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Allegiant Gold (AUXXF)(AUAU:CA) – Off to a Strong Start in 2022

By March 7, 2022No Comments

Allegiant Gold Ltd.

March 7, 2022 – ANALYST SUMMARY
Price as of Publication: $0.28 | Price Target: $0.90

Near-term drilling programs. Beginning this month, reverse circulation (RC) drilling will focus on the east pediment zone and the western anomaly and entail 35 holes, including 25 holes at the east pediment zone with an average depth of 200 meters per hole, and 10 holes at the western anomaly with an average depth of 300 meters per hole. Core drilling will begin in May to test the recently discovered high-grade zone within the western edge of the original pit zone and will entail 7 core holes with an average depth of 600 meters.

Updating estimates. For the three-month period ending December 31, 2021, Allegiant Gold reported a net loss of C$(0.01) per share compared to C$(0.00) during the prior year period and our estimate of C$0.00. Operating expenses were modestly above our estimates, and we have adjusted our fiscal year 2022 net loss per share estimate to C$(0.01) from C$0.00. Our 2023 per share estimate is unchanged. The company ended the quarter with a strong balance sheet, with cash and short-term investments of C$3,766,214 and $1,078,948, respectively, and no debt.
M&A activity in Nevada. We think Eastside’s location in Nevada and significant expansion potential likely make it an eventual candidate for acquisition by a larger mining concern. In February, Centerra Gold Inc. (NYSE: CGAU, Not Rated) acquired Gemfield Resources, owner of the nearby Goldfield development project located 30 miles south of Tonopah, Nevada, for US$175 million in cash, along with a future milestone payment of US$31.5 million in cash or shares. Centerra contemplates a conventional open-pit, heap leach mine project. A resource estimate is expected in the first half of 2023. Reasons for the acquisition included the potential to enhance Centerra’s growth profile and to improve its jurisdictional risk profile due to Nevada’s reputation as a premier mining jurisdiction globally.
Rating is Outperform. Allegiant has made substantial progress in advancing its Eastside project and has a clear plan to add resources through drilling and to define the project’s high-grade areas. Results from the company’s drilling program could provide catalysts for the stock and our rating remains an Outperform based on our view that Eastside could develop into a multi-million-ounce resource representing significant upside potential for shareholders.
Off to a Strong Start in 2022
Allegiant Gold is a mid-stage exploration stage company with 10 highly prospective projects in the southwest United States, including 7 projects in the State of Nevada. Allegiant’s flagship project is Eastside, a district-scale project in Nevada with inferred resources of 1.4 million gold and 8.8 million silver ounces of inferred resources and significant potential to add size and scale.
Allegiant recently completed over 6 kilometers of additional roads at the Eastside project with drilling to commence this month. The roads provide access to the high-grade zone within the original pit zone that was discovered during the company’s most recent drill program and will provide better access to the east pediment zone and western anomaly.Reverse circulation (RC) drilling will focus on the east pediment zone and the western anomaly and entail 35 holes, including 25 holes at the east pediment zone with an average depth of 200 meters per hole, and 10 holes at the western anomaly with an average depth of 300 meters per hole. Core drilling will begin in May to test the recently discovered high-grade zone within the western edge of the original pit zone and will entail 7 core holes with an average depth of 600 meters. Allegiant has increased the project’s potential with the recently amended plan-of-operations which expanded the permitted area to 3,600 acres enabling the company to test and drill new prospective targets in and around the original pit zone.
M&A Activity in Nevada
We think Eastside’s location in Nevada and significant expansion potential likely make it an eventual candidate for acquisition by a larger mining concern. In February, Centerra Gold Inc. (NYSE: CGAU) acquired Gemfield Resources, owner of the nearby Goldfield Development project located 30 miles south of Tonopah, Nevada, for US$175 million in cash along with a future milestone payment of US$31.5 million in cash or shares. Centerra contemplates a conventional, open-pit, heap leach mine project. A resource estimate is expected in the first half of 2023. Reasons for the acquisition included the potential to enhance Centerra’s growth profile and to improve its jurisdictional risk profile due to Nevada’s reputation as a premier mining jurisdiction globally.
Results for Quarter Ended December 31, 2021
Allegiant Gold reported a first quarter loss of C$(0.01) per share, compared to C$(0.00) during the prior year period and our estimate of C$0.00. First quarter operating expenses were above our estimate, including non-cash share-based payments. From a cash flow perspective, cash used in operating activities during the quarter ended December 31, 2021 amounted to C$(545,632), while cash generated from investing activities amounted to C$95,647 and included option payments received in the amount of C$320,750. Financing activities used C$(46,071) and the company ended the quarter with C$3,766,214 after accounting for the effect of exchange rate changes on cash denominated in a foreign currency.
Capital Structure and Liquidity
As of December 31, 2021, Allegiant Gold reported cash and short-term investments of C$3,766,214 and C$1,078,941, respectively. Lease liabilities amounted to C$77,096, of which C$28,782 are current. The company had no short or long-term debt. As of December 31, 2021, shares outstanding were 91,338,091.

