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Roxgold: A High-Growth Story In A Low-Growth Sector

Mar. 07, 2021 3:08 PM ETRoxgold Inc. (ROGFF)28 Comments
Taylor Dart profile picture
Taylor Dart


  • Roxgold released its Q4 and FY2020 results last week, reporting strong revenue growth and significant margin expansion.
  • However, the real story was Seguela, the company's development project which offers investors industry-leading organic growth.
  • Based on the discovery of the Koula deposit, Roxgold could increase annual production to more than 140,000 ounces, a massive boost from the ~103,000-ounce production profile in the Q2-20 PEA.
  • Given Roxgold's enviable organic growth profile, and the ability to add a second mine without shareholder dilution, I would view any dips below US$1.05 as low-risk buying opportunities.

The Q4 Earnings Season for the Gold Miners Index (GDX) is nearly over, and one of the most recent names to report its results is Roxgold (OTCQX:ROGFF). The company had an exceptional year in FY2020, beating its production guidance and coming in only slightly above cost guidance. This impressive performance coupled with a higher gold price allowed the company to post double-digit revenue growth and enjoy a massive boost in all-in sustaining cost [AISC] margins. However, the real story was Seguela, which continues to exceed my expectations. Given Roxgold's enviable organic growth profile, and the ability to add a second mine without shareholder dilution, I would view any dips below US$1.05 as low-risk buying opportunities.

(Source: Company Presentation)

Roxgold released its Q4 and FY2020 results last week and reporting annual gold production of ~133,900 ounces at AISC of $1,004/oz. This translated to a 7% beat vs. its guidance mid-point of 125,000 ounces, and only a slight decrease from FY2019 levels (~142,200 ounces) despite COVID-19 related headwinds. While this was great news and a welcome surprise for investors, the best news came from Seguela, where the company is getting ready to build a second mine to augment its production profile. Exploration success at Koula suggests that Seguela could be much larger than envisioned in the Q2 2020 Preliminary Economic Assessment [PEA], and continued high-grade results from Koula should allow Seguela to operate at industry-leading costs once in production. Let's take a closer look at the results below:

(Source: Company Filings, Author's Chart)

As shown in the chart above, Roxgold had a solid year at its flagship Yaramoko Mine with quarterly production remaining above 30,000 ounces per quarter, despite challenges brought on by COVID-19. Roxgold's Q4 production came in below last year's levels, but it was still a solid quarter, given that the company was lapping record

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Taylor Dart profile picture
"A bull market is when you check your stocks every day to see how much they went up. A bear market is when you don't bother to look anymore."- John Hammerslough You can access more in-depth research, my current portfolios, my top-12 miner rankings, GDX buy/sell signals, new positions I am entering/exiting, plus proprietary sentiment indicators updated weekly for gold miners in my newsletter below. Returns Link: https://imgur.com/a/UOkgfyTSubscription LinksMonthly: https://buy.stripe.com/7sI14d4b92vFdUc15cAnnual: https://buy.stripe.com/4gw28h0YXeen7vObJP - Disclosure: I am not a financial advisor. All articles are my opinion - they are not suggestions to buy or sell any securities. Perform your own due diligence and consult a financial professional before trading or investing.

Analyst’s Disclosure: I am/we are long GLD. 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.

Disclaimer: Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

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Comments (28)

fazsha profile picture
“With today’s announcement awarding Lycopodium as our preferred EPC contractor, we now have direct visibility on a fixed-cost basis of over half of the overall project capital requirement. This has provided more certainty that the capital estimate in the Feasibility Study will be consistent with the estimate of $142 million in the PEA Study.

“Meanwhile, our early works activities have allowed us to begin our engagement with the local communities, initiating a Roxgold training program and hiring over 100 local workers in support of the project, with additional sub-contracting employment opportunities to carry out minor works."

Feasibility Study - Q2.

