The price of gold is soaring and this ASX share is dancing to the same tune, having roared up 22% in a month.
Shares in Gold Road Resources Ltd (ASX: GOR) closed at $1.68 apiece on Tuesday, down 0.88% on the day.
The Gold Road share price has bounced hard from a bottom of $1.31 on 1 February to now trade 28% higher after setting a new 52-week closing high yesterday.
Investors are galvanised behind ASX gold miners, like Gold Road, amid a new rally the precious metal has staged over the past few months. It's seen the gold price beat past record highs.
As such, one broker is constructive on Gold Road and tips the company to deliver a considerable amount of upside in 2022 should its thesis play out. Let's take a look.
Can Gold Road Resources surge another 17%?
Analysts at Swiss investment bank UBS are among Gold Road's latest bullish followers. The broker tips the company is set to deliver its best year on record.
Gold Road, the 50% owner of the Australian Gruyere gold mine, has the capacity to be processing approximately 10 million tonnes of ore each year by mid FY24.
The price of gold has surged to all-time highs of US$1,987 per troy ounce this week, amid geopolitical tensions in Europe and risky undertones feeding into financial markets.
These strengths are set to bode well for the company given its 'price taker' status. This means the company's fortunes are heavily reliant on gold prices quoted in spot and/or futures markets.
Furthermore, the company's access to higher grades of ore may even see its output rates nudge past 380,000 ounces on an annual basis, UBS says.
This would stretch the company's earnings profile to new heights and mark a period of substantial growth for Gold Road.
The broker also says this growth could even come with lower operating costs, something that will also help margins stay healthy as production increases.
"This growth comes with almost no additional capex and the increased production rates should keep downward pressure on unit costs," it remarks.
The price of gold is incredibly important in determining how Gold Road's share price fares. The two are inextricably linked, just as they are for all ASX gold miners.
The relationship is illustrated by the chart, below:
Valuation also has UBS chomping at the bit in Gold Road's case, backed by a strong free cash flow conversion and a risk profile that is most likely already baked into the share price.
"Gold Road does present single mine risk and M&A risk," UBS said, "but it has shown good discipline on the latter and at 4.5x enterprise value-to-EBITDA and more than 9% free cash flow yield."
"We think this is well [factored into] in the [share] price."
As a result of its conviction, UBS is heavily bullish on Gold Road, urging its clients to buy the stock and valuing it at $1.94 per share in the process.
According to UBS, Gold Road certainly can climb another 17% to reach its price target.
Gold Road Resources share price summary
In the last 12 months, the Gold Road share price has soared more than 52% and is also up 6.2% this year to date.
During the past month of trading, the company's shares have shot more than 21% higher.
At its current share price, it has a market capitalisation of $1.4 billion.
