Wesdome Mines (TSE:WDO) received an initial buy rating and C$2.00 price target from analysts at Dundee Capital Markets, who cited an impressive turnaround and five consecutive quarters of positive free cash flow.
The Canadian gold producer has a long history dating back to 1987, but while the gold price was peaking in 2011, the miner struggled due to operational challenges and managerial conflicts.
Activist shareholders soon emerged, and previous Wesdome CEO Rolly Uloth, who led from 2007 to 2009, took over as head of the company in 2013, working to turn around the business ever since.
"With a defensive balance sheet and plans to further push production and compress costs, we're comfortable with Wesdome's ability to deliver results," said Dundee analyst Joseph Fazzini in a research note released earlier Thursday.
Wesdome's flagship asset is the Eagle River complex near Wawa, Ontario. Dundee said that with high grades coming from the Eagle River underground mine, the Mishi open pit provides supplemental low-cost feed for a centralized mill.
"As production ratchets higher, cash flow should follow suit as economies of scale are expected to drive per unit production costs lower," Fazzini wrote.
Dundee expects Wesdome to produce $8 million of free cash flow this year, using its gold price forecast of US$1,231 an ounce. This represents a 6 percent free cash flow yield, and easily tops the average FCF yield for its junior producer peers at negative 0.5 percent, Dundee said.
The company also has $15 million of cash and $7 million in convertible debt maturing May 31, 2017.
"Given its solid balance sheet, Wesdome remains well-positioned to weather a tough metal price environment while its pipeline of development projects provide optionality should gold prices rise," Dundee's Fazzini explained.
The analyst also noted the company's track record of reserve replacement, as it increased reserves at Eagle River by 57 percent for 2014.
Shares of Wesdome were trading at C$1.20 in Toronto on Thursday, giving it a market cap of $133.3 million. The stock has climbed almost 32 percent in the past 12 months.