Stifel GMP remains bullish on Mongolia-focused miner Steppe Gold Limited (TSX:STGO, OTCQX:STPGF), which beat the broker's estimates on earnings per share (EPS) in its latest third quarter.
In the three months to end-September, Steppe reported adjusted underlying earnings (EBITDA) of US$10.48 million on revenue of US$21.7 million, while EPS was US$0.08 compared to Stifel's estimate of US$0.05.
Analysts noted that that the 'EPS beat' was driven by higher gross margins and lower interest expenses due to significant repayment of debt in the quarter.
Steppe sold 11,700 ounces of gold in the quarter and 18,400 ounces of silver, which was lower than the broker's expected 14,400 ounces of gold and 20,400 ounces silver, but the miner continued to receive a 5% premium to the spot gold price, which is a benefit of producing gold in Mongolia and selling to a 'gold hungry' central bank, analysts also noted.
READ: Steppe Gold aiming to maximize output as it eyes Phase 2 expansion at ATO
The company operates its flagship Altan Tsagaan Ovoo (ATO) mine and is also advancing the Uudam Khundii (UK) exploration property, which spans over 14,000 hectares, in an 80:20 joint venture with the provincial government of Bayankhongor.
Plans for a Phase 2 expansion at ATO is underway, which assumes producing 100,000 ounces of gold equivalent a year from fresh ore.
"The company completed construction of the Phase 2 fixed crusher during the quarter. This is the first major equipment installation for the Phase 2 Sulphide Plant expansion and will enable the company to achieve higher crushing rates for the remaining oxide phase when they bring it online next spring," said the analysts.
Upcoming catalysts include exploration drill results from UK and ATO, continued free cash-flow (FCF) generation and a financing package for the Phase 2 sulphide expansion, they added.
"The stock is undervalued at a spot P/NAV of 0.23x vs junior producer average of 0.38x with the market not realizing any value for the sulphide portion of the ATO deposit," said the broker.
Stifel GMP repeated a 'Buy' rating on the stock and a target price of C$2.80 (current price: C$1.05).
Contact the writer at giles@proactiveinvestors.com