Nordgold: Production Is On The Rise

Nordgold, (NORD.L) reported its third consecutive quarterly increase in production in Q313, with the overall gold output rising 5.2% q-o-q to 245koz. Strong operating performance offset the lower gold price leading to a 1.4% top-line expansion. FY13 production is at the upper end of the guidance.

Q313 production: On the up again
Nordgold reported total gold production at 244.7koz (245.1koz sales) in Q313, a 5.2% q-o-q increase, driven by the strong performance of Lefa and the Russian heap leach operations. Lefa was a star performer, achieving a 31% increase in gold production on the back of the higher grade and recovery. This, as well as a visible reduction in the stripping volumes, suggests the mine could be close to breaking even at the TCC level in Q313. In contrast, Taparko disappointed with a 14% q-o-q reduction in the output and almost two-fold increase in the strip ratio to 16 t/t. Overall, Nordgold has managed to grow revenue by 1.5% q-o-q to US$325m, with the higher gold output offsetting a 4% reduction in the realised gold price. The company guides FY13 production at the higher end of the 780-850koz range.

Positive cash flow generation
Nordgold indicated end-Q3 net debt of US$777m (US$802m in Q213), which implies US$25m increase in net cash. Assuming flat capex and no other significant cash in/outflows, this would suggest net operating cash flow was close to US$90m in Q313, the highest quarterly level of net OCF generation in 2012-13.

Potential Buryatzoloto LoM extension
On 11 October, Nordgold announced the acquisition of an early-stage exploration project in Buryatia, Russia, for US$0.3m. The project, which according to the Russian resource classification standard has c 2Moz in resource, is adjacent to the company’s relatively mined out Buryatzoloto mine and could be viewed as an extension of its life of mine (LoM). No further details are available at this stage.

Valuation: Headwinds from the lower gold price
Nordgold continues to generate positive newsflow, with the solid Q313 operating results, upbeat production guidance and Buryatzoloto’s LoM extension adding to the earlier announced new management hires and the Paul Isnard earn-in. All this, however, is yet to be priced in, as the stock remains under pressure due to the uncertain gold price outlook. Trading at 2013e EV/EBITDA of just 3.2x, Nordgold appears to be the cheapest play in the EM gold universe.

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