Nord Gold Neutral Q2 Results

Nordgold (NORD.L) reported Q213 revenue of US$320m and EBITDA of US$106m, with total cash costs (TCC) falling 7.1% q-o-q to US$846/oz. The bottom line was affected by a US$236m non-cash impairment. We view the results as neutral and reiterate our FY13 financial and operating forecasts. More importantly, the company announced the strengthening of its management team with a number of high-profile appointments that could lead to improved operational and financial performance. Trading at 2013e EV/EBITDA of 3.4x, the stock is cheap relative to its core peer group.

Neutral Q213 financial results
NORD reported Q213 revenue of US$320m on the back of a 26% q-o-q increase in gold sales (offsetting a 15% drop in the gold price) and EBITDA of US$106m, virtually unchanged from Q113. The company reported TCC had fallen 7.1% q-o-q to US$846/oz, predominantly due to the strong performance at Bissa and Suzdal, while the estimated EBITDA-based cash cost came in at US$922/oz, down 11.0% q-o-q and 5.3% y-o-y. Net profit was distorted by a one-off non-cash impairment charge of US$236m following the revaluation of assets and inventory based on the lower gold price of US$1,345/oz. The company has highlighted its FY13 capex guidance at US$260m compared to our existing estimate of US$298m. NORD intends to pay an interim dividend of US$0.04/share, implying 4% annualised yield.

Strengthening the management team
In other news, the company announced the strengthening of its management team by appointing Louw Smith (ex-COO of Alacer Gold) as COO, Martine White (ex-COO at Aureus) as technical director, Philip Lodewyk Engelbrecht (ex-head of metallurgy at Gold Fields) as director of metallurgy and Matthew Wilcox as general director at Lefa. We welcome these changes as they should enhance NORD’s technical expertise, a concern for some investors due to the company’s strong presence in Africa, potentially leading to improved operational performance.

Valuation: The stock is cheap relative to peers
The company is on track to meet our full-year operating and financial forecasts, which we leave unchanged. Despite a potentially lower H213 vs H113 gold price, this weakness is likely to be partly offset by gradual operational improvements at Taparko and Lefa, as well as the robust performance at Bissa, with increased prospects of more substantial and broader operational turnaround in the medium term as a result of the latest management changes. Trading at 2013e EV/EBITDA of 3.4x, NORD appears to be the cheapest stock in its core peer group.

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