Hannam & Partners has initiated coverage on Mongolia-focused miner Steppe Gold Ltd with a C$3.15 price target.
In a recent note, the research firm wrote that Steppe is a “ground floor opportunity in a proven gold producer,” noting that the company is upsizing operations at its ATO mine in Mongolia.
“(Steppe’s) recent feasibility study on the Phase 2 sulphides promises to transform ATO from a small, high-margin producer with a short mine life to a 12.5-year operation, initially more than doubling the output from the oxides,” Hannam analysts wrote.
READ: Steppe Gold says feasibility study shows US$1.7B revenue potential from its ATO project in Mongolia
Steppe recently released results of a feasibility study conducted on its 100%-owned ATO gold project, confirming an expanded life of mine to 12.5 years, producing gross revenues of US$1.7 billion and earnings before interest, taxes, depreciation, and amortization (EBITDA) of US$584 million.
The results reinforce its current Phase 2 expansion plans with construction already underway and existing permitting and infrastructure in place, according to Steppe.
Initial capex is estimated to be around US$128 million with all-in-sustainable costs of US$853 per gold equivalent ounce, and a pre-tax net present value (NPV), using a 5% discount rate, of US$320 million with an internal rate of return (IRR) of 109%.
Hannan also praised Mongolia’s “strong social licence to operate” in its coverage note.
“Steppe currently trades at a P/NAV of just 0.28x, a multiple we would typically associate with exploration companies,” analysts wrote. “As such we believe (Steppe) shares offer cheap exposure to a proven producer, with near-term FCF (free cash flow) potential to fund further growth.”
Shares of Steppe were trading at C$1.32 on Thursday midday in Toronto.
Contact Angela at angela@proactiveinvestors.com
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