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. The company owns and operates the Marigold mine in Nevada, United States; the Seabee Gold Operation in Saskatchewan, Canada; and the Pirquitas mine in Argentina. Most of the gold production is derived from the Marigold mine, and Silver production is principally derived from the Pirquitas mine.

Key Highlights 

• Event Update: The company will be releasing its fourth quarter and year-end 2020 consolidated financial results on Wednesday, 17th February 2021.

• Dividend policy announced: On November 12, 2020, the Board approved the initiation of a quarterly cash dividend of USD0.05 per share beginning in the first quarter of 2021.

• Achieved 2020 production guidance: FY2020 was a transformational year for the Company as they completed and integrated the merger with Alacer Gold which delivered several value-enhancing catalysts. The Company achieved its 2020 production guidance as all four operating sites exited the year with strong operational momentum and clearly defined growth initiatives. The Company produced approximately 711,000 gold-equivalent ounces, delivering a strong fourth-quarter performance of approximately 220,000 gold-equivalent ounces. 

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

Source: Company 

Financial overview of Q3 2020 (Expressed in thousands of United States dollars)

Source: Company 

• In Q3 2020 the company reported revenue of USD 225.4 million, against USD 147.8 million in the previous corresponding period. The increase of 52% in revenue was primarily due to a 29% increase in the average realized gold price and a 2% increase in the volume of gold ounces sold.
• Income from mine operations stood at USD 83.2 million, against USD 51.9 million in Q3 2019. The increase was mainly due to higher income, partially offset by higher cost of sales.
• Lower G&A expenses in the reported quarter helped the company in posting operating income of USD 52.7 million, compared to USD 39.8 million in Q3 2019. Partially offset by care & maintenance expenses along with transaction expenses worth USD 15.6 million.
• The company posted net income of USD 25.1 million, against USD 18.1 million in the previous corresponding period. 

Risks associated with Investment

The market prices of gold and silver are key drivers of the 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): Price to Cash Flow 

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

Stock recommendation

FY2020, was a transformational year for the company as they successfully achieved its production guidance that too before time. The company produced approximately 711,000 gold-equivalent ounces, delivering the strong fourth-quarter performance of approximately 220,000 gold-equivalent ounces. Furthermore, the company will continue to demonstrate its capability to sustain 700,000 to 800,000 gold-equivalent ounces of production for the next 5+ years is a key positive. The group maintains strong liquidity with ample cash flows, which further supports its financial flexibility through financial discipline. Recently, the Board approved the initiation of a quarterly cash dividend of USD0.05 per share, beginning in the first quarter of 2021 is a big positive move. Therefore, based on the above rationale and valuation, we have given a “Buy” rating at the closing price of CAD 21.79 on February 4, 2021. We have considered Torex Gold Resources Inc, Pretium Resources Inc, Kirkland Lake Gold Ltd, etc. as the peer group for the comparison.

1-Year Price Chart (as on February 04^th, 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. The Young-Davidson mine is the group's largest revenue contributor.

Key highlights

• Event update: The company plans to release its fourth quarter and year-end 2020 financial results after market close on Wednesday, February 24, 2021.

• Higher production and operating guidance for 2021: Year 2020 has been a transformational year for the company. Operationally, the group is on track to achieve its 2020 production, cost, and capital guidance. The management highlighted strong production growth and expects it to be in a range of 470,000 to 510,000 ounces of gold, a 17% increase from 2020 guidance. Furthermore, the group expects lower costs with total cash cost to be in a range of USD 710 to USD 760 per ounce, an 8% decrease from 2020 guidance.

Source: Company

• Completed lower mine expansion at Young-Davidson: The Company completed its lower mine expansion at Young-Davidson, commissioned Northgate shaft successfully. The ramp up of mining rates at Young-Davidson is expected to drive a 17% increase in our production in 2021 and would drive strong free cash flow growth.
• Became debt-free along with significant liquidity:The Company is maintaining strong liquidity position with USD 274.1 million of cash and cash equivalents and USD 400.0 million in revolving facility. After repaying its utilized revolving facility in October 2020, the group became debt-free. The group believes to fund its growth initiatives from internal sources on the back of strong cash flows.

Source: Company

• Increase in dividend distribution:In Q3 2020, the company declared and paid a dividend of USD 0.015 per share. The group announced a 33% increase in its dividend to an annual rate of USD 0.08 to be paid out later this month.

Financial overview of Q3 2020 (stated in millions of United States dollars)

Source: Company

• In Q3 2020, the Company sold 116,035 ounces of gold and generated revenue of USD 218.4 million, an increase of 26% against USD 173 million in Q3 2019, based on higher realized gold prices.
• Cost of sales decreased by 4% to USD 122.6 million in Q3 2020, compared to USD 127.3 million in Q3 2019, mainly driven by lower mining and processing costs at Island Gold and Young-Davidson.
• The Company recognized earnings from operations of USD 88.0 million, 135% higher against USD 37.5 million in Q3 2019, based on improved operating margins driven by an increase in realized gold prices and a reduction in total cash costs.
• Net earnings in the reported quarter stood at USD 67.9 million, against USD 17.7 million in Q3 2019.

Risk associated with investment

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

Valuation Methodology (Illustrative): Price to Cash Flow

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

Stock recommendation

Q3 2020, was a transformational quarter 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 led by the company. The management raised the production guidance for 2021 with lower operating cost, which is encouraging. Therefore, based on the above rationale and valuation, we recommend a “Buy” rating at the closing price of CAD 10.14 on February 4, 2021. We have considered B2Gold Corp, Kirkland Lake Gold Ltd, Wesdome Gold Mines Ltd. as the peer group for the comparison.

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.