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Gold, silver majors continue trending upwards

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Gold, silver majors continue trending upwards

Raymond James Financial upgraded a number of Canadian gold and silver miners over the week, following the recent release of earnings and production reports along with other updates.

Analyst Chris Thompson raised ratings for First Majestic Silver Corp. to market perform; Silvercorp Metals Inc. and Endeavour Silver Corp. to outperform; and Tahoe Resources Inc., Asanko Gold Inc., Fortuna Silver Mines Inc. and MAG Silver Corp. to strong buy as valuation multiples were adjusted to lower levels, signaling buying opportunities for a number of companies.

Thompson endorsed Fortuna and MAG Silver to investors seeking near-term silver production, with Victoria Gold Corp. and Integra Gold Corp. highlighted in the gold sector.

The attractiveness of gold producers B2Gold Corp., Endeavour Silver, OceanaGold Corp. and Roxgold Inc. were also a focus, given their growth prospects and operating margins, while Thompson Creek Metals Co. Inc. and Asanko Gold were favored on a valuation basis.

Thompson further recommended that investors maintain exposure to quality firms and take advantage of near-term valuation withdrawals.

BMO Capital Markets also upgraded Endeavour Silver to market perform from underperform in an April 4 note, following the release of a pre-feasibility study on the company's Terronera silver project in Mexico.

The Terronera study estimated a base case net present value of US$78.2 million, using a 5% discount rate, with an after-tax internal rate of return of 21%. The plant will process 4.1 million tonnes over a seven-year mine life to produce 22.6 million ounces of silver and 185,000 ounces of gold at life-of-mine all-in sustaining costs of US$4.76 per ounce of silver.

Terronera is expected to generate revenue of US$639.5 million over its life, and analysts believe the project could increase Endeavour Silver's consolidated silver equivalent production profile by over 50% in the future.

The firm also increased its price target for the silver major's stock to C$5.00 per share from C$3.50 per share.

BMO also initiated coverage of Falco Resources Ltd., assigning an outperform rating along with a target price of C$1.90 per company share, to highlight the development of the Horne 5 gold project in Quebec.

In an April 3 research report, BMO noted that a feasibility study on the project is due in the second quarter and will allow Falco to start the permitting process and pre-construction work for the Horne 5 development.

Another coverage initiation in the week was for Altyn Plc, as VSA Capital gave the miner's stock a buy rating and a 12-month price target of 5 pence per share, implying 212% in upside potential.

VSA Capital on April 3 noted the company's attractive valuation, commitment to dividend payouts and a transition towards producing more than 100,000 ounces of gold per year.

The investment bank expects the miner to produce 48,000 ounces of gold in 2017 and 80,000 ounces in 2018, when its dividend payments are likely to start.

Moody's, on the other hand, withdrew all of its ratings on Alamos Gold Inc., including its B2 corporate family rating, after Alamos redeemed US$315 million of its 7.75% senior secured second-lien notes due 2020, leaving the miner debt-free.

One gold miner saw a downgrade in the week, with Beacon Securities revising its rating on Osisko Mining Inc. from buy to hold, while the target price for the miner's stock was raised to C$5.00 per share from C$4.65 per share.

Analyst Michael Curran said in an April 4 note that the downgrade comes on the back of Osisko Mining's share price appreciation, which leaves limited upside to Beacon's new target price for the miner's stock.

Moving to bulk commodities, S&P Global Ratings on April 7 raised its long-term corporate credit rating on Alumina Ltd. to BB+ from BB, with a stable outlook, to reflect the "sound performance" of the Alcoa World Alumina and Chemicals joint venture, or AWAC, and the strategic alignment of Alumina and Alcoa Corp.

The stable outlook reflects S&P's expectation that the amount of debt at the AWAC operating level will be modest and that the joint venture's operating performance will remain steady.

Likewise, Ferrexpo Plc's corporate family rating was upgraded by Moody's to Caa2 from Caa3, with a stable outlook.

In an April 7 note, the rating firm said the upgrade comes on the back of Ferrexpo's improved liquidity profile and anticipation of strong cash flow generation in 2017-2018, with free cash flow of about US$250 million in 2017 and US$70 million to US$100 million in 2018, given improving iron ore prices.

The Caa2 rating also reflects various factors, including the company's stronger business profile with a better sales mix, while the stable outlook is in line with the stable outlook on Ukraine's sovereign rating and Moody's expectation that Ferrexpo will sustain an adequate operating and financial performance.

Moody's also removed a provisional designation on the ratings of Peabody Energy Corp. and assigned a B1-PD probability of default rating on the company, with a stable outlook, after the company emerged from Chapter 11 protection.

The company has assumed the US$1 billion in first lien secured notes originally issued by Peabody Securities Finance Corp., which is now merged into Peabody Energy.

Analysts also weighed in on certain deals announced over the week, with Moody's saying April 6 that Barrick Gold Corp.'s sale of a 50% stake in the Veladero gold mine in Argentina to Chinese miner Shandong Gold Mining Co. Ltd. for US$960 million is credit positive, as a portion of the sale's proceeds could be used to reduce debt.

Meanwhile, S&P said April 7 that the deal is seen as neutral to Barrick's credit profile and that the positive impact of the sale proceeds on the company's balance sheet will be largely offset by the reduction in its share of earnings and cash flow from the mine. The rating agency also expects the gold major to use the bulk of the proceeds for debt repayment.

S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.