Highland Gold Mining, (HGM.L), through its subsidiaries, engages in the exploration and production of gold primarily in Russia and central Asia. Its principal projects in Russia include Mnogovershinnoe mine in the Khabarovsk region; Novoshirokinskoye and Taseevskoye projects in Chita region; and Mayskoye project in Chukotka region. The company was incorporated in 2002 and is headquartered in St. Helier, Channel Islands.
On September 26th, HGM reported a 13% rise in first half revenues year-on-year to $147.1m, reflecting improved metals prices and increased sales volumes during the period. EBITDA over the same period rose 45% to $79.7m, while EBITDA margin rose to 54% and the board approved an interim dividend of £0.05 per share. Despite a tragic fatality at the MNV mine, overall, HGM witnessed a positive first half, with increased production, stronger gold prices, cost controls, and the weak rouble together contributing to improved earnings, lower costs and higher margins.
The opportunity at HGM had previously been identified by the VectorVest Unisearch function late last year when the shares traded at under 60p. Despite sharp rises since then, the VectorVest valuation indicates a current vale for HGM of 218.93p per share, meaning it is still undervalued compared to its current price of 154.50p. The VectorVest valuation is computed from forecasted earnings per share, forecasted earnings growth, profitability, interest, and inflation rates. In addition, Relative Value (RV), an indicator of long-term price appreciation potential rates HGM.L at 1.48, which is excellent on a scale of 0.00 to 2.00. This indicator is far superior to a simple comparison of Price and Value because it is computed from an analysis of projected price appreciation three years out, AAA Corporate Bond Rates, and risk.
The chart of HGM is shown. The price is pushing through a 52 week high which bodes well for a further advance. The green line above the price is the calculated value of the share and the blue line in the window below the price the earnings per share (EPS).
In summary, HGM is still undervalued compared to its price of 154.50p per share, offers average safety, and is currently rated a Buy.
David Paul 30th September 2016
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