Precious Metals & Mining
Initiation of Coverage
High-quality: Gold Resource Corp displays the hallmarks of a financially and operationally disciplined company, a result of the organisation’s history and development by members of the Reid family, the effective direction of the board of directors and the careful execution of plans by management. In this report, we explain why we’ve arrived at this conclusion and discuss the opportunity for investors over the next eighteen months.
Profitable near-term growth: Having successfully established their Mexican operations, the company have embarked on the construction of a financially-robust heap-leach operation in Nevada, at their Isabella Pearl project. The project, from a technical perspective has a lower-risk profile and requires only modest amounts of capex, but will more than double the production of gold in the near-term.
Dividends: With production growth and, more importantly, free cash-flow growth on the horizon, the board of directors will need to consider how to handle this scenario. The company’s clearly stated philosophy of paying dividends suggests that returns to shareholders are likely to rise sharply, once Isabella Pearl reaches steady state production.
Valuation: We see fair value at $8.47 based on a multiple of 1.2 x Net Asset Value (NAV). Arlington Group’s NAV calculations assume flat gold and silver price per ounce forecasts of $1,300 and $15 respectively. In addition, we forecast a significant increase in dividend yields from 2020 onwards with the capacity to reach an industry leading 7-8% yield, all without the need for increased metal price assumptions.
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