Advancing Gilmour And Yamarna Projects To Strengthen Future Operations

Key Takeaways

• Expansion in mineral resources and reserves positions the company for sustained production levels and future revenue growth.
  
• Strategic investments and developing projects like Gilmour enhance profitability potential and improve net margins.
  
• Weather disruptions, fluctuating gold prices, rising production costs, and significant tax implications pose risks to Gold Road Resources' profitability and financial stability.

Catalysts

Engages in the exploration of gold properties in Western Australia.

• Gold Road Resources is increasing its resource and reserve base, with a notable 6% increase in mineral resources and a 5% increase in ore reserves, supporting future revenue growth through sustained production levels.
  
• The development of the Gilmour project, including the prefeasibility study with significant free cash flow potential and high NPV, is expected to further boost revenue and profitability as the project advances.
  
• The company's strategic investments have seen substantial gains, with the value of its holdings increasing significantly, which could positively affect net margins and overall earnings if realized.
  
• Continuous improvement in operational performance, demonstrated by a strong rebound in the second half of 2024 after weather disruptions, suggests a positive trend in net margins and operating efficiencies going forward.
  
• Ongoing exploration and development activities, such as the Yamarna Mine Readiness project and deep drilling at Gruyere, are expected to support future revenue growth by discovering and proving new reserves.

Gold Road Resources Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Gold Road Resources's revenue will grow by 12.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 27.0% today to 34.3% in 3 years time.
• Analysts expect earnings to reach A$255.3 million (and earnings per share of A$0.23) by about April 2028, up from A$142.7 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting A$353 million in earnings, and the most bearish expecting A$150.1 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.9x on those 2028 earnings, down from 22.8x today. This future PE is greater than the current PE for the AU Metals and Mining industry at 11.2x.
• Analysts expect the number of shares outstanding to grow by 0.07% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.23%, as per the Simply Wall St company report.

Gold Road Resources Future Earnings Per Share Growth

Risks

• The company's financial performance in 2024 was significantly affected by rainfall events in the first half, which disrupted operations and impacted cash flows. Future weather-related disruptions could similarly affect revenue and profitability.
  
• Although the company had a significant rebound in the second half of 2024, the strong performance was partly due to favorable gold prices. A potential decline in gold prices could negatively impact revenue and net income.
  
• There is a concern about potential capital gains tax implications related to the company's investments, particularly in De Grey. If these gains are realized, it could lead to significant tax expenses, impacting net earnings.
  
• While production guidance is on track, increases in costs of production, including higher material movements in the pit and compliance costs, could pressure profit margins if they continue to rise unexpectedly.
  
• The significant unrealized gains on listed investments indicate that a large portion of the company's profit is not from core operations, which may pose a risk if market valuations of these investments decline, thus impacting overall profitability and cash reserves.

Valuation

• The analysts have a consensus price target of A$3.02 for Gold Road Resources based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$3.4, and the most bearish reporting a price target of just A$2.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$743.7 million, earnings will come to A$255.3 million, and it would be trading on a PE ratio of 15.9x, assuming you use a discount rate of 7.2%.
• Given the current share price of A$3.0, the analyst price target of A$3.02 is 0.7% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.