Steppe Gold Limited (TSX:STGO, OTCQX:STPGF)’s third-quarter production figures received the thumbs up from two brokers today, with both highlighting huge potential for advances in its share price from current levels.
Stifel pointed out that Steppe Gold, Mongolia's premier precious metals company, delivered higher-than-expected 3Q production of 13,300 ounces (koz) against its forecast of 13.0koz with gold production increasing through the quarter.
The company also announced they are slowing mining activities and focusing on crushing and stacking the 684 kilgrams per tonne (kt) of blasted ore on the ROM pad and Stifel said this will help drive cash flow generation with the cost of drilling, blasting and hauling the ore already incurred plus the residual leaching gold production from previously stacked ore.
READ: Steppe Gold says gold production jumped 28% in third quarter
The broker forecast that between the operating cash flow generated and the working capital inventory release, the company could generate north of $6 million in free cash flow in 3Q.
Stifel also highlighted the potential for exploration at land near its Uudam Khundii (UK) property in the south of Mongolia. The broker said it expects the first drill results by the end of the year to be a major catalyst for the stock, with the market currently ascribing no value for its high-grade exploration potential.
But Stifel has higher hopes, putting an exploration value of $10 million for UK.
Overall, Stifel said it saw the news as a slight positive, is pleased to see production growing through the summer, and looks forward to this operational progress translating into strong 3Q financial results.
The broker reiterated its 'Buy' rating and C$2.90 price target, noting the company trades at a spot price/NAV of just 0.21x, a steep discount to the junior producer peer average of 0.41x.
Hannam & Partners (H&P) was even bullish in terms of its price target of C$3.20.
It said it believes the production numbers suggest Steppe is on track to meet or exceed the 100koz of oxide gold output estimated in the November 2021 feasibility study.
It said recent approvals for state grid power connections could reduce energy costs by 75% for the phase 2 expansion and will reduce expected cash costs by >$100/oz, which should offset inflationary pressures and potentially drive all-in-sustaining costs (AISC) below US$800/oz.
The broker also highlighted the positive progress at UK, which it sees as a strategically important step towards consolidation of the region.
H&P said it believes a catalyst-rich 4Q, alongside a rebounding gold price, could drive a significant equity re-rating.
The broker calculated a value of US$257 million for Steppe's ATO gold mine, which combined with an assumed value of C$12.5 million for UK, gives a risked sum of the parts value for Steppe of C$3.20, offering 230% upside.
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