Streaming Deals And Kurmuk And Sadiola Projects Will Unlock Opportunity

Key Takeaways

• Strategic management improvements and focusing on local expertise aim to boost operational efficiency and net margins.
  
• Completion of expansion projects and exploration success expected to drive production and revenue growth, enhancing earnings and valuation.
  
• High capital expenditures on infrastructure projects and operational risks at multiple sites could strain finances and impact margins if costs or timelines are not controlled.

Catalysts

Explores and produces mineral deposits in Africa.

• Allied Gold has secured new streaming and prepaid deals, significantly increasing its cash balances and improving its balance sheet, which could support future expansion and operational flexibility, potentially impacting earnings positively.
  
• The development and future completion of the Kurmuk and Sadiola Phase 1 projects are expected to drive significant production growth, with anticipated increases to over 600,000 ounces in 2026, which should positively impact revenue and earnings.
  
• Exploration results indicate a substantial addition to mineral inventory and potential new discoveries, which could extend the mine life and increase production capacity, positively affecting future revenue and net margins.
  
• Strategic management and operational improvements, including transitioning management to those with significant local engineering backgrounds, and centralizing technical services, are expected to increase operational efficiency and cost management, thereby potentially improving net margins.
  
• The company is pursuing a listing on the New York Stock Exchange, which could increase the stock's visibility and liquidity, potentially impacting its valuation positively as the market anticipates improved earnings and revenue growth.

Allied Gold Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Allied Gold's revenue will grow by 32.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from -15.8% today to 24.6% in 3 years time.
• Analysts expect earnings to reach $418.0 million (and earnings per share of $1.22) by about April 2028, up from $-115.6 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $535 million in earnings, and the most bearish expecting $300.9 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 7.0x on those 2028 earnings, up from -11.0x today. This future PE is lower than the current PE for the CA Metals and Mining industry at 13.3x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.03%, as per the Simply Wall St company report.

Allied Gold Future Earnings Per Share Growth

Risks

• The significant focus on infrastructure projects such as Kurmuk and the Sadiola Phase 1 expansion involves high capital expenditures, which may strain the company's finances and affect net margins if project costs overrun or expected production timelines are not met.
  
• Delayed administrative processes at Korali-Sud led to inventory sales occurring after the quarter, impacting Q4 revenue figures and potentially leading to future inefficiencies or sales timing issues that could affect earnings.
  
• The need for additional waste removal and further infill drilling at Agbaou to meet production guidance poses operational risks that could result in increased costs or delays, thus impacting net margins.
  
• Exploration costs are budgeted at $20 million, and while exploration success can lead to additional resources, there's no guarantee of discovery, potentially affecting future revenue streams and ROI if results do not justify the investment.
  
• The reliance on local sourcing to mitigate impacts from tariffs and other geopolitical risks implies a certain level of operational vulnerability, which, if not effectively managed, could disrupt supply chains and consequently elevate production costs, impacting profitability.

Valuation

• The analysts have a consensus price target of CA$8.242 for Allied Gold 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 CA$12.06, and the most bearish reporting a price target of just CA$5.63.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.7 billion, earnings will come to $418.0 million, and it would be trading on a PE ratio of 7.0x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of CA$5.36, the analyst price target of CA$8.24 is 35.0% higher.
  
• 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.