Gold Road Resources Ltd (ASX: GOR) shares could offer major upside potential from current levels.
That's the view of analysts at Goldman Sachs, which believe the ASX 200 gold stock is undervalued at current levels.
What is Goldman saying about this ASX 200 gold stock?
Goldman highlights that the company's operations have been hit by inclement weather.
And while this is likely to mean production that is below the market's expectations, it will still be in line with the broker's estimates. It explains:
GOR have announced that substantial rainfall has resulted in the closure of roads that provide access to Gruyere and the suspension of mining operations over a portion of this period, with the likely resumption of open pit access expected next week. March quarterly gold production is anticipated to be in the range of 68-73koz (100% basis), broadly in line with GSe (~73koz) but below Visible Alpha Consensus (~81koz).
In addition, Goldman feels that the ASX 200 gold miner's full year production guidance is conservative. It adds:
CY24 production guidance is unchanged at 300-330koz (GSe 325koz, VA Consensus ~319-343koz) which we continue to see as conservative on the timing of ramping up the third pebble crusher and improvement in mining labour conditions, where GOR have also noted mining contractor MACA has been successful in the recruitment of labour to support the ongoing expansion of mining rates with the workforce now at desired levels (and total material movement rates ramped up to targeted annualised daily rates prior to the significant rain event).
Major upside potential
Goldman currently has a buy rating and $1.95 price target on the ASX 200 gold stock.
Based on its current share price, this implies potential upside of 27% for investors over the next 12 months.
The broker highlights that Gold Road doesn't have any major growth spending and has a strong free cash flow. Despite this, it trades at a deep discount to peers. It concludes:
Our 12m PT is A$1.95/sh, and we retain our Buy rating with GOR the only gold stock in our coverage without major growth spend, supporting cash generation (near-term FCF yields of c. 5-10% in CY24-27E remain attractive vs. peers and support upside to the outlook for capital returns), while trading at a significant discount to peers at ~0.9x NAV / ~4x NTM EV/EBITDA / pricing a LT gold price of US$1,575/oz (peer average ~1.1x NAV / 5-6x EV/EBITDA / ~US$1,930/oz LT gold).
