RC

Gran Colombia Gold Corp.

Gran Colombia is a Canadian-based mid-tier gold producer with its primary focus in Colombia where it is currently the largest underground gold and silver producer with several mines in operation at its Segovia and Marmato Operations. Gran Colombia is continuing to focus on exploration, expansion and modernization activities at its high-grade Segovia Operations.

Gran Colombia Gold Corp. (TSX:GCM) – Cost Guidance Lowered; Segovia Ramping Up

Impact: Mildly Positive

Gran Colombia has released Q2/19 financial results on the back of strong operating results that were roughly inline with our forecast. Additionally, after a strong start to the year the company has decreased cost guidance for 2019. We maintain our fair value estimate of C$6.00/sh which is based on US$1,300/ oz Au and highlight that if we were to use US$1,500/oz Au our fair value would increase to over C$9.00/sh.

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Gran Colombia Gold (TSX:GCM) – Drilling Points to Resource Growth at Segovia

Impact: Mildly Positive

Gran Colombia has released directionally positive drill results from drilling at the three of its core deposits (Providencia, Sandra K and El Silencio) at Segovia. These results suggest the company is poised to increase reserves at what appears to be higher grades. Gran Colombia’s share price performance reflects its significant leverage to the gold price. Our C$6.00/sh fair value estimate is based on US$1,300/oz Au; however, using US$1500/oz it would increase to over C$9.00/sh (Figure 2).

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How to Play a New Bull Market in Gold

We believe that we are in a new gold bull market, as evidenced by negative real and nominal interest rates and over US$5.5B in funds flowing into physical gold ETFs. Our view is that smaller companies outperform in a bull market. Three keys to look at when investing in junior gold equities include scarcity, catalysts and potential.

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Commentary – Golden Summer Conference

We believe that a new bull market has started in gold. This along with investor interest, caused us to host a pair of gold conferences in New York and Toronto, last week. Each conference was opened by Derek Macpherson, VP Research at Red Cloud, highlighting why we believe we are in a new bull market, and 3 keys to investing in it (link). Followed by presentations from Tonogold Resources (OTC:TNGL), Brixton Metals (TSXV:BBB), Mawson Resources (TSX:MAW), Fiore Gold (TSXV:F), Minera Alamos (TSX:MAI), NxGold (TSXV:NXN), Gran Colombia Gold (TSX:GCM), Orford Mining (TSXV:ORM), Pacton Gold (TSXV:PAC), Aquila Resources (TSX:AQA) and RNC Minerals (TSX:RNX).

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Gran Colombia Gold (TSX:GCM) – Strong Q2 Production; Guidance Increased

Impact: Positive

Gran Colombia has delivered another strong operating quarter and has increased its annual guidance to 225-240koz Au for the 2019. We expect the Q2/19 operating results to translate positively into financials for the quarter when released in early August. We believe the market has not fully priced in the company’s turnaround and we expect operating, financial and exploration success to act as positive catalysts for the stock.

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Q2 Reporting Preview – Gold & PGM Miners Poised to Shine

Second quarter reporting begins on July 24 and the recent gold rally is likely to have a muted impact on Q2/19 financial results. However, companies with solid operating performance should generate additional share price momentum as the market starts to project the full impact of the increase in the commodity prices and operating performance (Figure 2). We believe that two companies poised to deliver strong operating performance, into the improving commodity price environment are Gran Colombia (TSX:GCM, FV est. C$6.00) and North American Palladium (TSX:PDL, FV est. C$25.00).

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Gran Colombia Gold (TSX:GCM) – QTD Results Push Estimates Higher

Impact: Positive

Gran Colombia has released May 2019 operating results which were ahead of our expectations and have caused us to increase our Q2 production estimate to 58koz (was 55koz). In our view, this puts the company on-track to beat annual guidance and we now model Gran Colombia producing 232koz (was 227koz) in 2019. We maintain our fair value estimate of C$6.00/sh and expect operating execution, exploration updates from Segovia and the Marmato PEA to drive a progressive re-rating towards our fair value estimate.

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Precious Metals – Looking for Leverage to the Gold Price Rally

Gold is on the move, looking for the companies we expect to be the big winners. Recent events have been very constructive for the gold price and point to it having the potential to move higher in the near-term. Taking this into account we have evaluated the leverage our current coverage universe has to the gold price (Figure 1). The companies with the highest leverage to gold in our coverage universe are: Gran Colombia Gold (TSX:GCM, FV est. C$6.00), De Grey (ASX:DEG, FV est. A$0.35) and Lion One (TSX:LIO, FV est. C$1.35). We note that while Seabridge (TSX:SEA, FV est. C$29.00) does not have the highest financial leverage to the gold price, it could be a go-to name because of its higher market cap and better liquidity. As well, while we do not have a NAVPS estimate on, Minera Alamos (TSXV:MAI) and RNC Minerals (TSX:RNX, FV est. C$1.00) both should also react favourably to a rising gold price.

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Gran Colombia Gold Corp. (TSX:GCM) – Record Q1 Reflected in Financial Results

Impact: Positive

Gran Colombia has released positive Q1/19 financial results, which highlight record quarterly gold production and revenue. We believe the company is positioned to meet and potentially exceed 2019E guidance. We maintain our fair value estimate of C$6.00/sh and expect operating execution, exploration updates from Segovia and the Marmato PEA to drive a progressive re-rating towards our fair value estimate.

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