Hemlo Mining (TSX:HMMC) Could Be 52% Undervalued As Resource Estimate Expands

Hemlo Mining (TSX:HMMC) drew fresh attention after releasing a new Mineral Resource Estimate for its Hemlo Gold Mine, highlighting higher Measured & Indicated and Inferred resources following additional drilling and updated gold price assumptions.

See our latest analysis for Hemlo Mining.

Hemlo Mining’s updated resource estimate and recent board appointment arrive at a time when the CA$5.9 share price shows mixed momentum, with a 7 day share price return of 5.36% and a very large 1 year total shareholder return, while the 30 and 90 day share price returns have drifted lower.

If this kind of resource upgrade has you thinking bigger about gold, it could be a good time to widen your search using the 33 elite gold producer stocks

With Hemlo Mining reporting higher Measured & Indicated and Inferred resources, yet its CA$5.9 share price has slipped over both 30 and 90 days, is this a genuine value gap, or is the market already pricing in future growth?

Preferred Price-to-Sales Multiple of 6.6x: Is It Justified?

Hemlo Mining is currently trading at CA$5.9 per share, which equates to a P/S ratio of 6.6x based on its reported revenue of CA$186.3m. That multiple places the stock at a premium to the wider Canadian Metals and Mining industry, while still sitting below the peer group average implied by Simply Wall St’s analysis.

The P/S ratio compares a company’s market value to its revenue, which is often used for miners like Hemlo Mining that are not yet profitable. At 6.6x sales, investors are paying CA$6.60 in market value for every CA$1 of revenue. This can reflect expectations for future cash flows, project quality and how sustainable the production profile might be.

According to Simply Wall St, Hemlo Mining is considered expensive versus the Canadian Metals and Mining industry average P/S of 5.6x, so the stock carries a higher revenue premium than many domestic peers. However, the same analysis indicates the company is good value relative to an estimated fair P/S ratio of 27.2x and a peer average of 32.6x, which suggests substantial upside room if the market were to move closer to those benchmarks.

Explore the SWS fair ratio for Hemlo Mining.

Result: Price-to-Sales of 6.6x (UNDERVALUED)

However, risks remain, including Hemlo Mining’s ongoing net loss of $14.8m and the recent 30- and 90-day share price declines near 9%.

Find out about the key risks to this Hemlo Mining narrative.

Another View: Hemlo Mining Through a Cash Flow Lens

While the P/S ratio paints Hemlo Mining as undervalued versus its fair ratio, the SWS DCF model also points to a discount, with the CA$5.9 share price trading below an estimated future cash flow value of CA$12.4 per share. If both signals line up, how much weight should you give them?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Hemlo Mining for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 7 high quality undervalued stocks. If you save a screener we even alert you when new companies match – so you never miss a potential opportunity.

Next Steps

With mixed signals around Hemlo Mining’s valuation, sentiment and resources, this is a moment to look at the details yourself, then decide quickly where you stand using the 3 key rewards and 1 important warning sign

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This article by Simply Wall St is general in nature. We provide commentary based on historical data
and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your
financial situation. We aim to bring you long-term focused analysis driven by fundamental data.
Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
Simply Wall St has no position in any stocks mentioned.

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