Stockhead taps an extensive list of experts in Money Talks, our regular drill down into the stocks investors are looking at right now.

Today, we hear from Simon Popple of UK-based Brookville Capital.


The massive $621m Gruyere gold project in WA poured first gold in late June 2019.

Gruyere – a 50-50 JV between  Gold Road Resources (ASX:GOR) and major miner Gold Fields — will ramp up to ~350,000oz a year over its initial 12‐year life.

Gruyere celebrated its first 12 months of gold production on 30 June 2020, having produced 230,590 ounces.

You can read more about Gold Road’s ‘rags to riches’ story here.

But Gruyere covers a fraction (144 km2) of Gold Road’s extensive land package of 6,000sqkm.

“There’s clearly huge potential for more discoveries,” Simon Popple says.

“And Gold Road owns 100% of these tenements outside of the JV.”


An eye on dividends

Gold Road ended the last financial year in a strong position: debt free with cash and short-term deposits of $126.4 million (2019: $101.3 million).

This enabled them to pay a dividend for the six months to 31 December 2020 of 1.5 cents per share.

“I appreciate this translates into a very modest dividend yield but please bear in mind that they’ve only recently started production and so I’m expecting dividends to improve when they get more into the swing of things,” Popple says.

“Over time I’m hoping this will become both a good dividend payer as well as a producer with some real exploration potential (as I mentioned earlier, only 144km2 of their 6000km2 land package is under their JV) – so this is what I’d like to focus on.”

Strong cashflow is vital to fund healthy dividends and cover exploration expenditure. Let’s take a closer look.


Strong cash margins

Gold Road report Corporate All-in Costs (CAIC), which provides a more comprehensive breakdown of costs than the more conventional All-in sustaining costs (AISC).

CAIC represents AISC plus corporate costs per ounce plus exploration costs per ounce, Popple says.

“As you can see, although the upper end of their costs may be slightly higher this year, the trend is then downwards,” he says.

“Clearly the margin is very reliant on the gold price, but even if this remains relatively pedestrian, the cash margin should improve as costs come down.”


But how does Gold Road compare with their peer group?

Very well, Popple says.

“As you can see from this peer analysis, in the six months to December 2020, Gold Road (GOR) performed well,” he says.

“It’s worth noting that EVN is Evolution – another company in our portfolio.”

“Not surprisingly, the EBITDA margin largely tracks the free cash flow generation,” Popple says.

“Again GOR performed well.”

Given Gold Road is now a producer, their performance is going to be very much driven by their production profile, which is forecast to increase significantly over the next few years.

The aim is to produce around 350,000 ounces per year (of which 175,000 ounces are attributable to Gold Road).

“Just to give you an idea as to what this could mean in terms of cash generation — if we assume AISC of $1,300 per ounce and a gold price of US$1,800 per ounce, this translates into $2,355 per ounce, implying a gross profit of just over $1,000 per ounce,” Popple says.

“If we assume they can produce 175,000 ounces a year – that’s a potential gross profit of $175m (a year).”

As things stand their market value is around $1 billion, Popple says.

“Let’s play around with the numbers and assume the gold price goes back up to US$2,000 per ounce,” he says.

“Looking at current exchange rates, this equates to $2,617 per ounce which would be a gross profit of about $1,300 per ounce.

“If we assume the same production then that’s an annual cashflow of almost $228m (175,000 * 1,300).”

Last year, the six months dividend payment was 1.5 cents per share which amounted to $13.2m — not much if you’re generating a lot of cash.

Clearly this is speculation, but if the gold price performs reasonably well, there should be scope to materially improve these dividend payments, Popple says.

“Appreciate that right now you’re probably holding on to the shares with a view to a capital gain, but in a few years’ time – that could well change!” he says.

It’s important to note that Gold Road have a clear strategy when it comes to dividends, which are “subject to Board discretion and Gold Road maintaining a minimum net cash balance of $100 million”.

They also say they are targeting an annual aggregate dividend pay-out of 15%-30% of free cash flow for each calendar year in two half-yearly payments.

“In their latest annual report, they state that free cash flow is $105m,” Popple says.

“If we take 15–30% of this that would suggest a dividend in the range of $15.75m-$31.5m – the implication being there is plenty of scope for the dividends to grow.

“Especially if free cashflow improves.”


Hedging offers some protection

“Even though we’re obviously hoping that the gold price improves, it’s important to point out that they’ve got about 25% of their production hedged until November 2022,” popple says.

“73,080 ounces has been hedged at $1,857/oz.

“Given the current gold price is US$1,726/Oz ($2,258/oz) they are currently ‘under water’ with this hedge – but it does provide some meaningful protection should the gold price head south.

“But remember, given their CAIC are forecast to be around $1,600/oz in 2022 – which equates to US$1,223, so the gold price would have to fall significantly for them to have any issues from a cost perspective.”


Exploration potential

The company is hunting for +1moz discoveries on its 100% owned ground to ultimately add +150,000ozpa to its production profile.

Gold Road’s exploration budget of $26m in 2020 was relatively modest when compared to their potential cash generation, Popple says. This is forecast to be $27m in 2021.

“Again, I would see potential for a higher spend in the future,” he says.

“As I said in the previous update, they only had about 300,000 ounces of resources on their 100% owned projects.

“Although this is a relatively low number – the average grade is 2.62 g/t which compares with 1.34 g/t for the JV.

“If they can materially improve their resources with the current exploration, then investors have hopefully got both a nice dividend payer as well as a company with some solid exploration potential.”



Not only is Popple hoping Gold Road can pay a better dividend, but now that they’re generating significant levels of cash, he is also expecting them to “crank up” their exploration budget.

“Remember, the JV only relates to 144 km2 of their extensive land package of 6,000 km2,” he says.

“Clearly, they may not find anything, but if they do, then not only would it be 100% theirs, but it should also benefit the share price.

“In fact they’ve gone on record to say they’re going to be focusing on 100% owned land where they’re exploring for >1Moz discoveries.

“I’m afraid we are going to have to be patient….the move from $26m in 2020 to $27m in 2021 is modest – but if they find something they’re excited about, they have deeper pockets than most explorers to take a closer look.

“Given they’ve already got a track record of working with others in their JV, should they make a major discovery then it’s not unreasonable to assume that they may bring someone else on board to de-risk the situation.”


After completing his MBA at Birmingham University in 1993, Simon joined the corporate finance team at Singer & Friedlander working on small and mid-cap mergers and acquisitions. In 1997, he joined the senior banker team at ABN AMRO before moving into their corporate finance department in 1999, where he specialised in private equity. He then became head of investment management at Strutt & Parker’s Real Estate Financial Services before becoming a director of Topland, one of Europe’s largest private investment companies.

In 2008, he set up Brookville Capital, a capital-raising business which subsequently won mandates with, amongst others, Bunge, the Bank of China (Suisse) and Fleming Family & Partners. He now writes the Brookville Capital Intelligence Report which covers gold and silver mining stocks.

The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead.

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