Roth Capital Partners initiated coverage of Gold Resource Corporation (NYSEAMERICAN:GORO) with a Buy rating and a US$6.50 price target as the firm positions itself to "continue to generate positive cash flow at its Mexico unit while executing on growth initiatives in Nevada."
Shares of Gold Resource Corporation (GORO) soared on Tuesday, up 15.2% at US$3.23.
Gold Resource Corporation is a Colorado-headquartered resource group, which runs two mining units in mining friendly jurisdictions: Mexico and Nevada.
Analyst Jake Sekelsky noted Roth is "supportive of management’s commitment towards allocating free cash flow to growth projects as well as returning capital to shareholders in a difficult metals price environment," as he highlighted a number of variables.
Sekelsky made note of a number of factors that included the fact that the polymetallic nature of GORO's Mexico unit provides revenue diversification and low-cost production and the Nevada unit is poised to provide the next leg of growth.
With its Mexico unit operating at a steady state and producing positive cash flow, the firm continues to move its Nevada unit towards production. Roth noted it expects commercial production in the second half of 2019 and "expects consolidated gold production to grow by over 100% and reach just under 90,000 ounces in 2020," according to the report.
Nevada unit should bolster cash flow
Sekelsky also highlighted the fact that GORO is a mining company that places a focus on returning capital to shareholders.
"Importantly, we do not expect production growth to come at the expense of profitability. We believe the Nevada unit should be immediately accretive to cash flow and forecast free cash flow of $27.5 million from Nevada in 2020, which should serve as the first full year of commercial production."
Roth noted the increased cash flow may support a dividend increase.
"Based on the company's history of maintaining profitability and dividend payments, we believe an increase in cash flow from Isabella Pearl may cause the Board to evaluate the merits of increasing the current annualized dividend of $0.02 7.00 per share."
A mix of both precious and base metals production
Finally, Roth says GORO provides investors a mix of both precious and base metals production, which it points to as a reason the company was able to remain profitable, despite volatile metal prices.
"In short, we view GORO as a differentiated mining company with a staunch focus on returning capital to shareholders in the form of dividends.Given our projected production and cash flow growth over the next year, we believe the company is significantly undervalued at its current level," noted Roth.
Contact Katie Lewis at [email protected]