Séguéla construction decision - mid 2021.
Brian Cellars profile picture
Thanks Taylor. I'm long again with my full allocation at $1.43 CAD ave. It has held up pretty well and would like to see a breakout higher from here.
Taylor Dart profile picture
Hi Brian,

Happy it was of value - agree, someone seems to be supporting it.
Brian Cellars profile picture
@Taylor Dart Got the breakout and now I'm uncertain of what to do and perhaps you can help. I'm perplexed by the recent action of various miners, and in particular, ROXG, SBB and JAG, all of which you have written about recently. I started taking gains on ROXG last week over $1.70 CAD, with the sector falling back after Wednesday's blast up. It's now approaching its September high from which it fell, but JAG kept blasting higher in February, which I managed to hang on for, and now it has fallen over 40% and is falling further, with another -10% to get back to its November bottom. SBB did a hard run up to close 2020 and then fell 50% and may have hit bottom. It seems that fundamentals are not driving these moves, and going forward in the short term, ROXG could be the winner, blasting to new highs before losing momentum and falling way back. That said, it seems reasonable to sell ROXG, locking in gains and buying SBB and waiting for JAG. Longer term (months), I'm pretty sure SBB and JAG will outperform ROXG from current prices, but the short term has me wondering. Thanks.
Taylor Dart profile picture
Hi Brian,

JAG is somewhat tightly held so it trades erratically, but I rarely trust breakouts in miners, they have about a 30% success rate even in bull markets, let alone in choppy markets. That's why I was recommending selling into the JAG breakout if it got above US$7.35.

SBB did a financing at an unfavorable price and has significant upside to my target price, but it's out of favor, I'm waiting for a clear sign of turnaround before starting position. I have no issue buying companies at low FCF multiple with no debt and high margins into weakness, but I rarely buy juniors on weakness since there's no valuation metric to put a floor under them except onuces in the ground which most fund managers aren't trading off of.

My favorite among the 3 is ROXG,but I liked it below US$1.10, it's a hold now.

SBB - Medium-risk, high-reward (takeover potential, cheap, but digesting recent financing which led to slight dilution)

ROXG - Medium-risk, high-reward (massive organic growth but Tier-3, but defensive to gold price, very low cost)

JAG - HIgh-risk, high-reward (minimal production upside short-term, expensive on reserve valuation basis, Tier-2, high costs so not defensive to gold price)
I read the article over the weekend, liked what I saw, spent some time on the company website reviewing their data and took a moderate position yesterday. Got lucky with the gold price jump today.
I'm generally in sync with what you like as we both look for nice deposits that get better over time (as they explore more) and, as they go through the different feasibility stages the CapEx and AISC are lower quartile, resulting in expected high NPVs and IRRs.
You haven't taken a look recently at Great Bear Resources. It's 25% off its highs, but continues to have great drill resources. They're playing a long game, not attempting to define resources yet, as the drilling keeps hitting good finds. My sense it's a 10-20m oz deposit.
Taylor Dart profile picture
Hi CD,

Think you'll do well here if managed to get in near US$1.00.

I cover some juniors on SA, but most North American juniors I only cover in my private newsletter at www.tfsignals.com. Names include Wallbridge, Great Bear, and several others.
fazsha profile picture
Mar 9 - Roxgold continues to release monster drill results from Koula...

From linked article:

"While we had initially viewed Koula as an attractive satellite opportunity it is now clear that it has the potential to be the most important deposit defined at Séguéla so far. In addition, our drills have resumed extension testing at Ancien, the other ultra-high grade deposit discovered to date."

Long and holding.
Reading61 profile picture
Hi Taylor:

Thanks! Any thoughts on the news below?

Sibanye Stillwater (SBSW -2.7%) CEO Neal Froneman says South African-based miners AngloGold Ashanti (AU +1.9%) and Gold Fields (GFI -0.4%) would fit with the company's acquisition strategy.
Taylor Dart profile picture
Hi Reading, no prob!

