SSRM Mining Inc.

SSR Mining Inc. (TSX: SSRM) is a Canada-based precious metals producer with three operations, including Marigold gold mine in Nevada, U.S., the Seabee Gold Operation in Saskatchewan, Canada and Puna Operations in Jujuy, Argentina. The company operates through two feasibility stage projects and a portfolio of exploration properties in North and South America.

Key takeaways from Q3FY20 results:

• SSRM announced its quarterly results, wherein the company posted revenue of USD 225.412 million, significantly higher than USD 147.848 million a year-ago. The company reported higher Gold sales of 99,495 oz, higher than 78,928 oz a year before, while average realized gold price at USD 1,914/oz, as compared to USD 1,480/oz, a year ago.
• During the period, the company produced 1.3 million ounces of silver at AISC of USD 11.26 per oz. The company reported a higher gross margin of 37%, improved from 35% reported in Q3FY19.
• Income from mine operations stood at USD 83.226 million, as compared to USD 51.906 million in the previous corresponding period (pcp), supported by higher revenue, while higher production costs remained a drag.
• Operating income stood at USD 52.725 million, as compared to USD 39.891 million in pcp. The company reported a significantly lower general and administrative expenses, while the inclusion of transaction and integration expenses amounting to USD 15.674 pushed the expenses higher.
• The company reported a strong balance sheet and liquidity and reported a consolidated cash balance of USD 772.8 million.

Q3FY20 Financial Highlights (Source: Company Reports)

FY20 Operational Guidance (Source: Company Reports)

Risks: The company is exposed to volatility in the gold prices, as the company derives the majority of its revenue from gold sales; therefore, a slump in the yellow metal prices could weigh on the group’s performance.

Valuation Methodology: Price to CF Based (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation:

The stock of SSRM appreciated ~8% and ~29% in the last nine months and one year, respectively due to elevated gold prices, which supported the company’s top-line and cash flows. Due to the current economic slowdown, demand for the safe-haven yellow metal has soared up, and international gold prices rose significantly in the recent past. Furthermore, the company expects its FY20 production within the range of 680,000 to 760,000 old equivalent ounces, which looks impressive. The company reported Encouraging exploration results in the third quarter of FY20 from its portfolio in Çöpler, Marigold and Seabee, which is encouraging. Also, gold prices are expected to remain elevated in the coming quarter as well because of uncertainties hovering the world economy and the next wave of COVID-19 outbreak.

We have valued the stock using Price to CF based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Torex Gold Resources Inc, Alamos Gold Inc etc. Hence, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 25.85 on November 13, 2020.

1-year Daily Price Chart (as on November 13, 2020, after the market close). Source: Refinitiv (Thomson Reuters)

Wesdome Gold Mines Ltd

Wesdome Gold Mines Ltd (TSX: WDO) is a gold producer engaged in mining-related activities including exploration, processing, and reclamation. The company produces gold at the Eagle River Complex located near Wawa, Ontario from the Eagle River Underground and Mishi Open Pit gold mines.

Key Highlights:

• Zero-debt balance sheet: The company has a strong balance-sheet with strong reserves levels and zero-debt component. Despite a capital-intensive business, the company has maintained a zero-debt profile, which is commendable and indicates operational resiliency and prudent capital management.

         Q3FY20 Liabilities snapshot (Source: Company Reports)

• Low risk and low cost expansion at Eagle mine: The company is likely to enhance its presence within the Mid-tier segment through its low-risk expansion of existing mines in proven mining camps. Since 2017, the company reported increased in its Gold production by ~55% while cash costs have declined ~25% simultaneously over the same period.
• Minimal equity dilution: Since closing the CAD 17M bought deal offering in Q2 2016, Wesdome’s fully diluted share count has only increased by 4.5%. The company’s financial position remains robust, and Kiena re-start project can be fully funded with cash on hand.

Q3FY20 Financial Highlights:

• WDO announced its quarterly results, wherein the company posted revenue of CAD 55 million, higher than CAD 45.940 million in the previous corresponding period (pcp). The increase was driven by higher AISC of CAD 1,395 per oz, higher than CAD 1,344 per oz in pcp.
• Gross profit stood higher at CAD 25.794 million, against CAD 20.694 million in pcp, thanks to the elevated revenue.
• Operating income stood higher at CAD 22.624 million, against CAD 18.791 million in pcp, partially supported by lower corporate and general costs, while the inclusion of COVID-19 costs amounting CAD 1.281 million remained a drag.
• The company reported net income of CAD 14.614 million, higher than CAD 12.449 million in Q3FY19.
• The corporation ended the quarter with a cash balance of CAD 73.513 million, while total assets stood at CAD 352.399 million.

Q3FY20 Income Statement Highlights (Source: Company Reports)

FY20 Operational Guidance (Source: Company Reports)

Risks: Volatility in gold prices may take a toll on the company’s overall performance. Also, a further breakout of COVID-19 could restrict the mining and exploration program.

Valuation Methodology (Illustrative): Price to CF based

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of WDO appreciated ~18% and ~29% in the last nine months and one year, respectively, due to elevated gold prices in the recent past. For FY20, the company expects total gold production of 90,000 ounces to 100,000 ounces, with an AISC of CAD 1,280/oz to CAD 1,350/oz. We expect gold prices to remain elevated in the foreseeable future due to ongoing uncertainty across the global economy coupled with lower interest rate scenario. We have valued the stock using Price to CF based relative valuation method and have arrived at a target upside of double-digit (in percentage terms). For the said purposes, we have considered peers like Jaguar Mining Inc, Osisko Gold Royalties Ltd etc. Hence, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 11.0 on November 13, 2020.

WDO Daily Technical Chart (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.