BCBusiness
The Vancouver company is ramping up output at its Papuan mine at just the right time
The stock: Having flirted with US$3,500 an ounce in April, gold is now in uncharted territory, almost double the high it reached back in 2011 in the wake of the Global Financial Crisis. Either you believe the precious metal’s price will settle back as trade, fiscal and geopolitical tensions come off the boil, or this is just the beginning of a new era of uncertainty and there’s no ceiling on this thing. If you’re in the latter camp, a good way to play it might be with shares of an expanding, high-grade producer like K92 Mining (TSX:KNT).
The drivers: Granted, it’s hard for gold miners to go wrong these days. But having closed at $12.69 a share Tuesday (May 13), Vancouver-based K92 is up 64 percent over the past year and 41 percent year-to-date. That’s strides ahead of most of its peers.
The company’s Kainantu mine in Papua New Guinea is considered to be among the highest-grade gold mines in the world, and K92 has exploration rights to a large and promising footprint around it.
Over the past five years, the company has doubled production to 150,000 ounces of gold equivalent per year and, with the expected completion of its stage 3 processing plant expansion later this year, should double capacity again to 300 koz. There’s a stage 4 expansion in the works after that, all being financed out of cash flow.
First-quarter results released May 12 impressed analysts with higher-than-expected gold volumes and lower-than-expected capital costs. Net income was US$70.2 million or US$0.29 per share on revenue of US$144.6 million. All-in, sustaining costs were just over US$1,000 an ounce.
Word on the street: RBC Dominion Securities analyst Michael Siperco calls K92 “one of the most exciting exploration stories today.” He has an “outperform” rating and $15 price target on the stock.
Coming and going: Pan American Silver Corp. (TSX:PAAS) has negotiated a friendly takeover of MAG Silver Corp. (TSX:MAG) for the equivalent of $2.1 billion in stock and shares. Both companies are headquartered in Vancouver. Meanwhile, controlling shareholder Fairfax Financial Holdings (TSX:FFH) of Toronto has signed a letter of intent to buy out minority shareholders of Richmond-based The Keg Royalties Income Fund (TSX:KEG.U) for $18.60 per unit, for a total of $211 million. Both takeovers require the approval of shareholders.