a YTD basis. The business is likely to be benefited from the recent strategic collaboration and development of mines. The management also implemented several measures to boost its production activities and recoveries which includes stacking a higher percentage of oxidized material, increasing solution flow, and extending the leach cycle.

We have valued the company using Price to Cash Flow based relative valuation method. For this, we have taken peers group companies like Lundin Gold Inc (TSE: LUG), Argonaut Gold Inc (TSE: AR), B2Gold Corp (TSE: BTO) and arrived at a target price of double-digit upside (in % terms). Therefore, based on the above rationale, we have given a “Buy” recommendation at the closing price of CAD 9.4 (23^rd, March 2020).

EQX Daily Technical Chart (Source: Thomson Reuters) 

Dundee Precious Metals Inc

Positive Outlook driven by Commencement of Ada Tepe mine: Dundee Precious Metals Inc. is a Canada based mining company, which operates in exploration of minerals like gold, copper etc. It holds interest in several developing gold and exploration properties across Canada, Serbia and Ecuador.

Key Business Highlights, Drivers and Outlook:

• Record production: During FY19, the business delivered strong gold production of 230,592 ounces, up 15% on a y-o-y basis and above the mid-point of 2019 guidance. The increase in the gold production was driven strong production at Chelopech and Ada Tepe. Whilst the copper production stood at £2 million and was also in line with the management guidance of 2019.

• Three-year Guidance with Lower Costs and Improved Cash Flows: The group expect that it would be able to produce ~~275,000 ounces of gold and 35 million pounds of copper per year over next three years. The company also expect its all-in sustaining costs to decline which would result in margin expansion and higher cash flow.

• Robust financial Position and Liquidity: The group reported decent financial position, wherein the balance sheet has a cash resource of ~US$ 188 million, consisting of the undrawn portion of the DPM’s long-term RCF (revolving credit facility). The period was marked by a higher cash position of US$ 23.4 million and a decrease of US$10.0 million in total debt. 

• FY20 Outlook: Gold production is expected to grow by approximately~ 20% in FY20 while Copper production for FY20 is expected to be in line with FY19. All in sustaining cost is expected to remain under pressure in the near term; however, it is expected to decline in FY 21 and FY23.

FY19 Financial Highlights for the Period Ended 31^st December 2019

Key Financial Highlights for FY19 (Source: Company Reports)

DPM declared its full-year results, wherein the company reported revenue of US$ 419.1 million, as compared to US$ 377.1 million in FY18. The increase was driven by an increase in volume sales of gold and copper. Adjusted EBITDA stood at US$ 138.2 versus US$99.5 in the previous financial year. Adjusted net earnings increased to US$ 34.3 in FY19 from US$ 29.0 million in FY18. Free cash flow stood higher at US$ 67.2 million, versus US$53.9 million in FY18.

Valuation Methodology: Price/Cash Flow - Based Relative Valuation

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of DPM closed at CAD 4.56 with a market capitalization of ~CAD 823.25 million. The stock made a 52-week low and high of CAD 3.20 and CAD 6.66, respectively. The stock corrected by ~26.45% and 19.57% in the last one month and three months, respectively. While during the last one week, the stock rose by 10.68% amidst global market volatility. The business started production at Ada Tepe gold mine, which reflects a good performance in the upcoming period. The company reported a decent financial performance in the current financial year. The group achieved record gold production and higher free cash flow (up ~25% on y-o-y basis). The business is focused on its three-year growth plan, wherein the group is expected to enhance its productivity along with lower all-in sustaining costs. The company is planning to increase the production from its old and new operations in the coming future. Recent Coronavirus outbreak could affect the performance of the company. However, the Group is capable enough to tackle this uncertainty with its sustainable growth model. We have valued the stock using Price/Cash Flow based relative valuation method. We have taken peers like Alacer Gold Corp (TSX: ASR), Fortuna Silver Mines Inc (TSX: FVI), Alamos Gold Inc (TSX: AGI), etc. and arrived at a target price which is offering a lower double-digit upside return (in % terms). Hence, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 4.56, up 17.53% on 23^rd March 2020.

DPM Daily Technical Chart (Source: Thomson Reuters)

Disclaimer

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