Gulliver and three Lilliputians

In a recent survey of gold mining stocks, The MoneyLetter featured the world’s largest producer and three juniors—all favored by the analysts that follow them.

Haywood Securities analysts Kenny Smith and Danny Ochoa believe the recent price breakout has started a new bull market in gold and renewed interest in Barrick Gold Corp. (TSX—ABX; NYSE—GOLD) and the gold sector overall. The analysts maintain their ‘buy’ recommendation.

“The strength in gold over the past month—whereby gold prices are up by about nine per cent and the Gold Miners Equity ETF (GDX) is up 21 per cent—has increased multiples across the sector; we are increasing our target multiple for Barrick from 10 times to 12 times.

“At our previous multiple of 10 and an average gold price of US$1,400 per ounce for second half 2019 (a level not seen since Sept. 2013), our target price would increase. While our numbers remain unchanged for per share cash flow and net asset value given the recent strength in gold and improving sector multiples, we have increased our enterprise value over cash flow per share (EV/CFPS) multiple used to derive our target price.

“Also, first-quarter 2019 marked the first ever quarter of the newly merged company (between Barrick and Randgold Resources Ltd.). Barrick delivered a strong quarter exceeding expectations. With the debt situation now stabilized the company can shift its focus to optimal exploitation of the ore bodies and organic growth through the drill bit,” the analysts say.

Barrick Gold is the world’s largest gold producer, with about 6 million ounces of production expected in 2019 from sixteen operating mines.

Treasury Metals Inc.

Treasury Metals Inc. (TSX—TML) recently announced a notable development involving its wholly-owned high-grade Goliath gold project in northwestern Ontario.

Haywood Securities analysts Geordie Mark and Alvin Islam reiterate their ‘buy’ recommendation but lower their 12-month target share price, explaining that the federal permitting process has advanced to the final stages and that a feasibility study is slated to be completed before the conclusion of 2019.

“Treasury has confirmed that the federal permitting process for its Goliath Gold project has progressed past a notable milestone,” explain the analysts. “The Canadian Environmental Assessment Agency (CEAA) has released the draft Environmental Assessment (EA) for a 30-day public comment period, which precedes the final 60-day Ministerial review required prior to a final notice of decision (NOD). The NOD remains on track for the third quarter of 2019, which is expected to be followed by a feasibility study in the late fourth quarter of 2019. With the delivery of the feasibility study in conjunction with the finalization of concurrent federal level permitting work, we believe Treasury will be positioned for an investment decision in first half of 2020.”

After wrapping up the federal permitting requirements, the company believes that it will take half a year to finalize the additional technical and economic considerations needed to deliver a feasibility study late this year.

“Treasury has deferred the delivery of the updated study (previously expected in the first quarter of 2019) to have an opportunity to assess the feasibility of integrating material from other proximal deposits into the mine plan, and further work pertaining specifically to optimization of mine sequencing at Goliath to confirm plant utilization, optimization of TSF [tailings storage facility] and capital and operating expenditure schedules, an updated resource expected to include the conversion of East C-Zone resources into the M+I categories through a 10,000 metre ($1.5 million) drill campaign slated to commence in August.”

The analysts recommend that investors accumulate Treasury’s stock at existing levels.

Treasury Metals is a gold focused exploration and development company with assets in Canada.

Roxgold Inc.

Gold mining stock Roxgold Inc. (TSX—ROXG) delivered a strong first quarter of 2019, says Vancouver-based Raymond James Financial mining equity analyst Tara Hassan, with earnings beating forecasts on the back of higher production and lower costs than the market expected. She maintains her ‘outperform’ recommendation and $2.15-per-share target price.

The first quarter saw a substantial reduction in per-tonne operating costs, down 32 per cent year-over-year, due to a combination of improved contract pricing and continued strong performance from the plant, the analyst relays, adding that management expects further cost reductions.

Furthermore, the analyst says she believes that Roxgold is well-positioned to deliver on its 2019 guidance of producing 145,000-to-155,000 ounces of gold in 2019. This would mark the third year in a row that the company has met or exceeded its original guidance, a rarity amongst its peers. Ms. Hassan concludes that stronger production in second-half 2019 as Bagassi South (in Burkina Faso) enters production with Roxgold guiding for 60 per cent of production to be delivered in the later half of the year.

Troilus Gold Corp.

Troilus Gold Corp. (TSX—TLG) is building upon its J-Zone, say Toronto-based PI Financial analysts Philip Ker and Akin Akinwale, claiming its announced decent drill results from its flagship project in Quebec. The 40,000-metre drilling program was designed to expand the near-surface mineralization at both J-Zone and Z87 South areas. The point of the program is to demonstrate expansion of near-surface mineralization along the strike zones and down-dip of previous drilling.

“With over 5 million ounces of gold equivalent already delineated and growth opportunities emerging, the Troilus Gold project stands in solid footing moving forward given its size, favorable geographic location and potential for favorable economics in future desktop studies,” the analysts state. At present, Troilus trades at a significant discount of just US$5 per ounce of gold equivalent versus its peer group average of US$28 per ounce of gold.

Shares of Troilus are Speculative and more suitable for risk-tolerant investors, the analysts conclude, maintaining their ‘buy’ recommendation.

This is an edited version of an article that was originally published for subscribers in the July 2019/Second Report of The MoneyLetter. You can profit from the award-winning advice subscribers receive regularly in The MoneyLetter.

The MoneyLetter, MPL Communications Inc.
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