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analysis

On today’s Breakouts report, there are 35 stocks on the positive breakouts list (stocks with positive price momentum), and 22 securities are on the negative breakouts list (stocks with negative price momentum).

Gold stocks dominate the positive breakouts list given the recent strength in the price of gold, which is near its record close of U.S. $2069.40 set on Aug. 6, 2020. Discussed today is a gold stock that is on the positive breakouts list: Aura Minerals Inc. (ORA-T).

Year-to-date, Aura’s share price is up 23 per cent, making it the 44th best performing stock out of 247 securities in the S&P/TSX SmallCap Index. The stock has a unanimous buy recommendation from five analysts. The average one-year target price is $15.28, implying the share price has 57 per cent upside potential over the next 12 months.

A brief outline on Aura is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.

The company

Aura is a gold and copper producer with four mines in production – EPP (Ernesto/Pau-a-Pique), Aranzazu, Almas and San Andres. The company’s operations are located in Brazil (EPP), Mexico (Aranzazu, Almas) and Honduras (San Andres). In addition, the company has two projects in development, both in Brazil, Borborema and Matupa. Construction is underway at the company’s 100 per cent owned Borborema project with 6 per cent of construction completed and production slated to begin in 2025. A feasibility study indicated that the Borborema project has a mine life of 11 years with 65,000 ounces of annual gold production and the life of mine AISC averages U.S. $949 per ounce.

The third quarter 2023 production breakdown was 43 per cent from Aranzazu, 28 per cent from San Andres, 17 per cent from EPP and 12 per cent from Almas (production is ramping up with two months of commercial production realized in the third quarter).

Quarterly results and outlook

On Nov. 6, the company reported third-quarter financial results that fell short of the Street’s expectations. Net revenue came in at U.S. $110-million, up 36 per cent year-over-year, but below the consensus estimate of $120-million. The average gold sale price was U.S. $1,941 per ounce in the quarter, up 13 per cent year-over-year. AISC (all-in sustaining costs) per GEO (gold equivalent ounces) sold totaled U.S. $1,437. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was U.S. $30-million, up 80 per cent compared to the same period last year, but lower than the consensus estimate of U.S. $47-million. Production reached 64,875 GEO, up 12 per cent year-over-year and up 34 per cent sequentially. At quarter-end, the company had a cash balance of $179-million.

Looking ahead, management cut its 2023 production outlook calling for production of between 231,000 and 253, 000 GEO, below its previous guidance of between 245,000 and 273,000. Meanwhile, cash cost guidance increased to between U.S. $949 and U.S. $1,029 per GEO, up from between U.S. $897 and U.S. $973. Management’s outlook for AISC per GEO increased to between U.S. $1,225 and U.S. $1,324, up from between U.S. $1,162 and U.S. $1,261. By 2025, management expects annualized production to be at least 450,000 GEO.

In the earnings release, president and chief executive officer Rodrigo Barbosa stated, “Financially, we saw significant growth with increases in volume, revenues, and EBITDA, and we anticipate continued enhancements in volume and margins in Q4 [fourth quarter]. Despite lower-than-expected productivity at EPP due to above-average rainfall, which delayed high-grade output from Ernesto, our strategic progress was substantial: we launched commercial production at Almas, pioneering industry standards for efficiency; completed a pivotal Feasibility Study for Borborema with 52 per cent IRR [internal rate of return], after tax and leveraged, at U.S. $1,900 ounce gold price; acquired the final 20 per cent share; and secured construction financing. These efforts have solidified our strategy to reach an annualized production rate of 450,000 GEO by 2025.”

Management does not host quarterly earnings calls.

Dividend policy

The company pays its shareholders a semi-annual dividend in U.S. dollars that will vary and depend on the company reported and expected financial performance over a six month period. Aura’s dividend policy is set out as follows, “The company’s annual dividend is equal to 20 per cent of its estimated adjusted EBITDA for the relevant six months less sustaining capital expenditures and exploration capital expenditures for the same period.”

