new HRG research TP 1.40
new coverage from a Russian broker
can someone get a hand on the full PDF report?
Delayed] Otkritie: High River Gold: The river flows upwards (06/17/2011)
2011-06-22 05:53:00.290 GMT
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We initiate coverage on High River Gold Mines Ltd. [HRG], with a BUY rating and
a 12-month target price of $1.44/share (C$1.40/share), reflecting a 25% upside
from the current share price. We like the company’s diversified gold asset
base, with operations in both Russia and Africa, its competitive cost structure
(total cash cost of production was $560/oz in 1Q11, we forecast $564/oz for
FY11E), its growing production base (with the new Bissa mine coming on line in
2013E), and its attractive valuation. The stock trades on a 2011E EV/EBITDA of
3.9x, which is a 60% discount to its Russian peers.
Positive gold price momentum remains. We believe gold prices will continue to
stay strong as investor interest remains on the back of US dollar weakness,
relatively low US interest rates and inflation fears.
Rising gold production. We expect production to rise from 330 koz in 2010 to 359
koz in 2011E, representing a 9% increase YoY. With the Bissa mine coming on line
in 2013E, we forecast HRG’s gold production to grow to 423 koz, a 28% increase
from 2010 production levels.
Trades at a vast discount to peers. There are a number of valid reasons that the
company trades at a discount to peers, which we highlight in the peer
comparables section. However, in our view, even when all of these factors are
taken into consideration, they do not justify the large discount to peers at
which HRG currently trades.
Balanced portfolio. Unlike many Russian gold producers which only possess assets
in Russia and the CIS, HRG has a balanced portfolio that contains assets in both
Russian Federation and Africa. In 2010, 61% of its gold production came from its
Russian mines. By 2014, once the Bissa mine is fully up and running, we expect
Russian production to comprise 45% of the company’s total production.
Cash positive. The company had $24mn of debt & $204mn in cash on its balance
sheet at the end of 1Q11. Thus, both its exploration and capex programs can be
financed internally via cash on hand & positive cash flows.
Strong core shareholder. The company is 72.4% owned by Nordgold NV, the gold
mining subsidiary of Severstal [BUY; TP$20.6/share], which is one of the largest
global metal and mining companies (market capitalization of over $19bn) and one
of our top picks.
Catalysts. Rising gold prices, optimization of operating assets, reserve updates
from the Bissa and Prognoz exploration projects, construction updates at the
Bissa mine, positive read-through from Nordgold IPO (possibly in 2H11E), and
Nordgold increasing its stake in HRG.
Risks. A significant drop in gold prices, ruble appreciation, cost escalations,
regulatory challenges, commissioning delays and/or cost over-runs at Bissa.