PI Financial has two top mining stock picks for the coming year as well as some to watch
SmallCapPower | January 20, 2020: PI Financial recently released its top mining stock picks for 2020. Its two best ideas in the space are K92 Mining and SilverCrest Metals.
K92 Mining Inc. (TSXV:KNT): PI Financial analysts Chris Thompson and Justin Stevens noted that whilst 2019 was a transformative year for K92 Mining, shoring up the balance sheet, elimination of a contingent payment (Barrick), developing/ improving mine/plant infrastructure plus expanding on exploration success at Kora North, they see KNT as well positioned to further unlock value on multiple fronts during 2020.
First up – a revised resource update and PEA (1H/20) will provide a glimpse of Kainantu’s expansion potential, complimented by near-term production growth and exploration drilling to add flavour. The analysts anticipate a significant H1/20 resource upgrade. Noting KNT’s near-term goal of defining a 5Moz AuEq resource at Kainantu (excluding Irumafimpa), they continue to see their modelled operating plan (7.2Mt mined hosting ~2M oz AuEq or ~40% of KNT’s 5Moz AuEq goal) as conservative. They anticipate a PEA (H1/20) laying the groundwork for Kainantu’s expansion beyond 400ktpa, a catalyst which they believe merits a premium valuation.
The analysts see ~US$57M in Free Cash Flow (FCF) (presuming US$1,500/oz Au) generated in 2020, implying a ~11% FCF/EV yield. They see KNT trading at a 0.80x NAV multiple vs. junior precious metal producer peers trading in a wide range but averaging a 0.75x NAV multiple and, thus, have increased their target price to C$4.50 (C$4.00 previously), implying a 1.14x Adj. P/NAV multiple.
K92 Mining is focused on exploration and development of mineral deposits located in Papua New Guinea. The Company’s main asset is the Kainantu Gold Project, consisting of two gold deposits. The Kainantu property covers a total area of approximately 410 square kilometers and is located in the Eastern Highlands Province of Papua New Guinea ~180 km west-northwest of Lae.
SilverCrest Metals Inc. (TSX:SIL): PI Financial analyst Philip Ker noted that given the on-going underground development, infill and exploration drilling across Las Chispas, SilverCrest is expected to continue its advancement with a Feasibility Study (FS) and a construction decision in H1/20. Given the anticipated favourable economics expected within the FS (PEA = After tax IRR of 78% and NPV of US407M), he believes SilverCrest has options to secure remaining capital needs.
Philip Ker added that given the compounding success of Las Chispas and SilverCrest’s valuation, many continue to shy away from the potential yet to be unlocked at the project. However, SilverCrest continues to make high-grade discoveries and is improving up-front economics via resource growth and positive grade reconciliation. In 2020, he expect SilverCrest to have an abundance of news flow including a steady stream of drill results related to on-going infill drilling at Babicanora along with results from the new discovery made at Area 118. The analyst has a $10.50 target price on the stock based on a 1.2x NAVPS multiple and a $1,500/oz gold price as well as a $18.00/oz silver price.
SilverCrest is a Canadian precious metals exploration company headquartered in Vancouver, BC, which is focused on new discoveries, value-added acquisitions and targeting production in Mexico’s historic precious metals districts. The Company’s current focus is on the high-grade, historic Las Chispas mining district in Sonora, Mexico. SilverCrest is the first company to successfully drill-test the historic Las Chispas Property resulting in numerous discoveries.
Here are some other resource stocks PI Financial thinks are worth watching:
Pan American Silver Corp. (TSX:PAAS) – They see the exploration success (La Colorada) reflecting PAAS’ ability to add value organically. This plus latent value (Escobal & Navidad) and a diversified production base, qualifying PAAS as an Ag-Au-base metal producer to watch during 2020.
OceanaGold Corporation (TSX:OGC) – Whilst 2019 was a tough on OGC, (Didipio’s suspension + investor surprise over Waihi’s operational hiatus), PI recognizes exploration/development upside across the board, qualifying OGC as an attractively valued intermediate gold producer to watch in 2020.
Nighthawk Gold Corp. (TSX:NHK) – Aggressive drilling of its Colomac project over the past two years is expected to improve the geologic model and resource for the Colomac and Damoti Lake ore bodies while positive results support increased in-situ ounces and a grade boost.
Bonterra Resources Inc. (TSXV:BTR) – Has a war chest of capital to advance its trio of high-grade projects in Quebec via drilling and potential underground bulk sampling while utilizing its scalable and permitted 800tpd milling facility.
Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.
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