St Andrew Goldfields (SAS)

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Market Oracle: Strawberry Picking Undervalued Gold Stocks

http://www.marketoracle.co.uk/Article50431.html
Apr 27, 2015 - 05:55 PM GMT
By: The_Gold_Report

TGR: What are some equities that Trapeze Asset Management believes are in control of their destiny?

RA: Our two favorites at the moment are St Andrew Goldfields Ltd. (SAS:TSX) andDynacor Gold Mines Inc. (DNG:TSX). St Andrew is the largest landholder in northern Ontario's Timmins mining camp. It's in a good jurisdiction. The company has production of just shy of 100,000 oz (100 Koz), if you annualize its Q1/15 numbers. It has been in the penalty box for over a year because in 2013 St Andrew produced 100 Koz, but in 2014 it took its guidance down to 75–85 Koz, only to reach about 91 Koz gold for the year. The company has had something like 14 consecutive quarters of positive cash flow, but because there is little coverage on the company and only a few hundred thousand shares are traded each day, the company has been underfollowed and largely ignored. Meanwhile all-in sustaining costs should remain below $1,000/oz, and guidance for 2016, with the Taylor mine coming on, is 125-135 Koz—that's meaningful for an orphaned company.

TGR: How is the Canadian dollar changing the company's fortunes?

RA: The Canadian dollar has fallen heavily against the U.S. dollar and the Canadian dollar price of gold is about CA$1,440/oz. That should give a material advantage to most Canada-based producers that collect revenue in U.S. dollars but with costs in Canadian dollars.

St Andrew should do well into next year as it ramps up production at its Taylor mine, which is already delivering ounces in pre-production, but should reach commercial production later this year. At 130 Koz of production, St Andrew should generate more than CA$65 million (CA$65M) in earnings before interest, taxes, depreciation and amortization (EBITDA). St Andrew is trading at one times enterprise value/EBITDA (EV/EBITDA), net of its approximately CA$25M net cash balance, based on CA$65M of EBITDA. I wanted to see how that compared to other stocks in North America, so we screened all the stocks in North America that have enterprise values over $50M. It was No. 3 on the list out of about 1,500 companies. This year St Andrew should generate CA$15M of free cash flow, as it competes its spending on Taylor, and next year in excess of CA$30M. It's trading for about 2.5x free cash flow, net of cash on hand. Trading at around CA$0.29/share, this is an extraordinarily cheap stock.

TGR: What will be the impact of St Andrew's toll-milling business?

RA: The toll milling business is small. It is conducting toll milling for a couple of companies, which allows it to help fill the mill, but it's a minor part of its business.

TGR: At its current share price, it's almost impossible for St Andrew to be the consolidator in the Timmins Camp. Do you see it becoming a target at CA$0.28/share?

RA: It's likely there are players who would like to consolidate the camp because it is big and fragmented. St Andrew has a lot of land, though, so it could spend many years drilling off the 120 kilometers (75 miles) it has along the Porcupine Destor Fault. Like any other company out there, if the market isn't prepared to pay a fair value for a company, often someone else comes along and buys it.

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