RCKS Talk

16-May-2019

Gran Colombia Gold Corp

Record Q1 Reflected In Financial Results

Impact: Positive

Gran Colombia has released positive Q1/19 financial results, which highlight record quarterly gold production and revenue. We believe the company is positioned to meet and potentially exceed 2019E guidance. We maintain our fair value estimate of C$6.00/sh and expect operating execution, exploration updates from Segovia and the Marmato PEA to drive a progressive re-rating towards our fair value estimate.

Highlights:
  • Record quarterly gold production bodes well for guidance. Production for Q1/19 yielded 60,601 ounces, a 10% over the previous quarter, which was driven by higher head grades (18.8g/t Au versus 17.1g/t Au) at Segovia. This allowed the company to achieve record quarterly revenue of US$77.5M, up 14% QoQ. Higher grades at Segovia also led to a historically low cash cost of US$570/oz, bringing the company’s total cash cost for the quarter down to US$621/oz.
  • Strong start suggests guidance could be conservative. Gran Colombia reaffirmed 2019 guidance of 210-225koz Au at total cash costs below US$720/oz; however, the first four months of production (81.1koz) implies the company is on pace to produce more than 240koz. We note that the elevated production, is due to a positive grade surprise. Consequently, we now model 227koz (was 225koz) at cash costs of US$679/oz (was US$690/oz) for 2019.
  • Exploration at Segovia ramping up. Gran Colombia is ramping up exploration efforts at Segovia with a 20km drill campaign already underway. We believe a new high-grade zone, likely El Silencio deep, would expand production as ongoing efficiency improvements are not likely to be offset by the expected reduction in grade.
Valuation:
Strong Q1 should be another step towards closing the valuation gap to peers. Our fair value estimate of C$6.00/sh is based on 4.0x our one-year forward, NTM EBITDA estimate of C$111M. Gran Colombia trades at 1.5x 2019E EBTIDA and 0.56x NAV versus peers at 6.0x and 0.69x, respectively. We believe that continued operating and financial success should drive a re-rating. Upcoming Catalysts include 1) Exploration results (ongoing) 2) Q2/19 financial results and 3) Marmato PEA H2/19.

 

29-Apr-2019

Gran Colombia Gold Corp

Going Deep at Marmato

Impact: Mildly Positive

Drill results from Gran Colombia’s Marmato operation align with our view that this project could represent a longer-term step change in production profile, from the Deeps Zone. We maintain our fair value estimate of C$6.00/sh and expect operating execution, exploration updates from Segovia and the Marmato PEA to drive a progressive re-rating towards our estimates.


Highlights:
  • Marmato Deeps zone getting bigger. Gran Colombia has released the final eight holes of its 2018 drill program at the Deeps Zone at Marmato. Overall, the results returned a weighted average grade of 1.5 g/t Au and 2.4 g/t Ag over an average width of 169m. While grades are below the existing resource grade (20.2 Mt at 2.3g/t Au and 3 g/t Ag), the zone has expanded and is now 700m strike at ~165m wide (was 450 along strike, with width not reported) and remains open at depth and to the east.
  • New high-grade zone could improve economics. The company drilled a higher-grade zone in 2018 which returned >2.5 g/t Au grades and is a priority target for 2019. The definition of a highergrade zone would benefit the economics of what is expected to be large-scale underground mining operation. A PEA is expected later this year, and we expect the Deeps zone to be a higher productivity stand alone operation.
  • Higher grade material from test block should benefit 2019 production. Twelve additional holes were drilled in to a zone similar to the Deeps zone, that is planned to be used as test mining area. The test block which appears to be ~360k tonnes (100m x 60m x 20m) returned a weighted average grade of 3.3 g/t Au and 6.5 g/t Ag. The block is planned to be put into production this year and has the potential to provide a boost to production in H2/19 at Marmato. Should this occur our current estimates for 24.4k oz of production at US$1,106/oz is likely to be conservative.
Valuation:
PEA at Marmato could provide a boost to our longer estimates. Our fair value estimate of C$6.00/sh is based on 4.0x our one-year forward, NTM EBITDA estimate of C$112M, suggesting 83% upside from current estimates. Gran Colombia trades at 1.6x 2019E EBTIDA, while peers are at 5.3x and it trades at 0.57x NAV, peers at 0.63x. We believe that continued operating and financial success should drive a re-rating. Upcoming Catalysts include 1) Q1/19 financial results (May 15, 2019), 2) Exploration results (ongoing), Marmato PEA H2/19.
24-Apr-2019

