Torex Gold Resources Inc. (TSX: TXG) is a gold mining company engaged in the exploration, development, and exploration of its wholly owned Morelos Gold Property.

Why Should Investors Book Profit?

• Decline in topline on account of lower gold prices: During Q3FY21, the company reported a decline in the Average realized gold price at USD 1,786/oz, as compared to USD 1,884/oz in Q3FY20. As the group’s income is directly corelated to the international commodity prices, hence, a price volatility is likely act as a drag. Notably, Q3FY21 revenue stood at USD 216.7 million, significantly lower than USD 256.5 million in pcp.
  

• Lengthy cash conversion period: The company reported its cash conversion period of 100.5 days in Q3FY21, which is significantly higher than the industry median of 54.4 days. A higher cash conversion period denotes lower efficiency because the company is taking relatively higher time to convert its raw materials to cash flows.

• Increase in total cash cost: In Q3FY21, the company witnessed a surge in its mining costs which has resulted to a significantly higher cash cost of USD 727/ oz, as compared to USD 637/oz in pcp. Continuation of the above trend might lead to margin shrinkage for the company.

Stock Recommendation:

On the technical chart, the stock has failed to close above its crucial support levels of 50-days and 100-days simple moving averages (SMAs), indicting a bearish technical pattern. We have valued the stock using the Price to CF-based relative valuation method and have arrived at a double-digit downside (in percentage terms). For the said purposes, we have considered peers like New Gold Inc, OceanaGold Corp etc. Considering the aforesaid facts, we recommend a ‘Sell’ rating on the stock of TXG at closing price of CAD 12.66 on January 21, 2022.

One-Year Technical Price Chart (as on January 21, 2022). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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