Equinox Gold Corp.

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.

Q1FY20 Income Statement Highlight: Equinox impresses with its quarterly number and reported a stellar top-line growth of USD 130.03 million, as compared to USD 35.38 million in the previous quarter. The quarter was marked by higher gold sales (82,629 oz versus 80,330 oz in Q4FY19) along with a jump in realized gold price (USD 1,574 per oz vs USD 1,482 oz in the previous quarter). Earnings from mine operations stood higher at USD 43.19 million compared to USD 30.8 million in Q1FY19, while the increase in operating expenses and depreciation & depletion remained a drag. Income from operations stood higher at USD 33.91 million, as compared to USD 0.95 million in pcp. The Group reported a net income of CAD 10.89 million, as compared to a loss of CAD 8.32 million in pcp. During the quarter, the Company produced 88,951 ounces of gold, higher than 80,176 ounces in Q4FY19.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Outlook: The company reiterated its guidance For FY20. However, it mentioned that the guidance might change owing to COVID-19 impact. The group expects its annual production if the range of 540,000 oz to 600,000 oz with an AISC of US$ 1,000/oz to US$ 1,060/oz. The group expects its sustaining capital ~US$ 88 million while expansion capital to be ~143 million. 

Valuation Methodology (Illustrative): Price/Cash-Flow based Valuation

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

Stock Recommendation: The stock of EQX is stood resilient and generated ~114% return for the one year, amidst the current correction in the equity market due to COVID 19 pandemic. The stock is trading above its 200-day simple moving average (SMA) of CAD 9.32. During the quarter, the company reported limited disruption on account of COVID 19 pandemic, which ensures smooth operations and higher cash flows in the coming quarters. In order to safeguard its interest against the global pandemic, the company withdrew USD180 million under its senior secured credit facilities, which ensures better liquidity from the company’s point of view. In the coming quarters, we expect, price appreciation in the international gold prices would further support the company’s top-line. We have valued the stock using Price/ CF based relative valuation approach. We have taken peers like Lundin Gold Inc (TSX: LUG), Torex Gold Resources Inc (TSX: TXG), Osisko Gold Royalties Ltd (TSX: OR) etc. and arrived at a target price offering lower double-digit upside potential (in % terms).  Hence, we recommend a ‘Buy’ rating on the stock at the closing price of CAD 11.90 as on May 15, 2020.

EQX One-Year Daily Price Chart, Source: Refinitiv (Thomson Reuters)

Maverix Metals Inc.

Maverix Metals Inc. is a resource company that seeks to acquire and manage royalties and metal purchase agreements on projects that are in an advanced stage of development or on operating mines producing precious or other metals.

MMX declared a quarterly cash dividend of USD 0.01 per common, payable on July 15, 2020.

Maverix has withdrawn its FY20 outlook due to an operation halt in its Mexico mines, which was resumed on May 18, 2020. Further, TMAC Resources Inc. has reduced its operations and workforce, which might hurt the Q2FY20 royalty revenues.

Q1FY20 Financial Highlights: Maverix Metal’s strong revenue growth amidst the current scenario (ongoing COVID 19 pandemic) is impressive. The Company reported total revenue of USD 9.29 million against USD 5.66 million in Q1FY19, driven by higher average realized gold price per ounce sold (USD 1,582 versus USD 1,301) and supported by an improved royalty revenue. While higher average cash costs per ounce sold (USD 167 versus USD 152 in Q1FY19) along with higher depletion have led to margin compression, long-term earnings prospects remain strong. Gross profit stood at USD 5 million, higher than USD 2.9 million in the previous corresponding period. Income from operations stood higher at USD 2.41 million, as compared to USD 1.82 million in pcp, thanks to higher gross profit, while administration expenses and project evaluation expenses, remained a drag. Net income for the period declined to USD 0.86 million, from USD 1.15 million due to a rise in foreign exchange loss and finance expense followed by a higher income tax expense.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Valuation Methodology (Illustrative): Price/Cash-Flow based Valuation

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

Stock Recommendation: The stock of MMX stood resilient amid the market crash and generated ~17% return in the last one year, well supported by the appreciation of international gold prices. The Company generates revenue from royalty income derived from mines located in North America, South America, and Australia. In the recent past, several mines witnessed a temporary halt in their operations on account of COVID 19 pandemic. Consequently, we expect royalty income to remain under pressure in the near term. However, the higher international gold price is expected to comfort the Company’s cash flow and income to a large extent. Further, the company continue to hold a strong liquidity position of cash and cash equivalents of USD 16.8 million and USD 54.0 million available under its credit facility, which seems sufficient to sail through the ongoing pandemic. The stock is trading above its, 200-days simple moving average (SMA) of CAD 5.90, indicating a bullish trend. We have valued the stock using P/CF-based relative valuation method. We have taken peers like Sandstorm Gold Ltd (TSX: SSL), Osisko Gold Royalties Ltd (TSX: OR), Franco-Nevada Corp (TSX: FNV) etc. and arrived at a target price offering a double-digit upside (in % terms). Hence, we recommend a ‘Speculative Buy’ on the stock at the closing market price of CAD 6.46 as on May 15, 2020.

MMX One-Year Daily Price Chart, Source: Refinitiv (Thomson Reuters)

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