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Alberto Abaterusso
Alberto Abaterusso
Articles (1701) 

Dundee Precious Metals Is a Buy

The stock has several catalysts

April 18, 2019 | About:

Gold is downtrending. The bullion closed at $1,275.85 per troy ounce on Wednesday, reflecting a 0.55% decline year to date and marking the lowest price over the last 16.5 weeks.

The persistence of specific macro factors, however, suggest gold will start uptrending again. Investors are apprehensive about slowing global economic growth, U.S.-China trade negotiations and a potential recession, which are positive catalysts for gold as the precious metal is considered a safe-haven investment.

In addition, if the Federal Reserve keeps interest rates unchanged, the bullion will rise further as gold flourishes in a low-yield environment.

In order to take advantage of rising commodity prices, investors can buy the metal or acquire shares of its publicly traded producers.

For investors who want to increase their exposure to gold mining companies, I recommend Dundee Precious Metals Inc. (DPMLF) for several reasons.

First, the stock outperforms the industry. Dundee Precious Metals has outperformed the VanEck Vectors Gold Miners exchange-traded fund (GDX) by 12% so far this year.

The stock outperformed the benchmark for the mining industry by 23% over the past year through April 17.

Second, the Toronto-based gold producer has highly profitable operations in Bulgaria, Serbia, Namibia and Canada. The trailing 12-month earnings before interest, taxes, depreciation and amortization margin of 28% tops the industry median of 24.4%, increasing Dundee's chances of beating earnings estimates. 

GuruFocus assigned a profitability and growth rating of 6 out of 10.

Third, Wall Street has issued a buy recommendation rating with an average target price of $5.93 per share, which indicates 97% upside over the next 52 weeks.

In addition to rising commodity prices, the stock could be boosted by the completion of the Krumovgrad gold project in Bulgaria. Commercial production is expected to begin in the second quarter of 2019, which should boost gold production and cash flows in the following quarters.

In 2018, Dundee produced a record 201,095 ounces of gold, outperforming full-year guidance, and 36.7 million pounds of copper, which was in line with expectations.

The miner produced $98.1 million in operating cash flow, $53.9 million in free cash flow and $377.1 million in revenue.

The financial position is robust with a total liquidity of approximately $255 million available in cash on hand and securities, including a line of credit. Dundee also holds a 10.5% interest stake in Sabina Gold & Silver Corp. (SGSVF).

GuruFocus assigned a high financial strength rating of 7 out of 10.

The company has sufficient financial means to complete the Krumovgrad project and to advance other mineral activities it is conducting in Canada and the Balkans.

The stock is neither cheap nor expensive.

Despite gaining 17% over the 52 weeks through April 17, which sent the share price above the 200-day simple moving average line, the stock is still trading significantly below the 50-day line and slightly below the 100-day line.

Further, the 14-day relative strength index of 35.7 suggests the stock is very close to oversold levels. The closing price of $3.01 on Wednesday was just 7.1% off the midpoint of the 52-week range of $1.97 to $3.65.

The price-book ratio of 0.84 is well below the industry median of 1.62 and the enterprise value-Ebitda ratio of 5.31 is also significantly below the industry median of 8.71.

Disclosure: I have no positions in any securities mentioned.

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About the author:

Alberto Abaterusso
If somebody asks what being a value investor means, Alberto Abaterusso would answer, “The value investor is not just the possessor of the security that represents the company, but he is the owner of that company. As an owner of the company the value investor is actively involved in the dynamics of that company and his first concern is how to have sales progressively growing. Also, the value investor is probably one of the most demanding persons in the world concerning sales.”

Abaterusso is a freelance writer based in The Netherlands. He primarily writes about gold, silver and precious metals mining stocks. His articles have also been widely linked by popular sites, including MarketWatch, Financial Times, 24hGold, Investopedia, Financial.org, CNBS, MSN Money, Zachs, Reuters and others. Alberto holds an MBA from Università degli Studi di Bari (Italy), Aldo Moro.

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