The Conversation (0)
Canada’s Richmont Mines was the top gaining stock on the Toronto Stock Exchange for the year. Despite a weak gold price, its share price increased by about 244 percent.
For 2014, Richmont’s stock gained a whopping 244 percent. So far this year, it’s up another 7 percent and was trading at $3.98 at close of day on Monday.
Certainly that’s nothing to shake a stick at given the relatively disappointing performance of the gold price this year. Speaking to what might have contributed to that rise, Jennifer Aitken, investor relations manager at Richmont, cited a well-managed balance sheet, but also noted that the weak Canadian dollar has actually been a boon for the company’s margins.
“We’re a Canadian producer and all of our operating costs are in Canadian dollars, whereas we sell in US,” she said. “That obviously is very beneficial to us because it helps our margins.”
While the gold price has been languishing below $1,200 per ounce in US dollars, Richmont recorded an average selling price of C$1,406 for per ounce for the first nine months of the year. Michael Gray, mining equities analyst at Macquarie Capital Markets, confirmed that sentiment in a separate interview, and suggested that the benefits are expected to keep rolling in for Richmont and other Canadian miners — he noted that David Doyle, economist and Canadian market strategist at Macquarie, sees the Canadian dollar falling to 75 cents US in 2016.
“It’s a huge part of our thesis on why Canada is a preferred jurisdiction,” he said.
The Island gold mine
Richmont is producing at the Island gold mine in Ontario and at the Beaufor and Monique mines in Quebec. Most of the excitement surrounding the stock this year has been due to the Island gold mine and the recently discovered high-grade Deep C zone below the existing resource, which currently sits at about 1.1 million ounces at roughly 10 grams per tonne gold in inferred resources.
“Essentially, it’s the sweet spot of having a producing mine with a new discovery over 1 million ounces,” stated Gray.
Adding to that, Aitken pointed out that since the resource is directly below the current Island gold operations, there’s no permitting required, and staffing requirements are already taken care of, meaning that the cost of development will be significantly lower. ”It’s literally an extension of where we’re operating. It’s just further down,” she said.
The company is looking to move forward quickly at Island Gold Deep, and released an accelerated and expanded 12-month development plan earlier this year. While Aitken noted that heavy investments at Island mean the company won’t be cash-flow positive next year, she stated that investors have responded positively to the plan so far and that investments in 2015 will help position the mine for future growth.
Perhaps more importantly, the company consolidated its ownership of the Island gold mine earlier this year, eliminating some “market hesitancy” and spurring a rerating by many analysts, according to Aitken.
“That was an overhang for the stock,” said Gray, “and once that was removed, there was a clear path with 100-percent interest. So that was important.”
Finally, both Aitken and Gray pegged the appointment of Richmont’s new CEO, Renaud Adams, as an important factor in the company’s share price performance last year. Adams previously served as president and COO at Primero Mining (TSX:P) and as senior vice president, Americas operations, at IAMGOLD (TSX:IMG). With Richmont, Gray suggested that the size is right for Renaud.
“It’s a size of company where with his skill set … he can really move the needle. So it’s a very good fit for him.”
In terms of what’s on the horizon for the miner in 2015, Gray is looking forward to the “first real production” from the Deep C zone, as he predicts that could “contribute to higher grades and presumably lower operating costs incrementally throughout the year as they expand production to depth.” He’s also looking forward to drill results next year that could expand the zone, which he says “could be very significant,” and he expects to see a revised resource estimate for Deep C.
All in all, 2014 was quite a year for Richmont, and Gray expects the company’s strong performance to continue in 2015. ”It’s one that we think will continue to outperform,” he said. “We’ve got a $5 target.”
Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Richmont Mines is a client of the Investing News Network. This article is not paid-for content.
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