FYI: Updated GCM analysis by Red Cloud Securities Inc.Derek Macpherson | VP, Equity Research Analyst, www.redcloudsecurities.com:
“Production Results
October 14, 2020
Solid Q3/20 Results Indicating Full COVID-19 Recovery. Gran Colombia released another solid operating quarter with steady results from Segovia and improving results at Marmato. The third quarter results, reflect a 21% improvement over the second quarter, primarily driven by a recovery in operations after the COVID-19 lockdown instituted in Colombia. We expect Gran Colombia’s share price to benefit from solid operating results coupled with a~US$200/oz increase QoQ in the price of gold when it releases Q3 financial results.
Highlights:
Expect Q3 to be a record financial quarter. Despite the challenges faced at the beginning of Q3 at Marmato, we expect an exceptional financial quarter from Gran Colombia (Figure 1). We currently model Q3 revenue at US$108M (+40% QoQ, +30% YoY), EBITDA of US$60.6M (+84% QoQ, +60% YoY), and FCF of US$38.1M (+352% QoQ, +152% YoY). The improved financial results are primarily being driven by the increase in the gold price, but are supported by operating improvements, particularly at Marmato. We note that while our projected cash balance is much higher than Q2/20, this is driven by the consolidation of Caldas Gold Corp’s (TSXV:CGC, Derek Macpherson) US$133M capital raise (Gran Colombia owns 53.5%).
Gran Colombia remains on-track to meet revised guidance. Gran Colombia announced total Q3 production of ~58.5k oz Au which came in above our estimates of 56.4k oz Au. At Segovia, total production was ~51.6k oz at 15.1 g/t Au (RCS est. 51k oz at 14 g/t Au); whereas, Marmato’s production totaled ~6.9k oz Au at 2.8 g/t Au (versus our modelled 5.4k oz at 3.6 g/t Au on 100%-basis). We currently model 223k oz Au for 2020 (was 234k oz), suggesting Gran Colombia is on pace to meet the top-end of its revised guidance (218-226k oz).
Exploration and financial updates expected in the near-term. Besides exceptional financial results, that should drive the stock higher, we expect ongoing exploration to benefit the stock price. As 2021 guidance and the next reserve/resource update approaches, we remain focused on higher grade results, that should support operations at the current head-grade from Segovia vs. the decrease that the current reserve grade
Valuation:
Re-rating likely to be driven by upcoming financial results and exploration success. We maintain our BUY rating and price target of C$13.00/sh (unchanged) based on 4.0x our one-year forward, NTM EBITDA estimate of C$260M (was C$267.9 M). We note that our estimates have been impacted by the recent capital raise and rolling our model forward to Q4/20. Gran Colombia trades at 1.8x 2021E EV/EBITDA and 0.41x NAV versus peers at 4.5x and 0.76x, respectively.
Upcoming Catalysts:
1) Exploration results (ongoing),
2) Q3/20 Financial Results (Q3/20) and
3) Updated Guidance (Q3/20).“