Steppe Gold Ltd (TSX:STGO, OTCQX:STPGF) has earned a repeat ‘Buy’ rating from Stifel GMP analysts after it released an updated life of mine study for its wholly-owned ATO gold project in Mongolia.
In a note to clients, the analysts wrote that the updated study included the increase in total P&P reserves by 6.1% to 1.68 million ounces of gold equivalent at 1.78 grams per ton (g/t) gold equivalent, extending the sulphide project mine life by 1.5 years to 12 years.
However, analysts noted that while the sulphide reserve update was in line with their expectations, the oxide mineral grade of 0.64 g/t gold was significantly lower than the 1.43 g/t they were expecting which will negatively impact the asset’s free cash flow profile over the next two years.
READ: Steppe Gold announces updated life-of-mine plan for ATO gold mine to 2036, revealing higher revenues and profits
“Our estimate assumed the positive grade reconciliation from the oxides would be reflected in the reserves,” they wrote.
The analysts wrote that they were looking forward to seeing Phase 2 expansion updates which are expected in the second quarter of 2023, an announcement of a debt deal to fund the expansion, and the start of construction of the sulphide plant.
The analysts awarded Steppe Gold a price target of C$2.60 derived from applying their target P/NAV multiple of 0.65x to our corporate NAV of $3.02 per share, adjusted for FX of 0.77.
They noted that the stock is currently trading at a spot P/NAV of 0.20x versus the junior producer average of 0.38x.
“While we recognize the stock will continue to trade with a ‘Mongolia’ discount, we think the market is giving very little value for the sulphide portion of the ATO deposit but pricing in the funding risk associated with it,” Stifel’s analysts wrote.
Steppe Gold’s shares were up about 8.2% at C$1.06 in pre-market trading on Wednesday.
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