Phase Expansions And Stockpiled Ore Will Support Long Term Gold Production Potential

Catalysts

About Artemis Gold

Artemis Gold is a gold producer focused on the Blackwater operation in British Columbia, with expansion projects aimed at increasing throughput and sustaining low all in sustaining costs.

What are the underlying business or industry changes driving this perspective?

• Phase 1A is planned to lift processing capacity from 6 million tonnes per year to 8 million tonnes per year, funded from operating cash flow and targeted to have a payback of less than 6 months, which directly targets higher future revenue and operating cash flow once additional throughput is online.
• The proposed Phase 2 expansion, with front end engineering and design nearing completion and an investment decision expected before the end of 2025, is aimed at materially increasing throughput using already ordered mills, which is intended to support higher long term production and earnings from a single established site.
• Ongoing optimization of the Blackwater mill, including higher than design throughput in Q3, work to reach a sustained 10% above design rate and process improvements such as new liners, oxygen plant additions and upgraded reagent control, is focused on supporting future revenue growth and potentially stronger net margins as unit costs are refined.
• The company reports more than 9 million tonnes of low and medium grade ore already stockpiled and continuing positive grade control reconciliations that convert planned waste into ore, which could support a longer production profile at Blackwater and provide flexibility in mine scheduling that targets more stable earnings and cash flows.
• A strong liquidity position, including $317 million of total liquidity with undrawn revolver capacity and no required principal repayments before maturity, is intended to support self funded organic growth projects such as Phase 1A, Phase 2 and regional drilling, which can meaningfully influence future revenue and EBITDA without relying on equity issuance.
• A new regional exploration drill program of $5 million targeting 15 to 25 kilometers of drilling on a large land package around Blackwater is aimed at extending the resource base beyond current phases, which, if successful, would support longer mine life potential and a more sustained earnings profile tied to ongoing global demand for gold.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Artemis Gold's revenue will grow by 57.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 35.7% today to 67.0% in 3 years time.
• Analysts expect earnings to reach CA$1.5 billion (and earnings per share of CA$6.31) by about January 2029, up from CA$206.9 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 9.7x on those 2029 earnings, down from 40.8x today. This future PE is lower than the current PE for the CA Metals and Mining industry at 23.2x.
• Analysts expect the number of shares outstanding to grow by 2.37% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.32%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Higher than planned sustaining and operating costs, including elevated reagent use, maintenance, and earthworks spend for tailings and stockpiles, could persist longer than management expects. This would compress all in sustaining cost margins and reduce earnings even if production volumes remain in line with guidance.
• Ongoing unplanned downtime in the mill, equipment issues such as the ball mill motor failure, and the need for continued rectification of design and construction deficiencies may limit the ability to consistently run at or above nameplate capacity. This would weigh on revenue and EBITDA compared to expectations built around higher throughput.
• Phase 1A and Phase 2 rely on timely execution of engineering, procurement, construction and commissioning, as well as availability of power and infrastructure. Any delays, cost overruns or technical setbacks in these expansions could push out volume growth and increase capital intensity, which would affect free cash flow and future earnings.
• The business is concentrated in a single operation at Blackwater and is highly exposed to long term gold price trends and hedge contracts on roughly 190,000 ounces to 2028. If realized gold prices weaken relative to current levels or hedged volumes limit upside, cash revenue and net income could fall short of expectations that assume continued strong pricing.
• Tailings, water management, and broader ESG obligations are central to long life open pit gold projects. Tighter environmental regulation, permitting constraints, or additional capital needed for tailings facility lifts and water infrastructure could raise long term cost structures and reduce net margins over time.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of CA$47.95 for Artemis Gold based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$53.98, and the most bearish reporting a price target of just CA$41.95.
  
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be CA$2.3 billion, earnings will come to CA$1.5 billion, and it would be trading on a PE ratio of 9.7x, assuming you use a discount rate of 7.3%.
  
• Given the current share price of CA$36.55, the analyst price target of CA$47.95 is 23.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.