With gold prices trading at all-time highs, many gold stocks have been pushing higher. In fact, many of them have been rising so hard, and for so long, that they are exceedingly expensive relative to their earnings. However, there exists an Australian base, producing gold miner that is still trading at a reasonable valuation, and that has positive prospects for the future.
Aurelia Metals (ASX: AMI) is a gold and mixed metals producer operating out of the Cobar Basin in central New South Wales. They are a producing miner and the average analysts expects them to announce that they have dug up 89,000 ounces of gold this financial year, with an all-in sustaining cost of around $1,150. On this they are expected to deliver earnings per share of around 4.9 cents, given that the current share price is roughly 55 cents, that means they are currently trading on approximately 11 times their expected earnings.
When you compare that to some of the other ASX-listed gold producers, it looks exceptionally cheap. Newcrest Mining, the largest listed producer is trading at more than 30 times its current earnings. Northern Star Resources is also expected to be trading at roughly 30 times earnings when they report at the end of August. Even the historically cheap Regis Resources is trading at expected earnings multiples that are far greater than Aurelia metals.
The stock has also historically paid a dividend and with earnings expected to be quite strong relative to prices this year, the average analyst expects a further dividend for this period. If such a dividend were to be paid, would likely be declared at the full-year results towards the end of August.
Given the likely strong profitability relative to the share price, there is scope for a fairly reasonable dividend to be paid by the company. At Emerald Equities, we believe that these potential results leave room for a large share price rise on the report, and perhaps even in the lead-up to it should the market start to agree with us.
So, lets talk about some of the negatives. The share price did fall off during the last week of July, which was likely due to the Mineral Resource & Ore Reserves Statement. The statement showed a five percent depletion in mineral resources after mining depletion. This is despite the inclusion of the Federation project into the calculations for the first time.
While the depletion is cause for concern, especially because it appears to show one of the mines of the business (Hera) as potentially coming to the end of its life, Aurelia’s largest and most important mine (Peak) showed an increase in reserves.
Additionally, they were able to include another project, Federation, in their mineral resources for the first time. Further exploration at the Federation site has the potential to increase the mineral reserves further, and indeed the latest exploration update from this week confirmed that the ‘New results indicate a steeply-plunging high grade gold corridor that will be modelled in the next Mineral Resource estimate’.
Our view remains that the selling related to the Mineral Resource & Ore Reserves Statement from 22nd July was unnecessary and overblown and that Aurelia has a strong potential for share price gains due to the FY20 earnings report.
*The author of this article holds shares in AMI
Sam Green is the Portfolio Manager at Emerald Financial, whilst also being an Equities and Derivatives expert for his clients at TradersCircle.
Latest posts by Sam Green (see all)
- XJO to rise despite slight US pullback - August 30, 2024
- Markets jump strongly higher - July 29, 2024
- US shares drop with tech selling, XJO to continue lower - July 25, 2024
Leave a Comment
You must be logged in to post a comment.