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

GOR Details

This report is an updated version of the report published on the 17 May 2022 at 3:55 PM GMT.

Acquisition to Support Diversification of Portfolio: The company is building a quality portfolio, and for the same, it has recommended an off-market takeover proposal of DGO Gold Ltd. at 2.16 GOR shares for every DGO share. This implies $3.55 per share or $308 million for DGO. The acquisition is fully aligned with strategy and may help GOR in enhancing and diversifying the growth pipeline. As per the second supplementary bidder’s statement, the company has a relevant interest of 20.35% and has not made any changes to the offer. During the quarter ended March 2022, the company was mainly focused on growing production, business growth evident by increasing grades and 2 Year outlook growing to 350 kozpa as well as increased attributable resources to 4.7 Moz. Looking forward, the company believes that the production rates will improve in the upcoming period. This mainly reflects improving head grade and plant utilisation.

Insights of Q1FY22: In the past four quarters, the company experienced consistent growth in production. It closed the quarter with a strong balance sheet, evident by the debt free position and rising cash position of $138 million against $131.5 million as of 31 December 2021.

Operational Summary (Source: Analysis by Kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form around ~29.42% 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 ~10.22% 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 posted a current ratio of 3.19x in FY21 as compared to 2.75x in FY20. In addition, debt-to-equity ratio stood at 0.26x in FY21 against 0.28x in FY20.

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

Key Risks:

• Gold Price Risk: Any adverse movement in the spot prices of gold could impact the company’s financial health as it is major revenue-generating stream.
• Regulatory Risk: The company is exposed to a more complex regulatory environment; any failure in compliance could lead the business to fines, penalties, etc.
• Climate Change: GOR’s operational health could be affected by the extreme change in climate, which may pause its mining operation temporarily.

Outlook: For FY22, the company is expecting annual production from Gruyere in the range of 300,000 – 340,000 ounces at an attributable AISC of between A$1,270 – A$1,470 per ounce. In addition, the company believes that production will increase steadily through 2022. In addition, the installation of the Gruyere 13 MW solar farm is in decent progress, with completion likely to be in the June 2022 quarter. With respect to Gruyere, the company anticipates mined grade rise across 2022 as mining advances through higher grade zones in the deeper sections of the Stage 2 pit, along with the mining of higher-grade oxide and fresh ore from the Stage 3 pit. Moreover, the company expects AISC to improve in the upcoming quarters.

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 is trading below its 52-week low-high average price of $1.135 - $1.830, respectively. The stock has corrected ~23.66% in the past month. 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’ median P/E multiple, considering the COVID-19 Uncertainties and rising cost pressure, etc. For valuation, a few peers like Northern Star Resources Ltd (ASX: NST), Evolution Mining Ltd (ASX: EVN), and Silver Lake Resources Ltd (ASX: SLR) have been considered. Considering the expected upside in valuation, rising production and sales, 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 current market price of $1.263, as on 17 May 2022, 12:30 PM (GMT+10), Sydney, Eastern Australia.

Markets are trading in a highly volatile zone currently due to certain macroeconomic 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 for 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 stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in stock prices tend to find resistance when they are rising, and a 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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