Research Note - Signal Gold Inc. (SGNL:TSX,$0.42|BUY $2.10 TARGET) Point Rousse Solid Q3; Turning To Financials For Cashflows
Yesterday, Signal Gold Inc. announced Q3 production results for the Point Rousse Project. The operation produced 5.0 Koz Au slightly below our estimate of 5.4 Koz and sold 5.6 Koz of gold in the third quarter above our estimate of 5.4 Koz and well above Q2 of 4.1 Koz. The gold was sold at an average realized gold price of US$1,729/oz, resulting in a revenue of $12.7M. The primary driver of the miss on production during the quarter is scheduled maintenance resulting in 81% Mill Availability during the quarter (typically the Mill operates between 90-95% availability). Despite this, we are pleased with the operating results this quarter and look forward to the Q3 financial results as mining strictly from the high-grade Argyle pit this quarter should result in significant cashflows for the Company. We are maintaining our BUY rating and our price target of $2.10/share for SGNL.
Mine operations moved 92.7 Kt of ore from the Argyle pit in Q3, a 25% increase from Q2 when the operation was impacted by a water management issue. More importantly, the average grade mined during the quarter was 1.89 g/t Au, above our estimate of 1.70 g/t. We expect that the exclusive mining of the higher-grade ore should result in dramatic cost reductions for Q3 and ultimately result in strong cashflows. As a reminder, we anticipate that strong positive cashflows from the Point Rousse operation could be a significant catalyst for the stock as the operation has struggled over the last 18 months to produce positive cashflows. The non-dilutive cash the operation will provide will be important for the Company going forward.
The Pine Cove Mill processed 92 Kt during the quarter below our expectations of 113 Kt. The Mill achieved a strong average recovery of 88.7%, in-line with our expectations. The strong processing metrics are primarily attributed to the high-grade Argyle mill feed.
2022 Guidance: SGNL lowered production guidance for 2022 from between 21.5 and 23.0 Koz to 20.0 to 21.0 Koz. 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.
As of the end of Q3 the Company has a cash balance of $12.2M (up from $10.9M in Q2) and an undrawn revolving credit facility of $3.0M.
The Company expects to file its third quarter financial statements and management discussion and analysis by November 3, 2022.