- Valuation metrics for Torex are still cheap.
- Cash holdings will increase significantly.
- Another Mine will come into production.
- Risk associated when a new mine will come into production.
Hello there to all my Seeking Alpha followers. Sorry, for the hiatus. I took a break from writing about precious metals stocks, market news, and general contrarian investments, due to the fact that I started a new career, and a new profession. However, recently, I have had the itching and inspiration, to write about investments that will prosper and thrive during these uncertain times. Since March 20th, 2020, the HUI gold bugs index has increased from 166.29 to roughly 280 points. I say roughly, because I am not sure when this article will be published, so the numbers provided will not be exact by the time you read this. Due to this run up in price, a good amount of gold stocks are now overvalued or fairly valued. But there is one stock that I feel is good buy despite this run up. That stock is called Torex Gold (OTCPK:TORXF). What I like about this stock is its valuation. Currently, this company is trading at a price to book value ratio of 1.52, an enterprise value to revenue ratio of 1.64, and an Enterprise value to EBITDA ratio of 3.45. I did not calculate some of the traditional ratios used such as the Price/Earnings (P/E) ratio because, when valuing resource companies, you can't use the same standard valuation metrics as one would when valuing a company such as Walmart (WMT) or Bank of America (BAC). In terms of the company's balance sheet, I calculated a current ratio of 1.52, and a total assets to total liabilities ratio of 3.09. So, I believe that the company's balance sheet is healthy as there are enough assets that can be generated into cash to pay off all liabilities owed with the current year; and the total assets to total liabilities ratio shows there is only a small amount of leverage used to finance its assets.
What I also like about this company is its room for growth. The single producing mine of Torex Gold is called the El Limon Guajes Complex. This mine produced 454,810 ounces of gold in 2019, however, due to COVID-19, forward guidance has been suspended for 2020. However, if you look at the screen shot below. See link to this chart here
The screen shot above demonstrates that the company's cash balance will grow significantly over the next four years. This means that the company's ability to return cash back to its shareholders in the form of dividends or share repurchases (which I hope it doesn't do) will be much greater in 2024, or it could buy more assets in the future so it could increase its revenues and income (which is what I hope it does considering the nature of the mining business).
In 2024, Torex is also expected to bring another mine into production called Media Luna. This is a mine of gold, silver, and cooper mineralization. Production numbers are yet to be established, but resource numbers indicate that this mine possesses 2.24 million ounces of gold equivalent ounces, with a grade of 5.55 grams per ton (g/t). But actual gold measured was calculated to be 1.32 million ounces of gold at a grade of 3.27 g/t. The Preliminary Economic Assessment (PEA) reported that mine production is expected to be 3.9 million ounces of gold equivalents for the life of the mine, at an all in sustaining cost of $619 per ounce of gold, while generating an internal rate of return of 27 percent. However, no company is without risk. Risks of this company include, as stated above, that this is a single producing mine. This means that all of the current revenue from this company comes from one single asset. If something goes wrong with this asset, then company earnings will take a substantial downfall. Another risk is that a new mine is estimated to come online in 2024, and things can go wrong while bringing a mine into production. As an example, with New Gold (NGD), when they brought Rainy River online, costs surged, and production has been delayed. It is very possible that this could happen when bringing Media Luna online. I am not saying that it will, but there is always risk associated with any mining company when bringing on a new mine. In conclusion, the reasons to be bullish on the company are its potential cash and production growth, its strong balance sheet, and valuation metrics.
I also want to say that I haven't written about the markets, economics, and my general investment thoughts since June of 2017, so I maybe a little rusty in my analysis and writing ability, but I do hope you enjoyed my article.
This article was written by
Analyst’s Disclosure: I am/we are long TORXF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Lastly, I want to make it clear, that this article was written for informational purposes only, and should not be construed as investment advice. I am not a financial advisor, this is only my thoughts about a specific stock, if you have any interest in investing in this stock, please talk to an investment professional, and do your own research.
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