Florida Canyon Cash Flow And DeLamar Development Will Support Stable Long Term Prospects

Catalysts

About Integra Resources

Integra Resources is a U.S focused gold producer using cash flow from its Florida Canyon mine to advance its DeLamar and Nevada North development projects.

What are the underlying business or industry changes driving this perspective?

• Although Florida Canyon is currently generating strong cash flow at gold prices above 3,200 dollars per ounce, elevated royalties and taxes tied directly to higher prices could cap the benefit of further upside and limit expansion of operating margins and free cash flow.
• Despite sizeable near surface oxide potential in historical dump and interpit material, the conceptual nature of these volumes and the need for extensive drilling and metallurgical work may delay reserve conversion and push out the timing of production growth and earnings accretion.
• While gold price strength is enabling a capital intensive reinvestment cycle at Florida Canyon through 2026, extended periods of high sustaining and growth capex for fleet renewal, leach pad expansion and stripping could keep mine site all in sustaining costs at the top end of guidance and constrain near term net margin expansion.
• Although DeLamar has advanced to an administratively complete mine plan of operations with federal review underway, any slippage in permitting, feasibility work or federal approvals would defer initial production, delaying the expected step change in consolidated revenue and cash flow.
• While Nevada North is benefiting from more flexible exploration plans and planned technical studies through 2027, the long lead time to an updated technical report means incremental ounces from Wildcat and Mountain View may not materially support production scale or diversify revenue until well beyond the current planning horizon.

Assumptions

This narrative explores a more pessimistic perspective on Integra Resources compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming Integra Resources's revenue will grow by 18.3% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 5.9% today to 220.1% in 3 years time.
• The bearish analysts expect earnings to reach $797.6 million (and earnings per share of $4.48) by about December 2028, up from $13.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 0.8x on those 2028 earnings, down from 47.0x today. This future PE is lower than the current PE for the CA Metals and Mining industry at 21.2x.
• The bearish analysts expect the number of shares outstanding to decline 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 7.16%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Sustained high gold prices could continue to drive strong operating leverage at Florida Canyon, keeping operating profit margins near the current 37% level and supporting higher revenue and earnings than implied by a flat share price outlook. This could push the valuation and share price higher over time by compounding cash flow.
• The capital intensive improvement program at Florida Canyon, including heap leach pad expansion, fleet renewal and stripping, is explicitly aimed at extending mine life and lowering the long term cost profile. If successful, this would support structurally higher net margins and earnings and could justify a re rating of the shares.
• Advancement of the DeLamar project through feasibility, federal permitting and a landmark long term agreement with the Shoshone Paiute positions Integra to add a second large scale producing asset in a scarce tier one jurisdiction. This would diversify and grow revenue and earnings beyond what a flat share price would reflect.
• Ongoing work at Nevada North, including expanded exploration plans, metallurgical test work and an updated technical report targeted for 2027, could convert currently non cash generating assets into future production growth. This could add incremental revenue streams and earnings power that the current share price may not fully discount.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for Integra Resources is CA$5.49, which represents up to two standard deviations below the consensus price target of CA$6.64. This valuation is based on what can be assumed as the expectations of Integra Resources's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$7.99, and the most bearish reporting a price target of just CA$5.49.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2028, revenues will be $362.4 million, earnings will come to $797.6 million, and it would be trading on a PE ratio of 0.8x, assuming you use a discount rate of 7.2%.
  
• Given the current share price of CA$5.02, the analyst price target of CA$5.49 is 8.5% 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.