Steppe Gold Ltd (TSE:STGO), the Mongolia-focused miner, has received an upgraded target price from Haywood Capital Markets on the back of its growing cash flow and key milestones, which are expected be reached in forthcoming months.
Haywood has hiked its target on the stock to C$4 from C$3 previously, which is a good distance from the current price of around C$2.8. It rates the shares a 'Buy'.
On August 17, the miner posted its financial results for the second-quarter to June 30, 2020, which showed strong output from its flagship asset, the ATO mine, which generated 15,389 ounces of gold and 4,978 ounces of silver in the period.
The firm sold 12,458 gold ounces and 3,728 silver ounces in 2Q with average realized prices per ounce of US$1,714 and US$15 respectively, making the firm C$19.5 million in sales.
"Cash costs were $595/oz, and AISC was $739/oz. We expect the company will continue to improve on costs in 2H20, trending to $500/oz, as operations reach steady-state," Haywood analyst Pierre Vaillancourt pointed out in a note to clients.
The analyst also noted that three drill rigs are now at the Mungu prospect at ATO and an updated resource estimate is expected in the fourth quarter of this year.
In addition, following that resource, Steppe plans to complete a feasibility study in the first quarter next year, examining an expanded operation costing US$100 million with output of 150,000 ounces a year, ten-year mine life and all-in-sustaining costs (AISC) of US$1,000 per ounce.
"This study could lead to construction in 2H21 and production by the end of 2022," said Vaillancourt.
The analyst did note however that, based on first-half output, he does not now expect the firm's original target of 60,000 ounces of gold to be reached for 2020, saying 50,000 ounces was more likely.
Nevertheless, he added, the first three months of gold production from ATO "positions the company to achieve steady-state production".
He said that in anticipation of growing cash flow, and reaching key milestones of the resource update and bankable feasibility study, Haywood is therefore increasing its target price.
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