Alex Cutulenco | October 6, 2015: Despite gold prices falling more than 40% since its peak in 2011, long-time investors in the precious metals sector remain believers in a bullion comeback. If you are one of these then Newmarket Gold (TSX: NMI) could be one of your best and safest bets.
Figure 1: 12-Month Performance (NMI vs. S&P/TSX Composite)
Investment Highlights:
• Canadian-listed gold producer with three 100% owned operating mines in Australia
• 2015 production guidance of 205,000 – 200,000: putting it right up there with the likes of Semafo (TSX: SMF), Golden Star Resources (TSX: GSC) and Lake Shore Gold (TSX: LSG)
• Solid balance sheet health, with a negative net debt of -$12MM, current ratio at 1.6, and $146MM in shareholders’ equity
• $330.9MM in LTM revenues and cash flow positive for the past 7 out of 8 quarters
Mines, Production & Profitability
As previously stated, Newmarket has three properties in Australia (Cosmo, Stawell, and Fosterville), along with a mill.
Figure 2: Newmarket Gold Inc. (TSX: NMI) Property Map
Source: Company Presentation
In aggregate, the Company has 0.935 million ounces of P&P reserves, along with 4.754 million ounces of M&I and 2.024 million ounces of Inferred resource. Valuation wise, it is trading at less than $40/ounce (on an EV/ounce basis, assigning 90%, 50% and 10% recovery probabilities to current resource and reserve data). On the cash-flow side, the Company is trading at 4.7x LTM free cash flow. These two valuation metrics are by far the most commonly used by the industry, and Newmarket is trading on the lower scale in comparison to its peers. The Company has maintained an AISC of US$985/ounce over the first half of 2015. A key factor in the Company’s profitability is the fact that it operates in Australia, thus it benefits from a favorable AUD/USD exchange rate. In fact, while the price of gold in USD has been declining, the same price of gold in AUD has been quite stable.
Figure 3: Historic Gold Price in AUD$
Source: Company Presentation
Key Takeaways:
Newmarket Gold’s vision is to become an intermediate gold producer with annual production of 400k-500k ounces. It envisions doing this by executing a growth strategy through accretive acquisitions. The Company is run by a board and management team that not only owns 10% of the outstanding shares (aligning its interest to the overall performance of the stock), but also a team of proven executives who have experience in the region and industry, and are also able to raise additional funding (if necessary). Newmarket Gold, in our opinion, has good operational performance, a robust balance sheet, and trades at a discount to its peers.
For more insight into Newmarket Gold please see the SmallCapPower interview with Gwen Preston HERE >>
Alex can be reach at: alex@gravitasfinancial.com