Gran Colombia Gold Corp

Putting the Grand Back in Gran Colombia

Gran Colombia has been steadily improving its operations and balance sheet over the last 18 months, but the market does not yet appear to fully recognize what has been accomplished. Additionally, the company can deliver game-changing catalysts with the drill bit at Segovia and a new ore-body at Marmato. We expect Gran Colombia to progressively re-rate towards our fair value estimate of C$6.00/sh, with continued operating execution, along with near-term exploration and development catalysts that could drive our estimates higher.

Investment Thesis:

  • Recent improvements not priced in by the market. Improved operations and rebuilt balance sheet have converted Gran Colombia into a new company. However, the market has not fully priced in this improvement and like most turnarounds, the market is likely to progressively price this in. As a result, continued operating and financial execution should drive a progressive re-rating to peers, which trade at a substantial premium (Figure 2).
  • More high-grade at Segovia would boost our estimates. Part of the operating improvement has been driven by high-grades at Segovia and while these have a finite life (during which the company is improving operating efficiency), the company now is funded to aggressively explore the project over the next 2 years. Which if found, when combined with the ongoing operating improvements, would materially improve our estimates. The most likely sources of additional high-grade material are El Silencio Deep or Cristales.
  • Marmato could provide a step-change in production. The company has identified a large resource at depth which if developed with a bulk tonnage underground approach could increase production to 50-125k oz per year (currently ~24oz/year). We expect a PEA later this year to define Maramto’s potential.
Valuation:
Execution key to re-rating to peers; additional upside possible . Our fair value estimate of C$6.00/sh is based on 4.0x our one-year forward, NTM EBITDA estimate of C$112M, suggesting 83% upside from current estimates. Gran Colombia trades at 1.6x 2019E EBTIDA, while peers are at 5.2x and we believe that continued operating and financial success should drive a re-rating, while the identification of a new high-grade zone at Segovia, along with the PEA at Marmato could drive our estimates materially higher. Upcoming Catalysts include 1) Q1/19 financial results (May 2019), 2) Exploration results (ongoing), Marmato PEA H2/19.
12-Apr-2019

Gran Colombia Gold Corp

Record Q1 Production

Impact: Positive

As expected, Gran Colombia delivered record quarterly production in Q1, driven by higher than expected grades. We expect this success to translate into strong financial results when the company report in May. We believe the market has not priced in the company’s financial and operational turnaround and we expect ongoing operating and financial success to act as a positive catalyst for the stock.
 Highlights:
  • Record Q1 production suggests the company could eclipse 2019 production guidance. Gran Colombia produced 60,601 oz this quarter up 8% QoQ. Higher grades from the Providencia operations which accounted for 21% of quarterly production as well as improved head grades and tonnes mined at El Silencio, persisted throughout the remainder of March. If we were to annualize Q1 results, Gran Colombia would easily come in ahead of its current guidance for 2019 (210-225k oz). It is early in 2019, but the company has started strong.
  • Expecting Q1 costs to come in well below guidance. With higher than expected grades driving the increased production we expect the company to deliver strong financial results. Our preliminary estimate point to operating cash costs of US$615/oz (down 11% QoQ), and revenue of US$80M (up 17% QoQ). We highlight that US$615/oz cash costs, is well below the US$720/oz cost ceiling that has been guided for 2019.
  • Exploration key for the future. While we believe the first leg of re-rating is based on continued operational and financial success, the next is expected to come via the drill bit. In particular, we look for the company to replace the higher-grade resources currently being mined at Providencia. Our recent site visit suggests that Sandra K and El Silencio Deep are the highest likelihood targets. With the recent financing, the company is funded to drill ~100,000m over the next 2 years.
Valuation:
As Gran Colombia continues its current trajectory, a re-rating is expected. Based on 2019 guidance and historical costs the company appears to trade at 2.5-3.0x 2019E EBITDA (1.7x consensus estimates), which is a steep discount to peer’s which trade at 4.8x. We believe that with the balance sheet repaired and operations improved, we expect Gran Colombia to progressively re-rate as it executes operationally. Upcoming Catalysts include 1) Q1/19 financial results (May 2019) and 2) Exploration results (ongoing).