On Nov. 29, the company announced a dividend of U.S. 25 cents per share payable on Dec. 19 to shareholders of record as of the close on Dec. 11. This dividend is based on the financial results from the third quarter 2023 and the expected financial results for the fourth quarter 2023, including expected production, cash costs and sustaining and exploration capital expenditures realized in the fourth quarter.

In June, the company paid its shareholders a dividend of U.S. 14 cents per share.

In a news release, the CEO commented on its commitment to return capital to its shareholders, “Aura is distributing its second dividend of 2023, amounting to U.S.$ 18 million for this semester and reaching a total of U.S.$ 28 million for the year. This marks our third consecutive year of rewarding shareholders, making us among the leaders in our industry for dividend payments. Over the past three years, we’ve returned U.S.$ 143 million to our shareholders through dividends and share buybacks.”

According to the company’s May corporate presentation, Aura had the “highest dividend yield in the sector worldwide in 2021 at 13.5 per cent” returning U.S. $85 million in dividends to shareholders. In 2022, the company returned U.S. $30 million between dividends and share buybacks to shareholders, representing a 6 per cent yield.

Analysts’ recommendations

This small-cap stock with a market capitalization of $697-million has a unanimous buy recommendation from five analysts.

The firms providing analyst coverage on the company are as follows in alphabetical order: Canaccord Genuity, ISS-EVA, Itau BBA Securities, National Bank Financial, and Red Cloud Securities.

Revised recommendations

Quarter-to-date, three analysts have revised their expectations.

· ISS-EVA’s equity research team upgraded the stock to an ‘overweight’ from ‘hold’.

· National Bank’s Rabi Nizami trimmed his target price to $14.50 from $15.

· Red Cloud Securities’ Taylor Combaluzier raised his target price to $19 (the high on the Street) from $18.

Financial forecasts

Financial figures are denominated in U.S. dollars.

The Street is forecasting revenue of $419-million in 2023 and $531-million in 2024. The consensus EBITDA estimates are $144-million, jumping to $252-million in 2024.

Given the production shortfall in the third-quarter, financial forecasts have come down for 2023. To illustrate, three months ago, the Street was anticipating revenue of $455-million in 2023 and $552-million in 2024. The consensus EBITDA estimates were $183-million for 2023 and $252-million for 2024.

Valuation

The stock is commonly valued on a price-to-net asset value basis and on an enterprise value-to-EBITDA basis.

According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 2.55 times the fiscal 2024 consensus estimate.

The average one-year target price is $15.28, implying the share price has 57 per cent upside potential over the next 12 months. Individual target prices provided by four firms are as follows in numerical order: $13.50 (from Itau BBA Securities’ Daniel Sasson), $14, $14.50 and $19 (from Red Cloud Securities’ Taylor Combaluzier).

Insider transaction activity

Quarter-to-date, one insider has reported trading activity in the public market.

Between Nov. 9 and 20, chief financial officer Kleber Cardoso sold a total of 30,050 shares at an average price per share of approximately $9.03, trimming this particular account’s position to 25,732 shares. Proceeds from the sales exceeded $271,000, excluding trading fees.

Chart watch

Year-to-date, the share price is up 23 per cent, making it the 44th best performing stock out of 247 securities in the S&P/TSX SmallCap Index.

In terms of key technical resistance and support levels, the share price faces a major ceiling of resistance around $12. After that, there is resistance between $17 and $17.50. Looking at the downside, there is initial technical support around $9, near its 50-day moving average at $9.01. Failing that, there is strong support between $7 and $8.

The stock can be thinly traded, which can increase price volatility. The three-month historical daily average trading volume is approximately 22,000 shares.

ESG Risk Rating

Looking at three risk providers, Sustainalytics, MSCI and Bloomberg, Aura does not have an ESG (environmental, social and corporate governance) risk rating.

The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.

If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.

Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indices that have a minimum market capitalization of $200-million.

A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.

This report should not be considered an investment recommendation.

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