 

Company Profile

Allegiant Gold is a mid-stage exploration stage company with 10 highly prospective projects in the southwest United States, including 7 projects in the State of Nevada. Allegiant’s flagship project is Eastside, a district-scale project in Nevada with inferred resources of 1.4 million gold and 8.8 million silver ounces of inferred resources and significant potential to add size and scale. The company’s shares trade on the TSX Venture Exchange under the ticker symbol “AUAU” and on the OTCQX under the ticker symbol “AUXXF.”

Fundamental Analysis – 3.0/5.0

Our fundamental assessment rating, separate from our investment rating and valuation, is based on five attributes. We assign 3.0 checks out of 5.0, which falls within our “Average” range of 2.5 to 3.0 checks. In our opinion, the company benefits from a shareholder-friendly management whose interests are aligned with shareholders. Management and insiders own ~17.0% of the company’s outstanding shares. Allegiant Gold’s projects are in favorable mining jurisdictions. Our rating reflects the fact that the company is a mid-to-late stage exploration company, does not generate substantial revenue from operations, and may require external financing to fund its growth. For further explanation of our fundamental analysis, please refer to the disclosures at the end of this report.

Valuation Summary

We rate AUXXF shares Outperform with a price target of US$0.90 per share or C$1.15. For our valuation, we have employed an Enterprise Value/Resources methodology. We round to the nearest $0.05. At year-end fiscal 2022, we forecast shares outstanding of 94.6 million, no debt, and a cash balance of C$441.6 thousand. We note that the ending cash balance is sensitive to the timing and amount of exploration expenditures. Assuming Allegiant can increase its resources to at least 2.0 million gold ounces based on the current drilling program that is fully funded, we estimate an enterprise value of C$110.0 million based on C$55 per gold ounce. Subtracting debt and adding back cash, we forecast a per share value of ~C$1.15, or ~US$0.90 per share. We believe upside exists to our estimate based on increasing resources beyond 2.0 million ounces.Investment risks include but are not limited to: 1) Allegiant Gold’s failure to develop economic mineral resources, 2) uncertainties associated with the availability and costs of future financing, 3) changes in capital market and macroeconomic environments, 4) fluctuations in exchange rates, 5) changes in supply and demand fundamentals for metals, including gold and silver, 6) delays in development, 7) the potential for operating and financing costs to vary from management expectations, and 8) potential environmental liabilities.

 

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IMPORTANT DISCLOSURES
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Company Specific Disclosures
The following disclosures relate to relationships between Noble and the company (the “Company”) covered by the Noble Research Division and referred to in this research report.

The Company in this report is a participant in the Company Sponsored Research Program (“CSRP”); Noble receives compensation from the Company for such participation. No part of the CSRP compensation was, is, or will be directly or indirectly related to any specific recommendations or views expressed by the analyst in this research report.

The Company has attended Noble investor conference(s) in the last 12 months.

Noble intends to seek compensation for investment banking services and non-investment banking services (securities and non-securities related) within the next 3 months.

Noble is not a market maker in the Company.

