Steppe Gold Ltd (TSE:STGO), a producing gold miner operating in Mongolia, has a well-established management team and is expected to produce strong annual cash flows from its flagship Altan Tsaagan Ovoo (ATO) mine.
That's the view of Stonegate Capital Partners, which has started covering the stock. It puts a valuation of between C$0.50 and C$1.81 on the shares with a mid-point at C$1.13. Steppe shares are currently changing hands in Toronto at C$0.78.
READ: Steppe Gold marks milestone in Mongolia as it begins gold production at ATO mine
On March 25 this year, the firm announced a major milestone, in that it started gold production from ATO using already crushed and stacked ore. It also received the final cyanide permit in the fourth quarter of 2019 and is on track to produce 60,000 ounces of the precious metal in 2020.
Stonegate Capital analyst Shane Martin said the group is now crushing and stacking at a rate of around 3,500 tonnes per day and has accumulated 553,000 tonnes mined at a grade of 2 grams per ton (g/t) gold for around 24,000 ounces of gold currently crushed and stacked.
"Because this gold is already crushed and stacked, we anticipate a higher tonnage milled in 2020," the analyst noted, adding that strong annual cash flows were also expected.
In addition, the Stonegate analyst sees further upside potential for ATO as Steppe has three diamond core exploration rigs focusing on resource extensions at AT01 and AT04 as well as Mungu, a high grade, near-surface gold and silver discovery northeast of current resources.
"These expansion projects could lead to an increase in resources and expanded 150,000 oz per annum fresh rock crush and CIL operation. With gold commencing at ATO, the company plans to continue its exploration programs with a revised resource and reserve statement in Q3 2020," he added.
Uudam Khundii property too
Meanwhile, the firm's second Uudam Khundii (UK) property, in which it holds 80% with a 20% joint venture partner, currently spans 14,397 hectares and holds one exploration licence.
Steppe Gold has begun initial exploration at the property, including geological mapping, geochemical sampling, geophysical surveys, and trenching.
The firm announced a final tranche of a private placing in January for gross proceeds of C$2.351 million and has also closed a US$3 million convertible debenture financing with the Mongolian National Strategic Investment Fund.
The Stonegate analyst also pointed out that the group's newly appointed CEO, Bataa Tumur-Ochir, has extensive experience operating in Mongolia as CEO of Wolf Petroleum - an oil and gas exploration company, and Hunnu Coal Ltd, a Mongolian coal firm.
"Steppe has a great opportunity to benefit off the increased government support for mining in Mongolia. The company is the first gold miner to implement the government’s “Gold-2” plan giving them an advantage in getting their mine to production," Martin concluded.
Contact the author at giles@proactiveinvestors.com