ASX gold stocks are under pressure lately, but this could be a good time to buy this often-overlooked miner, according to a leading broker.
Never mind that our listed gold producers just can't seem to catch a break. No one wants to buy them during a risk-on session when the S&P/ASX 200 Index (Index:^AXJO) is running higher.
But investors have also been reluctant to buy gold when risk aversion comes back to the fore as the favoured safe-haven asset at the moment is the US dollar. There's an inverse correlation between the greenback and the precious metal.
ASX gold stocks set for Santa Rally
So gold is stuck in no-man's land for the moment. But as I've written previously, I think this will change during the US Presidential Election as Trump is refusing to hand over power peacefully if he loses the race.
This means the Newcrest Mining Limited (ASX: NCM) share price, Evolution Mining Ltd (ASX: EVN) share price and Northern Star Resources Ltd (ASX: NST) could enjoy a Santa Rally.
Latest ASX gold stock on the "buy" list
But there's another stock that's worth putting on your watchlist. This is the SSR Mining Inc CDI (ASX: SSR) share price, which is the latest gold stock to appear on UBS' "buy" list.
"We initiate on SSR with a Buy rating due to its attractive valuation and strong free cashflow," said the broker.
"The share price is trading at a ~20% discount to our NPV which is based on US$1,900/oz gold price."
Marigold could finally bloom
SSR merged with Alacer Gold and its two key assets are Copler and Marigold. Copler has proven to be a consistent performer in 2020 following the completion of the Sulfide plant in 2019 at a cost of around US$660m.
Marigold is a different story. It's generated next to no free cashflow over the past three years due to poor ore grades. Capex was also high as the miner had to put in new equipment like haul trucks and a rope shovel.
However, Marigold may be turning a corner following the investment. UBS expects a step change in free cashflow in 2021 due to a lift in production from ~230,000 ounces of gold a year (kozpa) now to 270kozpa due to better grades.
Potential catalyst for SSR share price
"At Marigold, the key opportunity in our view for a step change in valuation is exploration success," added the broker.
"Management are drilling and targeting high grade sulphide mineralisation. Early intercepts of high grade gold at Trenton Canyon are promising, but this remains early stage."
But be forewarned. SSR's group production growth is lower than its peers, although the bad news may be in the share price.
SSR share price looking cheap despite risks
UBS noted that the SSR share price is on a FY21 enterprise value to earnings before interest, tax, depreciation and amortisation (EV/EBITDA) multiple of ~4 tomes. This compares to its peers at 7 to 8 times.
SSR also has a better free cash flow yield of around 15% when its peers are between zero and 10%.
UBS's price target on the stock is $33 a share.