FUNDAMENTAL ASSESSMENT
The fundamental assessment rating system is designed to provide insights on the company’s fundamentals both on a macro level, which incorporates a company’s market opportunity and competitive position, and on a micro/company specific level. The micro/company specific attributes include operating & financial leverage, and corporate governance/management. The number of check marks that a company receives is designed to provide a quick reference and easy determination of the company’s fundamentals based upon the following five attributes of the company (weighting reflects the importance of each attribute in the overall scoring of company’s fundamental analysis):

Attribute Weighting
Corporate Governance/Management 20%
Market Opportunity Analysis 20%
Competitive Position 20%
Operating Leverage 20%
Financial Leverage 20%

For each attribute, the analysts score the company from a low of zero to a high of ten based upon the analysis described below. The final rating and resulting check marks is a result of dividing the overall score (out of 100%) by ten.

Rating Score Checks
Superior 9.1 to 10 Five Checks
Superior 8.1 to 9 Four & A Half Checks
Above Average 7.1 to 8 Four Checks
Above Average 6.1 to 7 Three & A Half Checks
Average 5.1 to 6 Three Checks
Average 4 to 5 Two & A Half Checks
Below Average 3 to 3.9 Two Checks
Below Average 2 to 2.9 One & A Half Checks
Low Quality 0 to 1.9 One Check

While these are the attributes currently used for the analyst’s fundamental analysis, the attributes and weighting may be reviewed, updated with additional attributes, and/or changed in the future based on discussions with the analysts and recommendations from the Director of Research.

Following is the description of each attribute in the fundamental analysis.

Corporate Governance/Management
We believe that a review of corporate governance and assessment of the senior management are important tools to determine investment merit. Good corporate governance aligns management with the interests of stakeholders. As such, analysts are to rank the company on the basis of good corporate governance principles that may include rules and procedures, board composition and staggered term limits, rights and responsibilities, corporate objectives, monitoring of actions and policies, and accountability. In addition, analysts will assess issues with controlling shareholders and whether decisions have been made in the past that were in the interests of all shareholders. In addition, management will be assessed based on industry experience, expertise, and/or track record.

High ranking example: Board and management that is aligned with the interests of shareholders with incentives based on stock price appreciation and with an experienced management team known for exceptional shareholder returns.
Low ranking example: Concentrated ownership without independent directors that do not necessarily align with all shareholders’ interests.

The Market Opportunity Analysis
In this review, the analyst assesses the company’s macro environment as a measure of understanding the industry. Factors considered include the size and growth potential of the industry under various economic conditions, the emerging demands in the market, technological benefits/disruptions, competition, geographical opportunities, and customer demands/needs, and an assessment of supply and distribution channels. In addition, the analyst will review legal and regulatory trends, as well as potential shifts in consumer or social behavior and natural environment changes.

High rank example: A company in an industry that is growing revenues well above GDP rates (which are on average 2% plus) and/or may have unmet or under-served needs in a rapidly growing market opportunity.
Low rank example: A mature industry that is in secular decline and likely to grow below GDP rates.

Competitive Position
The evaluation of the company’s competitive position is another macro environment attribute designed to measure the relevance, market share, position and value proposition, and sustainable differentiations of the company and its products/services within its industry. Ease of entry into the industry and the ability of other well-funded players to potentially enter the market would be determined. As such, the assessment would consider the company’s strengths and advantages of its products/services against weaknesses and limitations. This may include the company’s current brand awareness, pricing and cost structure, current market strategies and geographic penetration that may affect demand for its products/services. In addition, the company’s competitors would be evaluated.

High rank example: An analyst would consider the company’s product to be superior to its competitors and that should allow the company to gain market share.
Low rank example: A company with a “me-too” product that does not have any significant technology advantages in an industry that has low barriers to entry.

Operating Leverage
Simplistically, operating leverage is determined by the operating income relative to changes in revenue. The analyst will calculate the impact on sensitivity on gross margins and variable costs to determine operating leverage. The analyst will take into account the ability of the company to cut fixed and variable costs in a challenged revenue environment and technological changes that may impact operating expenses. In addition, the analyst is to assess corporate strategies that include capital investment, which may be required for sustainable revenue growth, marketing expenses, and the company’s ability to attract and retain talent and/or employees. The analyst should focus on the revenue opportunity and determine the price elasticity of demand for the company’s products or services. In other words, the analyst is to rank the company based on improved operating margins going forward on an absolute and relative basis.

High rank example: A company that has improving margins for the foreseeable future, with significant price elasticity.
Low rank example: A company that is in a challenged revenue environment with a fixed cost structure and limited ability to cut costs, indicating an outlook for declining margins.

