GOLDEN MINERALS COMPANY
AUM : TSX : C$28.76 | C$435.00M
Speculative Buy, C$36.00
Say Yaxtche! Building a high-grade silver producer in a flash; initiating coverage with a SPECULATIVE BUY rating and a C$36.00 target (full report)
Eric Zaunscherb, 1.604.699.0829
Initiating coverage with a C$36.00 target price and SPECULATIVE BUY rating
Our target price implies a 25% 12-month projected return. The rapid development of the Yaxtche -- El Quevar project could allow investors to capture relative value appreciation through P/NAV multiple expansion.
Extensive silver and gold project growth pipeline, near-term catalysts
Results from exploration on the west of the Yaxtche deposit could extend silver mineralization as much as 65% along strike, while drilling at the Zacatecas project in Mexico is intensifying. Positive silver-gold values could also create meaningful shareholder value in the short term.
Highly experienced management team with operating and financial acumen
Management are highly experienced mine builders and operators. The company has no debt and over US$120 million in cash to fund a significant portion of the El Quevar project's development. This provides an excellent way to gain exposure and leverage to buoyant precious metal markets.
Valuation
We value Golden Minerals' shares using our peak US$30.00/oz silver price forecast, which generates a C$45.10 corporate NAV per adjusted fully diluted share. We apply a 0.8x target P/NAV multiple to obtain our 12-month target price of C$36.00 per share. Golden Minerals currently trades at 0.6x our NAV estimate. Our valuation is based on a conceptual mine plan at El Quevar with conservative cost estimates; an H1/11 feasibility study could outline greater production rates and lower costs, leading to potentially higher valuations
The single most salient paragraph:
RELATIVE VALUATION
On a P/NAV basis, using a 5% discount rate and spot US$26.71/oz silver as reference points, Golden Minerals appears largely undervalued relative to the silver producers and
developers in our coverage universe (Figure 13). Golden Minerals trades at only 0.57x P/NAV (5%, US$27.15), which is in line with Bear Creek Minerals (BCM : TSX-V : C$9.24| SPECULATIVE BUY) but substantially below Alexco Resource Corp. (AXR : TSX : C$7.59
| SPECULATIVE BUY) The discount relative to Alexco is expected given Alexco’s incipient production in the Keno Hill silver district in Yukon; the market pays higher multiples for
producing assets than for developers. With this in mind, the convergence of Golden Mineral’s P/NAV to the average of junior silver producers (note Fortuna Silver) should be
commensurate with the potentially rapid pace at which Golden Minerals is developing its El Quevar project. Thus, investors may be able to quickly capture an expected increase in relative value through multiple expansion.