 

07-Apr-2019

Gran Colombia Gold Corp

Record Q1 Production Expected

Impact: Mildly Positive

With strong operating results already reported for January and February, Gran Colombia is likely to deliver record production in Q1 2019, allowing them to start the year well ahead of guidance. With this production increase being driven by better than expected grades, we also expect better than guided costs and strong financial results in the quarter. We believe the market has not priced in the company’s financial and operational turnaround and we expect Q1 operating results to provide a positive catalyst to re-rate it towards peers.

Highlights:
  • Record Q1 likely. The company has already announced January and February production of 39,276 oz Au, primarily driven by higher grades from the Providencia mine at Segovia. If March production matches the pace defined by 2019 guidance, the company should produce 56.8k oz Au in Q1 (annual guidance implies quarterly production of 52.5-56.3k oz). However, it is our understanding that higher grades persisted into early March suggesting the number of above could be conservative and production should exceed the prior quarterly record of 57,163 oz Au (Q3/2018).
  • Higher grades should drive costs down. The increased grade was delivered from a company operated zone implying that the higher than expected grades should drive down per ounce costs. The company has guided for costs below US$720/oz for 2018 but with better than average grades in Q1, it is likely that costs come-in well below this number, providing a solid start for the year.
  • Drilling poised to ramp-up. With the convertible financing of C$20M at a rate of 8% for 5 years, convertible at C$4.75/share (4.21M shares) closed, the company is financed for a significant drill program over the next two years (~100,000m). In our view, the successful program should materially grow ounces, while at the same time adding a new, very high-grade zone(s). We expected exploration success to also be a positive catalyst for the stock.
Valuation:
Gran Colombia’s shares poised to re-rating higher. Based on 2019 guidance and historical costs the company appears to trade at 2.3-2.8x 2019E EBITDA (1.61x consensus estimates), which is a steep discount to peer’s which trade at 4.9x. We believe that with the balance sheet repaired and operations improved, we expect Gran Colombia to progressively re-rate as it executes operationally. Upcoming Catalysts include 1) Q1/19 operating results, 2) Q1/19 financial results and 3) Exploration results (ongoing).
26-Feb-2019

Gran Colombia Gold Corp

Results Point to Reserve and Resource Growth

Impact: Mildly Positive

Gran Colombia has provided generally positive news with a first look at production results for 2019 and final details from its 2018 drill season. This update supports the company’s strong outlook for 2019 which we expect to be affirmed with continued production and drilling success. We believe the market has still not priced in this company’s turnaround and as Gran Colombia executes operationally, we expect it re-rate towards peers. 

Highlights: 

  • Drilling for resource growth. The company released results from the remaining 8,043m of its 2018 drill program highlighting growth at the El Silencia, Providencia and Sandra K systems which make up the company’s Segovia operations (86% of 2017 gold sales). Exploration efforts to date have been targeting growth below existing operations, based on the results to-date we expect the company grow reserves and resources with the pending update.
  • First month of production results in line with mid-range guidance for 2019. The company’s January production update of 17,941oz Au provides a good start to 2019. This update aligns with the mid-point of 2019 guidance of 210,000-225,000 oz Au. We believe operating execution, along with solid financial results are key to Gran Colombia closing the significant valuation gap to peers. 
  • Upcoming catalysts should drive momentum. Gran Colombia is expected to release its Q4 and full financial results by March 27, 2019, after a reserve and resource update which is expected shortly. Along with operating and financial results, ongoing exploration could be an important catalyst for the company as it works to demonstrate the company’s longer-term potential.

Valuation:
Gran Colombia’s shares poised to continue re-rating higher. Based on 2019 guidance and historical costs the company appears to trade at 2.5-3.0x 2019E EBITDA (1.7x consensus estimates), which is a steep discount to peer’s which trade at 5.1x. We believe that with the balance sheet repaired and operations improved, we expect Gran Colombia to progressively re-rate as it executes operationally. Upcoming Catalysts include 1) Resource and Reserve update (Q1/19), 2) 2018 Financials (Q1/19), 3) Exploration results (ongoing)

 

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