RCKS Talk

26-Feb-2019

Gran Colombia Gold Corp

Results Point to Reserve and Resource Growth

Impact: Mildly Positive

Gran Colombia has provided generally positive news with a first look at production results for 2019 and final details from its 2018 drill season. This update supports the company’s strong outlook for 2019 which we expect to be affirmed with continued production and drilling success. We believe the market has still not priced in this company’s turnaround and as Gran Colombia executes operationally, we expect it re-rate towards peers. 

Highlights: 

  • Drilling for resource growth. The company released results from the remaining 8,043m of its 2018 drill program highlighting growth at the El Silencia, Providencia and Sandra K systems which make up the company’s Segovia operations (86% of 2017 gold sales). Exploration efforts to date have been targeting growth below existing operations, based on the results to-date we expect the company grow reserves and resources with the pending update.
  • First month of production results in line with mid-range guidance for 2019. The company’s January production update of 17,941oz Au provides a good start to 2019. This update aligns with the mid-point of 2019 guidance of 210,000-225,000 oz Au. We believe operating execution, along with solid financial results are key to Gran Colombia closing the significant valuation gap to peers. 
  • Upcoming catalysts should drive momentum. Gran Colombia is expected to release its Q4 and full financial results by March 27, 2019, after a reserve and resource update which is expected shortly. Along with operating and financial results, ongoing exploration could be an important catalyst for the company as it works to demonstrate the company’s longer-term potential.

Valuation:
Gran Colombia’s shares poised to continue re-rating higher. Based on 2019 guidance and historical costs the company appears to trade at 2.5-3.0x 2019E EBITDA (1.7x consensus estimates), which is a steep discount to peer’s which trade at 5.1x. We believe that with the balance sheet repaired and operations improved, we expect Gran Colombia to progressively re-rate as it executes operationally. Upcoming Catalysts include 1) Resource and Reserve update (Q1/19), 2) 2018 Financials (Q1/19), 3) Exploration results (ongoing)

 

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