Cerrado Gold (TSXV:CERT) reported fourth quarter and full year 2022 financial results that show the company is delivering on its promise to control costs and drive industry leading production growth over the next 4 years.
Cerrado is guiding to a quadrupling of production, a ~40% production CAGR through 2026, among the fastest in the gold industry.
With the Las Calandrias heap leach project still on track to deliver production growth this year, Cerrado looks well positioned in 2023 to deliver on its promises and close the large discount to net asset value.
From a valuation standpoint Cerrado trades at less than half the P/NAV of gold mining peers, 0.2x vs 0.5x for peers, giving investors a discounted way to gain exposure to:
- Gold and silver
- The operational leverage of owning a miner over the physical commodity
- Significant production growth.
Price to NAV vs Peers
Cerrado has emerged as one of our preferred ways to invest in gold and silver given the constructive outlook for precious metals.
Financial Highlights
Gold equivalent production grew 23% in 2022 and management is expecting the same or faster growth this year. Couple that with expectations of flat to declining all-in production costs and the company will likely see solid cashflow growth in the coming 12 months.
EBITDA of $7.3 million in Q4 was a large improvement over $0.7 million generated last quarter and a 75% increase over the full year 2021.
Full year adjusted EBITDA of $20.7 million and free cashflow of $4 million are significant improvements over 2021, driven by higher prices, higher ore grades and better recoveries, all things you want to see in an efficient mining company.
Cerrado ended the year with debt/ebitda at a low 1.3x and $9 million of cash against $38 million of debt.
Year over Year Financial Comparisons
Operational Highlights
At Minera Don Nicolas, the fourth quarter was one for the record books. The company saw the highest head grades since the Cerrado acquisition in early 2020. Head grades of 5.83 g/t were 22% above the prior year and 33% above just three months ago.
Gold recovery of 95% was also a significant improvement from both the prior year and prior quarter, rising 7% and 4% respectively.
Operational Highlights
On the cost front, all-in costs of $1,231 in 2022 were a 9% decline from the prior year even though total costs increased 25%. Production growth outweighed COVID driven wage and equipment inflation and is the best case outcome for any mining investor.
With very strong production growth expected over the next few years, Cerrado expects all-in costs to fall from $1,300/oz in 2022 to only $857/oz in three years, a 34% decrease.
Heap Leach Projects on Track to Drive Near Term Production
The Las Calandrias heap leach project remains on track with first gold production commencing in 1-2 months.
Expected to add 27,500 oz/yr on average, this project is key to Cerrado’s 150,000 oz/yr growth over the next four years.
Following the startup of Las Calandrias, the Martinetas project is planned to add another 20,000 oz/yr starting in 2024.
With the continued stepout drilling success the company is having this year, growth from heap leach expansions are largely derisked in our view.
Heap Leach Project Details
A Catalyst Rich 2023 to Come
When mining stocks like Cerrado trade at a significant discount to the greater mining industry, there are really only two sure fire ways to close the gap. First you could wait for a raging precious metals bull market when multiples for every company converge. But those happen only once a decade at best.
Or the company can close the gap themselves through operational catalysts. This is the path Cerrado has rightly chosen with 2023 full of important milestones.
Beyond the startup of the first two heap leach projects, Cerrado plans to release an important bankable feasability study on the Monte Do Carmo asset by May. This study will update the resource model and importantly move resources from the less reliable inferred classification to the more reliable measured and indicated classifications. A bankable feasiblity study is critical to lining up project financing for the next stage of this critical growth asset.
Cerrado is also working through an environmental impact study on Monte Do Carmo which is needed to receive a Preliminary license from the government. Management expects to receive the license this year and will then apply for the final “License of installation/Construction”.
As Cerrado builds out new production sources and maintains good cost discipline, we expect the net asset value of the company will grow and the discount to peers will close, a powerful combination for shareholders.
Cerrado Gold is a market awareness client of Capital 10X.
