With gold breaking through US$1,600 per oz. – “a key long-term resistance zone” – analysts at Haywood Securities recommend “increasing tactical exposure to gold and gold miners” and “particularly juniors.”
In a research note to clients, the brokerage says the US$1,600 per oz. zone “marks an important inflection point for the commodity … The next major resistance level is in the 1800 zone which, if broken, could give way to new all-time highs in the gold price. We recommend using any short-term retracement/pullback above this new support zone as a result of seasonal weakness to accumulate positions.”
“At US$1,650 per ounce gold, spot price resides well above our US$1,550 per ounce forecast for 2020, and our US$1,475 per oz. long-term projection, as well as virtually all company guidance and project economic study commodity price inputs,” Haywood continues. “In this context, elevated gold price and positive pricing direction would foster heightened leverage for higher cost producers and improved internal rates of return for development stage assets and we expect that market interest is turning more toward such equities holding these asset classes (supported by the GDXJ/GDX ratio).”
Haywood’s top picks in the producer category are Alamos Gold (TSX: AGI) and Calibre Mining (TSX: CXB), and in the development stage, Liberty Gold (TSX: LGD), Lumina Gold (TSX: LUM), and Marathon Gold (TSX: MOZ).
Haywood has a target price on Alamos Gold of $10.25 per share – up from its current price of $8.40. It likes Alamos “for its potential for longer term organic production and resource growth, strong balance sheet (no debt, US$183 million in cash) and free cash flow generation (~US$130 million in 2020 in our model at US$1,500 per oz. gold).”
“With the addition of Kirazli, production can grow to ~600,000 oz. by 2020, or +20%, and with the addition of Agi-Dagi, Camyurt and Lynn Lake production has the potential to grow to over 900,000 oz. by 2024 (+90%).”
Its target on Calibre is $1.80 per share – up from its current trading price of 90¢ per share. “Calibre Mining has recently taken a strategic leap and emerged as a noteworthy dual asset gold producer following its ~US$100 million acquisition of the El Limon and La Libertad gold mines from B2Gold in October 2019,” Haywood notes.
Haywood’s target price on Liberty Gold is $1.60 per share – up from the junior’s trading price of $1.16. Last year, the company’s shares rose 250%, Haywood notes, largely due to its Black Pine oxide gold project in Idaho. “Black Pine, a past producer of ~ 435,000 ounces of gold oxide, has quickly become the company’s flagship project due to a combination of high-grade oxide drill intersections including 53.3 metres grading 4.39 grams gold and 62.5 metres grading 3.38 grams gold, and a host carbonate horizon that ranges between 150 to 250 metres in thickness.
“These numbers compare to the current 1.22-million-oz. gold resource at its Goldstrike project in Nevada, which averages 0.49 gram gold per tonne and host carbonate horizons that average 10 to 20 metres thick.”
Haywood also likes Lumina Gold and has a target price of $1.50 per share, up from the company’s current share price of 69¢. Lumina is advancing its Cangrejos gold-copper project in Ecuador, “which continues to yield positive results from drilling on both the Gran Bestia gold-copper satellite deposit, as well as the main ore body at Cangrejos.”
Haywood notes that “value is continuing to be added through discovery of not only additional gold-copper mineralization, but also of mineralization that is shallow and higher grade than the average deposit to warrant functional changes in the value of any future production centre. This thesis for value accretion is particularly evidenced by the unearthing of higher grade, shallow (surface or near-surface) gold-copper mineralization at Gran Bestia.”
Finally, Haywood likes Marathon Gold, and has a target price of $2.50 per share, up from the company’s current trading price of $1.35. Marathon owns the 4-million-oz. gold Valentine Lake project in central Newfoundland.
“Marathon currently trades at $55 enterprise value (EV) per ounce and 0.60 times price/net asset value (P/NAV) relative to its peers at $78 per ounce and 0.56 times P/NAV, and, with a prefeasibility study expected in the second quarter of 2020 and a 44,000-metre exploration program underway, we believe Marathon is one of the better-positioned gold development companies in the sector,” Haywood states.
“While gold producers current focus is on producing assets for potential M&A, eventually this focus will have to shift towards high-quality development stage assets as smaller gold producing companies are acquired,” it notes. “Given gold producers M&A strategies remain risk-averse, we believe companies with assets that are in safe jurisdictions, are shallow and open-pittable with simple metallurgy and are not capital intensive will be of a key focus.”