Breakout Stock (AEM Holding) Monday’s TSX breakouts: Two senior gold producers own shares of this spiking small-cap company
On today’s TSX Breakouts report, there are 23 stocks on the positive breakouts list (stocks with positive price momentum), roughly half of which are gold stocks, and 115 securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a gold stock that appears on the positive breakouts list - Orla Mining Ltd. On Friday, the share price rallied 9 per cent on high volume with over 3.3 million shares traded, well above its three month historical daily average trading volume of approximately 950,000 shares. On Friday, Orla was the second best performing stock out of 224 stocks in the S&P/TSX Small Cap Index.
A brief outline on Orla is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.
The company
Orla is a junior gold producer focused on three open pit projects. In 2022, commercial production began at its 100 per cent owned Camino Rojo Oxide gold project in Mexico. In addition, the company has two exploration and development projects - its 100-per-cent owned Cerro Quema gold project in Panama and its 100-per-cent owned South Railroad gold project in Nevada. For 2023, management has committed $20-million in exploration spending to Rojo Oxide, $10-million to South Railroad and $3-million to Cerro Quema.
The company has an experienced leadership team and well-known shareholders.
Chairman Chuck Jeannes is the former president and chief executive officer of Goldcorp Inc., which was acquired by Newmont Mining Corp.. Orla’s president and chief executive officer Jason Simpson is the former chief operating officer of Torex Gold Resources Inc.. Major shareholders include Newmont Mining with an ownership position of over 14 per cent. Pierre Lassonde, the former president of Newmont Mining, has an ownership position exceeding 10 per cent. And Agnico Eagle Mines Ltd. owns over 7 per cent of the shares outstanding.
Dividend policy
The company does not pay its shareholders a dividend.
Quarterly earnings and outlook
After the market closed on March 16, the company reported its better-than-expected fourth quarter financial results.
Gold production totaled 32,017 ounces, bringing gold production for the year up to 109,596 ounces, which was at the top end of management’s full year production guidance of between 100,000 and 110,000 ounces. All-in sustaining costs were US$634 per ounce in the fourth quarter and US$611 for the year, which was at the low end of management’s full year guidance of between US$600 and US$700. Adjusted earnings per share came in at 7 US cents for the quarter, above the consensus estimate of 4 US cents. In 2022, adjusted earnings per share totaled 21 US cents. The company ended the year with US$96-million of cash on its balance sheet.
Management re-iterated its 2023 outlook calling for gold production of between 100,000 and 110,000 ounces, relatively unchanged from 2022, and AISC of between US$750 and US$850 per ounce, up from US$611 reported in 2022. In the Management’s Discussion and Analysis, it addressed the higher expected AISC, “The increase in AISC over 2022 is due primarily to increased maintenance costs, price inflation, and an increase G&A [general and administrative] costs at corporate office as we added a third project with South Railroad in 2022.”
Analysts’ recommendations
This small-cap stock with a market capitalization of $1.86-billion is covered by seven analysts on the Street, of which six analysts have buy-equivalent recommendations and one analyst (Cormark’s Richard Gray) has a “market perform” recommendation.
The firms providing research coverage on the company are as follows in alphabetical order: BMO Nesbitt Burns, CIBC World Markets, Cormark Securities, Desjardins Securities, Paradigm Capital, Scotiabank, and TD Securities.
Revised recommendations
Last month, Desjardins’ John Sclodnick raised his target price to $6.50 from $6.
Financial forecasts
The consensus earnings per share estimates are 9 cents in 2023, down from 21 US cents reported in 2022, and rising to 23 US cents in 2024. The Street is anticipating Orla to report cash flow per share of 14 US cents in 2023 and 31 US cents the following year.
Over recent months, estimates for this year have retreated after management provided its 2023 guidance in January that fell short of the Street’s expectations. Three months ago, the Street was forecasting earnings per share of 23 US cents and cash flow per share of 31 US cents in 2023.
Valuation
Analysts commonly value the stock on a price-to-NAV (net asset value) basis.
The average one-year target price is $6.79, implying the share price may appreciate nearly 12 per cent over the next 12 months. Individual target prices are: $5.75 (from Cormark’s Richard Gray), $6.25, $6.50, two at $7, and two at $7.50.
Insider transaction activity
Year-to-date, there has not been any trading activity in the public market reported by insiders.
Chart watch
Year-to-date, the share price is up 11 per cent with most of this gain occurring on March 17. Orla’s share price rallied over 9 per cent, making it the second best performing stock in the S&P/TSX Small Cap Index.
In terms of key technical resistance and support levels, the stock faces major resistance around $7, near its record closing high of $7.19 set on Jan. 4, 2021. Looking at the downside, the stock has initial technical support around $5. Failing that, there is strong support around $4.
ESG Risk Rating
According to Sustainalytics, Orla has an ESG (environmental, social and governance) risk rating of 44.6 as of Feb. 27, 2023. A rating of more than 40 reflects “severe” risk.