Opinions James Hodgins
Lundin Gold Inc.LUG.TOTOP PICKDec 30, 2019
Stock price when the opinion was issued
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Pullback of 25% from highs is in the range of many in the sector. Impressive numbers, strong production, 71% margins, revenue up 38%, net income up 53%. Paying out 100% of normalized FCF as dividends.
Single mine in Equador, and that's the risk. She wants diversification. Political and operational risk in one mine. If you can stomach that, size your position accordingly. Yield is close to 4%.
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Premium contentIf you don't want to own the shiny rock itself, then consider LUG (not LUN-T). LUG is up 120% in the past year compared to the TSX's 27%. Thanks to robust free cash flows, Lundin Gold pays a safe 3.31% dividend. However, LUN currently trades at an historically high 30x PE, so the market is baking in strong performance going forward. The stock has cleanly beaten its last four quarters during which EPS rose from $0.64 in Q1 to $0.96 in Q4.
Jaime Carrasco
A gold developer in Ecuador. Their project is 7 million ounces, 8-9 g per ton, so a very high grade underground development. It appears that they have the backing of the government to go ahead now, and there is nothing you can find bad with the assets. Where he struggles to find value is that they are developing an asset in a country that doesn’t have much modern mining in an area that is relatively infrastructure poor. There is going to be a period where they are spending capital for 2-3 years, which tends to be a time when gold stocks don’t do much. It is 17% IRR. There are other gold developers he would be looking at, giving a better rate of return.
