Opinions
Jaime Carrasco
Torex Gold Resources
TXG-T
COMMENT
Apr 03, 2018
Stock price when the opinion was issued
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At 5X earnings, TXG is very cheap indeed. While it is down 7% in 2023, it is still up 55% over 52 weeks, so may just be consolidating prior gains. Revenue is ramping nicely; EPS is being impacted by inflation and other factors and is expected to decline in 2024. The last quarter was ahead of estimates, but estimates have been ticking down. It has $320M net cash so is in excellent financial shape. Cash flow generation is good. We think it is certainly attractive on valuation, and its cash helps provide some comfort. We would see it as buyable.
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Expecting further gains from gold. Gold stocks have not followed run up in gold, which presents buying opportunity. Discount to net asset value, and low cash flow multiple good for margin of safety investors. Mines located in Mexico have a lot of opportunity - lots of gold to produce. Expecting to maintain ~450,000 ounces of gold production going forward.
TXG is a small-cap gold producer with assets located in Mexico. TXG has generated decent cash flow over the last few years with strong organic growth. The company has been reinvesting heavily back into the business through capital investment. Therefore, TXG does not pay any dividends or repurchase shares yet. The company has been on really strong momentum recently, given the tailwind from high gold prices and strong operating results.
In Q4-2024, TXG reported good results; the company managed to achieve annual production guidance for a sixth consecutive year. TXG produced 452,523 ounces for FY2024, which was within the already upwardly revised guidance range of 450,000 to 470,000 (previous guidance was 400,000 to 450,000 oz). TXG reported an EBITDA of $154M, an 8% growth from last year of $142.6M. TXG has a strong balance sheet with minimal net debt and is currently trading at 9.4x Forward P/E. With solid momentum and a strong gold price, we think TXG’s risk/reward at the current price is attractive.
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Some of their Mexico properties have geo-politcal risk, though he likes Mexico as a whole to mine. They have cash and are getting this Mexico mine into production. They just had an EPS miss. This could be a buying opportunity.