Argonaut Gold: Canaccord Slashes Target To $0.65 Following Dilutive Financing

On July 5, Argonaut Gold (TSX: AR) announced that they closed a C$195.3 million offering that saw the sale of 434 million shares at C$0.45 per share. The company says that the net proceeds will be used “for the construction of the Company’s 100% owned Magino project in Ontario, Canada and for general corporate purposes.”

Additionally, the company said it had signed a binding commitment from a syndicate of lenders for the financing of a six-year, US$200 million term loan and a three-year revolving credit facility of US$50 million.

Argonaut Gold currently has 10 analysts covering the stock with an average 12-month price target of C$1.72, or an upside of 308%. Out of the 10 analysts, 1 has a strong buy rating, 8 analysts have buy ratings and 1 analyst has a hold rating on the stock. The street high price target sits at C$3.50 or an upside of 730%.

In Canaccord Genuity’s note on the news, they reiterate their hold rating but slash their 12-month price target to C$0.65 from C$1.50 saying that both capital and clarity come at a steep cost to existing shareholders.

In a previous note, Canaccord was expecting that the company would see a US$225 million financing gap to finish their Magino facility. They expected that the company would be forced into a sale of the company if they could not find financing.

Now with both the equity raise and the debt facility, Cannacord still believes that the company needs to remain diligent and that “the margin for error remains tight.” They say that the company now has AR capabilities of C$920 million EAC while Canaccord’s base case is C$1.1 billion.

Canaccord continues to believe that Magino is a “show-me story” after the company’s multiple CapEx increases, increasing from C$510 million to C$960 million, while also facing a pending review for delisting leaves some overhang for the stock.

With this, Canaccord says that Argonaut Gold, “does appear attractive on valuation following the deal,” as it trades at 0.27x NAV, which is half Canaccord’s junior producer peers comparison, which trades at 0.57x NAV. They reiterate that they believe there is longer-term value in the company but say Argonaut Gold, “may stay in the proverbial doghouse for some time, with a re-rate contingent on the successful delivery of Magino.”

Information for this briefing was found via Sedar and Refinitiv. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

Leave a Reply