Company Overview: Gold Road Resources Limited (ASX: GOR) is involved in mine operations through a joint venture, sale of gold and mineral exploration. The company’s segment includes development and production, and exploration. GOR’s development and production segment comprise the Gruyere joint operation with Gold Fields.

GOR Details

GOR Rides on Rising Ore Reserves& Decent Liquidity Position: The company is delivering shareholder value with the help of a decent business and balance sheet, consistent production forecast, focus on discovery at Yamarna, disciplined approach to inorganic growth and total shareholders returns of ~1,415% from 11 October 2013- 24 March 2022. The year 2021 witnessed a significant increase of 28% in attributable reserves and resources as well as positive progress from its exploration efforts at Yamarna. The ore reserves growth was backed by the addition of 1.2 Moz of indicated resources and steepening pit slopes by up to 4 degrees. The company believes that it is in a decent position to achieve its strategic growth objectives through discovery as well as a value-accretive transaction. In addition, the company is focused on improving the performance of Gruyere in 2022, together with its joint venture partner, Gold Fields.

Gold Production Trend (Source: Analysis by Kalkine Group)

Insights of FY21: During 2021, the company’s ore reserves grew to 2.23 million ounces, whilst attributable mineral resources grew to 4.71 million ounces. The company ended FY21 in a strong position with increased cash and short-term deposits of $131.5 million, compared to $126.4 million at the end of FY20. In addition, GOR continued to return to shareholders in the form of a final dividend of 0.5 cents per share for the six-month to 31 December 2021.

Financial Summary (Source: Analysis by Kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form around ~28.57% of the total shareholding, while the top 4 constitute the maximum holding. Van Eck Associates Corporation and The Vanguard Group, Inc. are holding a maximum stake in the company at ~10.23% and ~4.52%, respectively, as also highlighted in the chart below:

Top 10 Shareholders (Source: Analysis by Kalkine Group)

Key Metrics: During FY21, the company recorded a current ratio of 3.19x as compared to 2.75x in FY20. In addition, GOR witnessed an improvement in debt-to-equity ratio to 0.26x in FY21 against 0.28x in FY20.

Liquidity & Leverage Profile (Source: Analysis by Kalkine Group)

Key Risks:

• Gold Price Risk: The company’s operational and financial performance could be affected by the adverse movement in the prices of gold as it generates a major portion of revenue from the sale of gold.
• Cost Pressure: The company’s business could be affected by the rising cost pressure, which has affected its recent financials.
• Regulatory Risk: GOR is exposed to a more complex regulatory environment; any failure in the compliances could lead the business to fines, penalties, etc.

Outlook: Looking forward, the company will continue to assess and analyse various opportunities through the prism of its disciplined growth strategy, which prioritises shareholder value. For FY22, the company expects to produce gold in the range of 150,000-170,000 ounces at an all-in sustained cost (AISC) of between A$1,270-1,470/oz. In addition, the company is focused on the target to grow its annual production to a sustainable 350,000 ounces per annum by 2023. With respect to exploration at Yamarna, the company is targeting the discovery of a 100% owned operation by exploring more than 1 Moz resource. In addition, the company has set an exploration budget of $30 million for FY22 and has increased its focus on RC & diamond drilling targets.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of GOR has a 52-week low-high range of $1.100- $1.830, respectively. The stock has provided returns of ~4.14% in the past three months. The stock has been valued using a P/E multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). The company might trade at a slight discount to its peers’ average P/E multiple, considering the COVID-19 Uncertainties and rising cost pressure, etc. For the purpose of valuation, a few peers like Regis Resources Ltd (ASX: RRL), Dacian Gold Ltd (ASX: DCN), Perseus Mining Ltd (ASX: PRU), and others have been considered. Considering the expected upside in valuation, growing ore and mineral reserves, rising cash position, optimistic long-term outlook, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of $1.655, up by ~2.160% as on 29 March 2022.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

GOR Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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