Research Note - Signal Gold Inc. (SGNL:TSX,$0.31|BUY $2.10 TARGET) Point Rousse Moving to Care & Maintenance Next Year
This morning, Signal Gold Inc. announced an update on future activities at its Point Rousse Project in Newfoundland and Labrador, Canada. The Company has decided it will not proceed with the future development of the Stog’er Tight Project as the development plan entails operational and execution risk over a limited mine-life. As a result, the Company will begin winding down current operations as it approaches completion of mining at the Argyle Mine and ultimately place the Point Rousse operation under a care and maintenance program. We view this as a conservative move by the Company as it decreases the risk of Point Rousse operating poorly and draining cash from the Company, but also removes any upside potential from the operation producing significant cash flows. We are maintaining our BUY rating and our price target of $2.10/share for SGNL.
The Company is reaffirming its revised 2022 annual production guidance of 20,000 to 21,000 oz of gold and expects the processing of Argyle ore to continue into early 2023 before transitioning to care and maintenance. The Company stated it will consider options to maximize the value from its Newfoundland assets. These assets include the Pine Cove Mill (the only permitted gold processing facility in Newfoundland), a permitted in-pit tailings facility with long-term capacity and a deep-water port immediately adjacent to the processing complex. The Company also maintains ~15,000 hectares of highly prospective mineral property, including those adjacent to the past producing, high-grade Nugget Pond Mine at its Tilt Cove Gold Project. We believe there will be significant opportunity for SGNL to extract value from these assets and ultimately provide non-dilutive cashflow to fund the development of the Goldboro Project.
Stog’er Tight Mineral Resource:
Despite plans not to develop Stog’er Tight, the Company also announced a maiden reserve estimate for the deposit. Though we do not attribute much value to this update, the results could ultimately be valuable in a potential sale of the asset.
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.