Milling Improvements At Gruyere Will Increase Capacity To 10 Million Tonnes Annually

Key Takeaways

• Increased production and exploration efforts at Gruyere and Gilmour could drive significant revenue and earnings growth for Gold Road Resources.
  
• A strong balance sheet with substantial liquid assets provides financial flexibility for future growth and enhances company value.
  
• Rising production costs, potential operational disruptions, and tax implications on investments could strain net earnings and impact growth investment capacity.

Catalysts

Engages in the exploration of gold properties in Western Australia.

• Gold Road Resources is positioned for a stronger 2025 as it has full access to the ore body at Gruyere, which should drive increased production levels of 325,000 to 355,000 ounces, positively impacting revenue and earnings.
  
• The company announced the Gilmour pre-feasibility study results, with a maiden ore reserve demonstrating significant exploration value and an expected project NPV of up to $354 million, suggesting future revenue growth.
  
• A substantial underground drilling program at Gruyere is set to begin in early 2025, aimed at extending the mine life beyond 2032, potentially enhancing long-term earnings.
  
• Gruyere's production capacity is expected to increase with milling rate improvements, targeting 10 million tonnes per annum, which could reduce costs and improve margins.
  
• The company maintains a strong balance sheet with no debt and approximately $1 billion in liquid assets, which supports financial flexibility for future growth initiatives and potentially enhances overall company value.

Gold Road Resources Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Gold Road Resources's revenue will grow by 16.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 22.7% today to 30.7% in 3 years time.
• Analysts expect earnings to reach A$222.8 million (and earnings per share of A$0.21) by about February 2028, up from A$103.1 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting A$320.1 million in earnings, and the most bearish expecting A$142.4 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.1x on those 2028 earnings, down from 26.1x today. This future PE is greater than the current PE for the AU Metals and Mining industry at 13.4x.
• Analysts expect the number of shares outstanding to decline by 0.11% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.05%, as per the Simply Wall St company report.

Gold Road Resources Future Earnings Per Share Growth

Risks

• The company's production costs are set to increase due to inflationary adjustments and higher royalties, potentially affecting net margins.
  
• Gruyere's production guidance indicates a higher all-in sustaining cost for this year, which might reduce net earnings.
  
• Delays in processing enhancements or mine upgrades, such as the conveyor upgrade causing plant downtime, could affect production levels and revenue targets.
  
• Adverse weather events and their associated impacts on mining operations, such as the recent major rain event, present risks to production consistency and may lead to increased cost management challenges.
  
• Any tax implications from potential capital gains on their investment in De Grey could impact net earnings and available liquid assets for growth investment.

Valuation

• The analysts have a consensus price target of A$2.54 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$2.85, and the most bearish reporting a price target of just A$2.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$726.4 million, earnings will come to A$222.8 million, and it would be trading on a PE ratio of 15.1x, assuming you use a discount rate of 7.1%.
  
• Given the current share price of A$2.48, the analyst's price target of A$2.54 is 2.3% 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.