Stifel GMP has repeated a 'Buy' recommendation on Steppe Gold Limited after the Mongolia-focused producer announced it has received cyanide on-site at its ATO operation in Mongolia, allowing the restart of production from its oxide heap leach operation.
Analysts at the brokerage noted that the company has 34,000 ounces of unleached, crushed ore stacked on the pad waiting for solution and a run-of-mine (ROM) inventory of another 38,500oz.
“This return to a cash flowing position should allow the company to move forward with construction of the Phase 2 Sulphide expansion,” the analysts said. “Steppe Gold has already placed orders for long lead time items and with pieces of the larger primary crusher on site but had to pause during the production hiatus.”
READ: Steppe Gold back in production at ATO gold mine in Mongolia after receiving key reagents
According to their modelling, the analysts said they expect the project to come online in 2024, producing 105,000oz of gold equivalent per year for the first six years of production, generating $367 million in project-level free cash flow over that time frame.
“We have been eagerly awaiting the announcement of the restart of production,” they added. “This catalyst should give the market permission to ‘unlock' the value in the company's Phase 2 Sulphide Expansion project now that Phase 1 is back online.”
The analysts said the larger, polymetallic project contains the majority of the value in the “Steppe Gold story”, accounting for $3.02 per share in their net asset value (NAV) calculation versus $0.66 per share for the oxides.
Even after a 20% jump in its share price following the March 2, 2022, announcement, they noted that Steppe Gold still trades at a price to NAV of 0.23 times, the lowest in their universe of producer coverage.
“We see this as a major inflection point for the stock and look forward to uninterrupted heap leach production through 2022 and updates on construction of the larger Phase 2 ATO Sulphide Expansion project later this year,” the analysts said.
Stifel repeated a 'Buy' on the stock with a target price of C$3.50 a share.
Contact the author at stephen.gunnion@proactiveinvestors.com