Research Note - Signal Gold Inc. (SGNL:TSX,$0.43|BUY $2.00 TARGET) Point Rousse Breakout Quarter; Back On Track To Meet Guidance

This morning, SGNL reported Q2/22 production results from its Point Rousse operation. Despite the water management issue in Q1 and early Q2, the operation had a breakout quarter. Point Rousse produced 5.4 Koz Au in Q2 beating our estimate of 4.2 Koz and a 93% increase over Q1/22. Based on the strong run-rate the Company exited the quarter on, management is confident it will achieve its annual guidance and produce strong cashflow in the back half of the year. We are maintaining our BUY rating and our 12-month target of $2.00/share for SGNL.

 

Point Rousse beat our expectations across the board with the average grade mined being 1.91 g/t Au vs. 1.35 g/t expected, the strip ratio dropping from 11.4 (waste:ore) in Q1 to 4.3 in Q2, beating our estimate of 6.0. Gold recovery also beat our expectation of 86% coming in at 89%. The strong quarter was driven by steady operations from the high-grade Argyle pit which was the primary ore source in the second quarter.

 

Despite the Point Rousse Project only making up ~6% of our overall valuation for SGNL, the non-dilutive cashflow it provides is a significant driver of value as the Company continues the development of Goldboro. We predict the Company will be able produce cashflow of upwards of $10M in the back half of the year which should provide ample liquidity to both develop operations at Point Rousse but also provide capital to the Goldboro project. 

 

As a reminder, the primary reason for the miss in Q1 was due to a water management issue within the Argyle Pit. Management has iterated that the issue has been addressed and has put in place new systems to ensure the problem does not occur again.

 

As of June 30, 2022, SGNL had a cash balance of $10.9M and additional available liquidity of $3.0M from an undrawn revolving line of credit facility. In Q4/21, the Company executed a $5.0M gold prepayment facility to provide further non-dilutive liquidity as SGNL progresses through the feasibility study and the environmental assessment registration document for the Goldboro project.

 

2022 Guidance: As previously reported, SGNL released production guidance for 2022 of between 21.5 and 23.0 Koz Au reflecting a record year of production. In addition to 2022, we expect SGNL to produce gold at record rates in 2023 and 2024 as the Company continues to advance and develop the Stog’er Tight deposit. If the Point Rousse operation can achieve its 2022 guidance it will provide enough non-dilutive cashflow to support the Goldboro project development and exploration until a construction decision is made and the mine financing is secured.


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