Financial Leverage
A strict definition of financial leverage is total debt divided by total shareholder’s equity. Financial leverage analysis is to determine the company’s ability to improve shareholder value by means of utilizing its balance sheet to grow organically or to acquire assets. Analysts may look at the company’s debt to cash flow leverage ratio, interest coverage ratios, or debt to equity ratios. In addition, the interest rate environment and the outlook for interest rates are a factor in determining the company’s ability to manage financial leverage. Finally, the analyst is expected to determine the ability to service the debt given the industry and/or company profile, such as cyclicality, barriers to entry, history of bankruptcy, consistency in revenue and profit growth, or predictability in sales and profits and large cash reserves. The analyst is expected to take into account capital intensity of the company and the anticipated of capital allocation decisions.

High rank example: A company with predictable and growing revenue and cash flow with modest debt levels. This may indicate that the company could improve shareholder value through growth investments, including acquisitions, using debt financing.
Low rank example: A company in a cyclical industry in a late stage economic cycle that has above average debt leverage and is in an industry that has a history of financial challenges, including bankruptcies.

ANALYST CREDENTIALS, PROFESSIONAL DESIGNATIONS, AND EXPERIENCE
Senior Equity Analyst focusing on Basic Materials & Mining. 20 years of experience in equity research. BA in Business Administration from Westminster College. MBA with a Finance concentration from the University of Missouri. MA in International Affairs from Washington University in St. Louis.
Named WSJ ‘Best on the Street’ Analyst and Forbes/StarMine’s “Best Brokerage Analyst.”
FINRA licenses 7, 24, 63, 87.

Full Bio & Coverage List

CONTINUING COVERAGE
Unless otherwise noted through the dropping of coverage or change in analyst, the analyst who wrote this research report will provide continuing coverage on this company through the publishing of research available through Noble Capital Market’s distribution lists, website, third party distribution partners, and through Noble’s affiliated website, channelchek.com.

WARNING
This report is intended to provide general securities advice, and does not purport to make any recommendation that any securities transaction is appropriate for any recipient particular investment objectives, financial situation or particular needs. Prior to making any investment decision, recipients should assess, or seek advice from their advisors, on whether any relevant part of this report is appropriate to their individual circumstances. If a recipient was referred to Noble Capital Markets, Inc. by an investment advisor, that advisor may receive a benefit in respect of transactions effected on the recipients behalf, details of which will be available on request in regard to a transaction that involves a personalized securities recommendation. Additional risks associated with the security mentioned in this report that might impede achievement of the target can be found in its initial report issued by Noble Capital Markets, Inc.. This report may not be reproduced, distributed or published for any purpose unless authorized by Noble Capital Markets, Inc..

RESEARCH ANALYST CERTIFICATION

Independence Of View
All views expressed in this report accurately reflect my personal views about the subject securities or issuers.

Receipt of Compensation
No part of my compensation was, is, or will be directly or indirectly related to any specific recommendations or views expressed in the public appearance and/or research report.

Ownership and Material Conflicts of Interest
Neither I nor anybody in my household has a financial interest in the securities of the subject company or any other company mentioned in this report.

NOBLE RATINGS DEFINITIONS % OF SECURITIES COVERED % IB CLIENTS
Outperform: potential return is >15% above the current price 91% 25%
Market Perform: potential return is -15% to 15% of the current price 8% 2%
Underperform: potential return is >15% below the current price 0% 0%

NOTE: On August 20, 2018, Noble Capital Markets, Inc. changed the terminology of its ratings (as shown above) from “Buy” to “Outperform”, from “Hold” to “Market Perform” and from “Sell” to “Underperform.” The percentage relationships, as compared to current price (definitions), have remained the same.

Additional information is available upon request. Any recipient of this report that wishes further information regarding the subject company or the disclosure information mentioned herein, should contact Noble Capital Markets, Inc. by mail or phone.

Noble Capital Markets, Inc.
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561-994-1191

Noble Capital Markets, Inc. is a FINRA (Financial Industry Regulatory Authority) registered broker/dealer.
Noble Capital Markets, Inc. is an MSRB (Municipal Securities Rulemaking Board) registered broker/dealer.
Member – SIPC (Securities Investor Protection Corporation)

Report ID: 24557

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