Top broker says this ASX share will surge another 17% amid soaring gold prices

Check out what's got this broker so bullish.

| More on:
a woman in a business suit holds a large solid gold bar in both hands with a superimposed image of a gagged gold line tracking upwards and featuring a swooping curved arrow pointing upwards.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • Gold Road shares have exploded onto the scene this past month as the price of gold sets new highs 
  • One broker is heavily bullish on the stock price and reckons Gold Road could deliver its best performances yet over the coming years
  • In the last 12 months, the Gold Road share price has soared more than 52%. 

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.

TradingView Chart

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:

TradingView Chart

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.

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Gold

An older female ASX investor holds a gangster-style fist pump pose showing off gold rings with dollar signs on them.
Gold

Why ASX 200 gold stocks dazzled shareholders in March

March proved a profitable month for investors in ASX 200 gold stocks.

Read more »

a man in a green and gold Australian athletic kit roars ecstatically with a wide open mouth while his hands are clenched and raised as a shower of gold confetti falls in the sky around him.
Gold

Why are ASX 200 gold stocks surging again on Thursday?

ASX 200 gold stocks are racing ahead of the benchmark today.

Read more »

rising gold share price represented by a green arrow on piles of gold block
Dividend Investing

1 Australian dividend stock quietly crushing the ASX today

The ASX 200 dividend stock has soared 38% since early October.

Read more »

a man wearing a gold shirt smiles widely as he is engulfed in a shower of gold confetti falling from the sky. representing a new gold discovery by ASX mining share OzAurum Resources
Gold

This ASX 200 gold stock could rise 25%+

Analysts expect golden returns from this mining stock.

Read more »

Woman holding gold bar and cheering.
Gold

Buy this ASX 200 gold share with 30% upside before it's too late

This stock could generate golden returns for investors according to Bell Potter.

Read more »

Woman holding gold bar and cheering.
Gold

Is it too late to join the booming ASX gold rush?

The gold price notched new record highs, adding fuel to the ASX gold rush.

Read more »

Calculator and gold bars on Australian dollars, symbolising dividends.
Gold

The gold price just reached its highest level ever: Which miners are buys?

Here's why the precious metal just hit a record high.

Read more »

A woman in a business suit sits at her desk with gold bars in each hand while she kisses one bar with her eyes closed. Her desk has another three gold bars stacked in front of her. symbolising the rising Northern Star share price
Gold

ASX 200 gold shares are booming on Monday. Here's why they could keep shining bright

Today’s strong rally among ASX 200 gold stocks may be just the beginning, according to this expert forecast.

Read more »