One of the world’s top-10 gold-mining companies and two juniors on the TSX Venture exchange all get ‘buy’ ratings in a recent MoneyLetter round-up.
Toronto-based Beacon Securities mining analyst Michael Curran suggests Kinross Gold Corporation (TSX—K; NYSE—KGC) deserves a higher target price for being his “preferred value play among the senior North American gold producers”. He raises his price target to $9 per share from $6.50, while reinstating a ‘buy’ recommendation.
Mr. Curran considers the company to be an attractive investment opportunity for the potential positive re-rating of the company. He feels investors see stable operating results at the company’s mines and leverage potential with improved gold prices and/or declining operating costs.
For senior gold producers (annual gold output of over 1.5 million ounces), the analyst employs a target range of 0.75-to-1.50 times the ratio of price-to-net asset value (P/NAV). For Kinross, he employs a target P/NAV multiple of 1.0. Applying the target multiple to his 2020 NAV estimate suggests a fair value of $7.85 per share.
On a forward-looking price-to-cash flow (P/CF) multiple basis, he forecasts cash flow per share of $1.01 in 2020. Applying a target multiple of seven times P/CF, which is towards the lower end of his five-to-15 multiple target range for senior gold producers, suggests a fair value of $10.25 per share.
Kinross’ operations in Ghana and the Americas are deemed “low risk”, thus attracting a five per cent base discount rate, while Mauritanian and Russian assets are considered “medium risk” to which a seven per cent discount rate is employed.
Using the fair values outlined above, and an equal weighting between P/NAV, and P/CF metrics generates a 12-month target price of $9 per share.
Meanwhile, back in mid-September, the company completed the feasibility plan to expand daily throughput at the Tasiast gold mine in Mauritania to 24,000 tonnes per day, at an estimated capital cost of US$150 million.
The expansion would see annual gold production rise to 563,000 ounces, with operating costs forecast to decline to under US$500 per ounce and all-in-sustaining costs of US$560 per ounce, extending the mine-life by four years to 2033.
Lastly, on July 31, Kinross announced plans to acquire the Chulbatkan gold project in Eastern Russia for US$283 million. Chulbatkan hosts a near-surface four-million ounce resource (at 1.4 grams of gold per tonne of ore) that is expected to be open-pittable and heap-leachable.
The large property position has significant exploration potential beyond the current resource, adding to the analyst’s potential re-rating of Kinross. He reports that Kinross’ due diligence was conducted over 16 months, and involved confirmatory drilling, as well as metallurgical testing.
Kinross Gold is an established senior gold producer forecast to deliver 2.5 million ounces of gold in 2019 from its mines in the Americas, West Africa and Russia.
Bonterra Resources Inc. (TSXV—BTR) has discovered a new high-grade gold zone named M4 at its Moroy project in the Urban Barry Camp in Quebec. The Moroy deposit is a past-producing underground operation with functioning hoist and permitted processing facility. Diamond drilling intersected the M4 zone which is more shallow dipping (20-to-30 degrees) compared to other typical mineralization hosted at various zones across Moroy.
“The positive drilling confirms a new orientation for targeted zones of mineralization in future exploration efforts. Furthermore, the positive high-grade intervals speak favorably to the under-explored potential not only at Moroy but across Bonterra’s vast land package within the Urban Barry camp,” say Toronto-based PI Financial analysts Philip Ker and Akin Akinwale. “Our ‘buy’ thesis continues to be hinged on the potential restart and collective scaling up of operations via Moroy, Barry and Gladiator to fill an expanded mill facility,” they add, while maintaining a $3.50 per-share target price.
Selected batch of intercepts in M4 include: 18.09 grams of gold per tonne of ore (g/t) over 3.6 metres, and 11.09g/t over 11.41 metres.
GT Gold Corp. (TSXV—GTT) released what Vancouver-based PI Financial analysts Chris Thompson and Justin Stevens view as favourable results. They continue to view the Saddle North porphyry system as amenable to a bulk mining operation, both open pit as well as underground. They await additional results (pending) before considering an underground operating mine plan (in addition to open pit) for Saddle North in their valuation.
For now, the analysts reiterate their ‘buy’ rating for GTT and target price of $2.25 per share, saying their continued recommendation of it is underpinned by Saddle North’s size, grade, open-pit and depth potential, as well as the exploration upside offered by GTT’s highly prospective land package at the Tatogga project.
This is an edited version of an article that was originally published for subscribers in the November 2019/Second Report of The MoneyLetter. You can profit from the award-winning advice subscribers receive regularly in The MoneyLetter.
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