Teranga Gold Corporation

Strong First Quarter with 27% Increase in Production: Teranga Gold Corporation (TSX: TGZ) is a Canadian-based gold company with assets in production, development, and exploration situated on prospective gold belts across West Africa in Burkina Faso, Cote d'lvoire and Senegal. As on 29 May 2020, market capitalization of the company stood at CAD1.81 billion.

Quarterly Performance (For the Period Ended 31 March 2020): The company has recently reported results for the first full quarter with two operating mines, wherein it generated strong revenues, profits, and quarterly production. During the three months ended 31 March 2020, the company reported an increase of 27% in gold production to 91,312 ounces, driven by a strong first full quarter of operations at Wahgnion.  In the same time span, revenue of the company went up by 46% to USD134.1 million and gross profit rose by 41% to USD39.5 million. During the quarter, the company witnessed a growth of 70% in EBITDA to USD66.48 million and reported an increase in net profit attributable to shareholders to USD16.2 million as compared to the net loss of USD2.7 million in the pcp. However, the swings in inventory stockpile, supplies build-up and settlements of gold advances resulted in a significant decline of 97% in operating cash flows. The mill at Wahgnion plant continued to exceed the plant design and gold production and the development of the Sabodala-Massawa complex is underway.

Quarterly Financial Performance (Source: Company Reports)

Impact of COVID-19 on TGZ Operations: Due to restrictions put in place for travel because of COVID-19, Sabodala implemented isolation protocols in mid-March and continued to operate. The company faced challenges in the gold shipment logistics in mid-March, at the onset of the pandemic; however, since early April, regular shipments at refineries in Europe have resumed.

Valuation Methodology: EV/EBITDA Multiple Based Approach (Illustrative)

EV/EBITDA Multiple Based Approach (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: As per TSX, the stock of TGZ is trading close to its 52-week high of CAD11.83, but still holds a potential for growth. The stock of TGZ gave a return of 55.35% in the past three months and a return of 6.33% in the last one month. We have valued the stock using an EV/EBITDA multiple based illustrative relative valuation method and arrived at a target upside of high single-digit (in percentage terms). Considering the current trading levels, attractive returns in the past three months and decent first quarter performance, we recommend a ‘Hold’ rating on the stock at the current market price of CAD10.81, on 1 June 2020.

TGZ Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Seabridge Gold Inc.

Seabridge Completes Acquisition of 3 Aces Project in Yukon: Seabridge Gold Inc. (TSX: SEA) is a development stage company involved in the evaluation, acquisition, exploration, and development of gold properties sited in North America. As on 30 May 2020, the market capitalization of the company stood at CAD1.40 billion. The company has recently completed the acquisition of 3 Aces gold project in the Yukon, Canada from Golden Predator Mining Corp. for 300,000 Seabridge common shares and potential future cash payments of CAD2.25 million.

Seabridge Gold Secures CAD9.9 Million Bought Deal Private Placement: The company has recently reported results for the first quarter ended 31 March 2020, wherein it reported a net loss of CAD3.2 million as compared to a net loss of CAD4.1 million for the comparative period ended 31 March 2019. At Snowstorm, the company started to plan its exploration program for 2020 and evaluated the results of its first drill program. The company has entered into an agreement with Cantor Fitzgerald Canada Corporation as sole bookrunner and lead underwriter on behalf of B. Riley FBR, Inc. and Roth Capital Partners, LLC. Under the agreement, the underwriters agreed to purchase a 300,000 flow-through common share at a price of CAD32.94 per share on a bought deal private placement basis.  

What to Expect: Given the special challenges posed by the COVID-19 virus, SEA took steps to accentuate its operations. The company hopes to execute the 2nd drill program at Snowstorm in search of a Getchell/Twin Creeks style deposit and complete an initial drill test for a gold/copper porphyry deposit below the Quartz Rise lithocap at Iskut.

Stock Recommendation: As per TSX, the stock of SEA is trading close to its 52-week high of CAD23.11, but still holds the potential for further growth. The stock of SEA gave a return of 4.11% in the past one month and a return of 55.37% in the last three months. During the quarter ended 31 March 2020, current ratio of the company stood at 3.23x, higher than the industry median of 2.35x. Considering the attractive returns in the past three months, current trading levels, and acquisition of 3 Aces gold project, we recommend a ‘Hold’ rating on the stock at the current market price of CAD21.38, on 1 June 2020.

SEA Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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