Expanded Zgounder Mine Expected To Begin Commercial Production By Late Q4 2024

Key Takeaways

• Ramp-up to commercial production and efficient operations at Zgounder mine expected to significantly boost revenues and improve net margins.
  
• Successful spinout and exploration projects set to expand resources and positively impact future earnings and revenue streams.
  
• Delays and increased costs in development, scaling, and operations are negatively affecting production targets, cash flow, and profitability, while reliance on exploration poses future risks.

Catalysts

Engages in the exploration, evaluation, and development of precious metals projects in Morocco.

• The anticipated transition to commercial production at the expanded Zgounder mine by late Q4 2024, with ramp-up to a 2,700 ton per day capacity, is expected to significantly boost revenues.
  
• Addressing nonrecurring expenses and improved mining efficiencies after stope developments are expected to reduce cash costs and potentially improve net margins moving forward.
  
• The recent successful spinout creation of MX2 for better valuation of non-core assets could provide additional financial resources for Aya, impacting earnings positively.
  
• Exploratory drilling confirming high-grade mineralization at Zgounder, along with ongoing large-scale exploration projects such as Boumadine, could lead to resource expansion, potentially increasing future revenue streams.
  
• Efficient commissioning and ramp-up of the new processing plant could facilitate increased production rates, positively influencing revenue and earnings in future quarters.

Aya Gold & Silver Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Aya Gold & Silver's revenue will grow by 98.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 19.2% today to 43.3% in 3 years time.
• Analysts expect earnings to reach $138.6 million (and earnings per share of $0.91) by about February 2028, up from $7.8 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.9x on those 2028 earnings, down from 137.9x today. This future PE is greater than the current PE for the CA Metals and Mining industry at 12.8x.
• Analysts expect the number of shares outstanding to grow by 0.44% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.21%, as per the Simply Wall St company report.

Aya Gold & Silver Future Earnings Per Share Growth

Risks

• Delays in stope development and commissioning may affect the company's ability to meet production targets, which could impact revenues and net margins.
  
• Nonrecurring expenses for contractors in stope development inflated cash costs, negatively affecting cash flow and potentially reducing net earnings.
  
• Lower grade ore extraction in Q3 resulted in decreased production and increased cash costs, impacting short-term profitability and net margins.
  
• Challenges in scaling up the mine and milling operations, including equipment issues and the need for additional training, could lead to increased costs and impact revenues and profitability.
  
• The dependency on successful exploration results and ramp-up completion to sustain long-term production growth introduces risks that could impact future revenue forecasts.

Valuation

• The analysts have a consensus price target of CA$20.41 for Aya Gold & Silver 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$23.3, and the most bearish reporting a price target of just CA$11.9.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $320.2 million, earnings will come to $138.6 million, and it would be trading on a PE ratio of 16.9x, assuming you use a discount rate of 7.2%.
  
• Given the current share price of CA$11.7, the analyst price target of CA$20.41 is 42.7% 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.