No real thoughts, just a comment from a CEO. I don't really speculate much on comments made.
@Reading61 SBSW's currency is pretty strong while ROGFF is kind of weak. I suppose ROGFF is not too big for SBSW to swallow.
fazsha profile picture
May 1, 2014 - Appian invested $12.5 million in the West African gold developer, Roxgold Inc. and now owns 12% of the company. Appian CEO Michael Scherb is very complimentary of Roxgold’s management team and board, whom Mr. Scherb describes as “great stewards of capital.”

“We like the term ‘accommodative capital’ because we like to be partners with our portfolio companies,” Mr. Scherb explains. “We have the internal management expertise, both in terms of operations and capital markets, to add value as a cornerstone investor if the management team requests it.”

As of 2021 Appian now owns 13.3% of Roxgold.
Thanks for the analysis Taylor.

I agree with the positive outlook which is why ROXG (on Toronto exchange) is one of my top 5 holdings and which I'll add to around C$1.34.
Taylor Dart profile picture
Hi Diottica,

Happy it was of value, thanks for reading!
Thanks for continued insight into some of these junior gems. Do you have an opinion of why there AISC are relatively high for averaging ~8 g/t., other than Covid(with 6x the grams/ton of average miner).
Taylor Dart profile picture
Hi Al,

So many factors from deposit to deposit, so it's not really an apples to apples comparison on the assumption that higher grades always translate to lower costs. High-grade open pit vs. low-grade open pit generally translates to lower costs, but you can get some very low-cost open-pit operations even at low-grades under right conditions. Size also factors into it a lot, because unit costs divided by gold sales at end of day, and mines benefit from economies of scale. For example, an average 200,000-ounce operation could have much better costs than a higher-grade 70,000-ounce operation.

In general, it's hard to get costs below $875/oz on underground mines, unless they are bonanza-grade. Whereas an open-pit mine with 6-8 grams per tonne gold could easily have costs below $625/oz.
Nice article once again. Just wondering about this one sentence:

“Assuming Roxgold's Feasibility Study can prove up a 10-year mine life with over average gold production above ~140,000 ounces, this would translate to a more than 100% increase from Roxgold's current production profile of ~130,000 ounces per annum.”

How is going from 130k oz. to 140k oz. per year a 100% increase in production? Is there a typo or am I missing something?
Taylor Dart profile picture
Hi HT,

130k at Yaramoko + 140k at Seguela = 270k.
@Taylor Dart Thanks for an very informative article. What do you think the chance that ROGFF is acquired by a bigger miner ?

Near the beginning of the second paragraph, you have a sentence: "....This translated to a 7% beat vs. its guidance mid-point of 125,000 ounces, and only a slight decrease from FY2020 levels (~142,200 ounces) despite COVID-19 related headwinds.". Instead of decrease from FY2020, you probably meant by decrease from FY2019.
Taylor Dart profile picture
Thanks for catching that. I don't think it's very likely because it's too small for most of the African producers (AU, GFI, HMY), and it would fit well for Endeavour but I think they're done shopping, and BTG doesn't seem to be interested in M&A here, because I would have expected them to do M&A in Q3 if they were going to do it with their strong share price. They could do a deal in debt or cash for Roxgold, but that's the only real potential suitor I see.
simsjr17 profile picture
Within 2 years- If gold is at $2000, and Seguela keeps firing and gets built, Roxgold will probably be close to $1billion USD market cap.. roughly $3 CAD (current share price is $1.42 CAD). They will get re-rated due to better sentiment, higher gold price, multi-asset producer, etc. That's a pretty good bet.
Taylor, Thanks for the article. Roxgold had me at Ancien. It was clear that there was a potential in this large land package for more exploration success. I agree that Koula is a complete game-changer.
Taylor Dart profile picture
Hi Effen,

Thanks for reading. Agreed 100% there. The Seguela story was outstanding even without Koula, and it's nice to see that they could have some long-term upside from Boussara too, though I've valued it at zero for now.
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