Beadell in need of more glitter and gold

Emerging gold producer Beadell Resources made a comeback from yesterday’s worst one-day selloff in eight months.

Emerging gold producer Beadell Resources (BDR) made a comeback from yesterday’s worst one-day selloff in eight months.

Shareholders will be relieved to see the stock clawed back some of Tuesday’s losses with a 6.7% rally to 64 cents at 2.52pm AEDT, the day after Beadell suffered a 11.8% crash to its lowest level since July last year.

Tuesday’s underperformance was particularly disappointing because management upgraded its full year production guidance to between 200,000 and 220,000 ounces of gold from 190,000 to 210,000 ounces.

Further, management is committing to pay a dividend before the end of the calendar year and upped its reserves estimates for its Duckhead deposit by 25%.

All that didn’t gel with investors yesterday. The weaker gold price on Monday evening didn’t help, but there were some causes for concern if one were to read the details of the announcement closely.

Firstly, its reserves estimate for the open pit section of Duckhead of 50,561 ounces of gold was below estimates, according to Canaccord Genuity. The broker was expecting a much higher figure of 80,000 ounces even though the grade of 5.84 grams a tonne is better than Canaccord’s forecast of 5.5 grams a tonne.

Sentiment has taken a further hit on news that Beadell has suspended mining at Duckhead while it finalises a new mining contract and approvals. This should only take a few weeks, but gold equities investors are a nervous bunch and will jump at shadows.

Confirmation of a dividend should support on face value, but some were hoping that the miner would start paying out in the June half of this year.

While all these issues are legitimate concerns, the 19% fall in the value of the stock since January seems a little overdone, especially given the brighter outlook for the gold price.

There’s little doubt the stock is cheap. Beadell delivered a net profit of $113.5 million for 2013 (its financial year ends in December), which puts the stock on a price-earnings multiple of around four times.

Most brokers polled on Bloomberg, including Canaccord, rate the stock a “buy”. The average broker price target is 90 cents a share. 

However, its attractive valuation is not enough to trigger a re-rating in the stock. Beadell needs something extra to draw fresh support. This might be further exploration success, corporate interest or a sharp positive change in the outlook for gold.