SSR Mining Inc.

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

Key highlights

• 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 stood at USD 179.28 million, against USD 10.07 million in the previous corresponding period.

• Guidance on 2021 production: For 2021, the company would be advancing and executing its organic growth portfolio to increase production, reduce costs, and extend mines 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

• Acquired Alacer Gold Corp: Recently, the company acquired Alacer to establish it as a leading intermediate precious metals producer with robust margins, strong free cash flow generation and long mine lives across four mining-friendly jurisdictions. Furthermore, the combined business would enable the Company to leverage its proven project execution capabilities to continue delivering the extensive organic growth portfolio.

• Enhanced balance sheet and liquidity: The robust production and the higher average realization price helped the company to strengthen its balance sheet. Its cash balances at year-end increased to USD 860.6 million, against USD 503.6 million in the previous corresponding period. 

Source: Company

Industry Beating Margins: The resilient business of the company assisted in outperforming the industry margins. The matrix below gives a glimpse of this.

Source: Refinitiv (Thomson Reuters)

• Announced inaugural dividend: The company announced its first quarterly cash dividend of USD 0.05 per share. This reflects that the company is confident in its operations and focusing on shareholders’ return.
• New appointment on board: Recently the company announced the appointment of Ms.Alison White as Executive Vice President and Chief Financial Officer.

Financial overview of FY 2020 (In thousands of USD)

• 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 140.47 million, against USD 55.76 million in the previous corresponding period. 

Risks associated with investment

The market prices of gold and silver are key drivers of the company’s profitability. The prices can fluctuate widely and are affected by several macroeconomic factors, including global or regional consumption patterns, the supply and demand for gold, interest rates, exchange rates, inflation, etc.

Valuation Methodology (Illustrative): EV to Sales

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 operating assets. Furthermore, it holds a strong balance sheet, with USD 897.0 million in consolidated cash on December 31, 2020, 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. Furthermore, the management focuses on generating peer-leading free cash flow in the foreseeable time frame. Therefore, based on the above rationale and valuation, we recommend a “Buy” rating at the closing price of CAD 19.68 as on April 13, 2021. We have considered Kinross Gold Corp, Pan American Silver Corp, Kirkland Lake Gold Ltd, etc. as a peer group for the comparison.

1-Year Price Chart (as on April 13, 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, the Young-Davidson Mine in Canada and the Mulatos and El Chanate Mines in Sonora, Mexico.

Key highlights

• 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 USD 122 million, against negative free cash flow of USD3 million in the previous corresponding period. 

• 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 its 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, which is appreciable.

Source: Company

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

Source: Company

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

Source: Refinitiv (Thomson Reuters)

• Event update: The company will be releasing its first quarter 2021 financial results after market close on Wednesday, April 28, 2021.

Financial Overview of FY 2020

• In FY 2020, the Company sold 424,325 ounces of gold at an average realized price of USD 1,763 per ounce. The company 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 its 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 transformational year for the company as it came out with the robust performance, strong cash position, zero debt and completion of lower mine expansion at Young-Davidson. All these factors give a glimpse of strong foundations led by the company to achieve higher growth in future. Furthermore, the management raised production guidance for 2021 with lower operating cost, which is a key positive. We believe that despite a little pullback, gold, as an asset class would continue to remain in the limelight as there are uncertainties over economic recovery. Therefore, based on the above rationale and valuation, we recommend a “Buy” rating at the closing price of CAD 10.62 as on April 13, 2021. We have considered Pretium Resources Inc, Kirkland Lake Gold Ltd, Wesdome Gold Mines Ltd. as the peer group for the comparison.

1-Year Price Chart (as on April 13, 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.