Echelon Capital Markets Starts AR at Buy w $5 Target Calling it a “short-term junior leveraged gold play, long-term growing intermediate player,” Echelon Capital Markets analyst Gabriel Gonzalez initiated coverage of Argonaut Gold Inc. (AR-T) with a “buy” rating.
“Argonaut Gold is currently a 200,000 ounce per year junior gold producer in the process of executing on its growth strategy to become a 325-350,000 ounce per year high margin intermediate producer by 2023/24,” he said. “The Company’s strategy cornerstone asset is the Magino gold project in Ontario, which is currently in the process of being financed, and expected to be able to produce 120-150,000 ounce per year and potentially even more – a proper intermediate-sized gold mine.”
“Argonaut currently trades at 0.4 times P/NAV [price-to-net asset value] compared to the junior peer group average of 0.7 times We believe its current discount is a lingering effect of the cancelled San Antonio project, and subsequent merger with Alio Gold to acquire Florida Canyon and avoid a production cliff which could have complicated Argonaut’s ability to finance Magino. With Magino now being solely financed by Argonaut, we see a revaluation path potentially beyond the Junior P/NAV average and towards Intermediate P/NAV valuation territory.”
Mr. Gonzalez currently sees the “right juncture for both short- and long-term investors.”
“Argonaut has been a levered play to the gold price given its relatively high operating costs in the high-third/low-fourth AISC quartile, making it an attractive short-term investment during rising gold prices,” he said. “Given the high price of gold however, it is also well-positioned to finance its development strategy under favourable terms as it evolves into a high-second/low-third AISC quartile intermediate producer, supporting increased margins and a revaluation as the gold bull market subsides.”
He set a target price of $5 per share, which exceeds the $4.43 average on the Street.
“We see two main sources of return for investors: Argonaut’s leverage to a rising gold price in the short term and multiple revaluation as the Company executes on its growth strategy over the medium to longer term,” the analyst said.