New RBC Report - Outperform, Speculative Risk, Target: 8.00A new foundation report on TMAC was published by RBC Captial Markets on August 25, 2019.
Investment summary
We believe an Outperform, Speculative Risk rating is warranted given our view that TMAC’s shares offer an attractive risk/reward proposition as operational gains take hold and noting the company’s attractive valuation in light of the strong long-term fundamentals of the Hope Bay mine.
• Ramp-up slowly turning the corner. While the ramp-up of Hope Bay has been slower than expected, we believe recent operational improvements indicate the processing plant is finally turning a corner. We expect the company to deliver ongoing production gains in 2019, with a commensurate improvement in costs and free cash flow.
• A new Junior gold producer. We believe Hope Bay has potential to be a significant, long-life contributor for TMAC, and we forecast average annual gold production (2019+) of ~160 Koz at mine-site sustaining cash costs of US$875/oz over 20+ years.
• Just scratching the surface of Hope Bay's exploration potential. We believe Hope Bay offers significant exploration potential, including nearmine potential below the diabase dyke at Doris, upside at Boston and Madrid, and regional prospects along the 80 km Hope Bay trend.
Potential catalysts and share price drivers
• Ongoing: Updates on the progress on the ramp-up of the processing plant at Hope Bay.
• Ongoing: Continued exploration results at all three deposits.
Risks to valuation
• Ongoing execution risk: Risk as the company continues to address ramp-up challenges in the processing plant as well as risk with longerterm development plans at Madrid and Boston.
• Nunavut presents unique challenges: Operating in Nunavut presents inherent logistical and weather challenges.
• Commodity and currency risk: TMAC Resources is exposed to changes in the price of gold as well as fluctuations in the CAD/USD exchange rate.