1 TSX Stock up 15% This Month

Here’s why Turquoise Hill Resources (TSX:TRQ) stock will find it difficult to replicate its gains going forward.

| More on:

In recent months, commodity and mining stocks have gained momentum on the back of rising inflation rates. One TSX stock that has outpaced the broader markets in the last month is Turquoise Hill Resources (TSX:TRQ)(NYSE:TRQ). Since the end of October, TRQ stock has gained close to 15% and is currently trading at $18.25, valuing the company at a market cap of $3.7 billion. In the last 12 months, TRQ stock is up by an impressive 40%.

Turquoise Hill Resources operates as a mining company and explores copper, gold, and silver deposits. It develops and operates the Oyu Tolgoi copper-gold mine located in Southern Mongolia.

Turquoise Hill disappoints investors with Q3 results

In the third quarter of 2021, Turquoise Hill reported revenue of $623 million and adjusted earnings per share of $0.17. However, analysts forecast the company’s sales at $673.2 million while earnings were estimated at $0.92 per share. This revenue and earnings miss resulted in a pullback in TRQ stock on November 3, as shares were down close to 20%.

In Q3, the company increased copper and gold production by 16% and 256%, respectively. But the increase in production rates did not translate into earnings or revenue growth, which disappointed investors.

The Oyu Tolgoi mine is TRQ’s only operating asset, and this lack of diversification increases overall risks for investors. Last month, Turquoise Hill disclosed funding requirements for Oyo Tolgoi are higher than previously anticipated and are expected to range around $3.6 billion due to open-pit metal deferrals as well as underground delays.

Shortly after TRQ provided the update, several analysts reduced price targets on the stock. Canaccord Genuity downgraded Turquoise’s stock from “hold” to “sell” and reduced the price target on TRQ from $19 to $14. Bank of Nova Scotia also downgraded TRQ stock from “outperform” to “sector perform” and reduced the price target from $29 to $20.

What impacted TRQ in Q3 of 2021?

Turquoise Hill Resources increased sales by 135.6% year over year in Q3 of 2021. Gold sales increased by $193 million and more than doubled year over year due to a 338% increase in the volume of gold in concentrate sold. These gains were offset by a 6% decline in gold commodity prices. Comparatively, copper sales increased by $164 million due to a 40% rise in copper prices and a 35% increase in copper volumes.

The company generated $355 million in operating cash flows in Q3 of 2021 compared to just $93 million in the prior-year period. Its gross margin rose by $324 million due to an increase in revenue. These gains were partially offset by unfavourable movements in working capital, as contingency measures introduced in Q2 to improve short-term liquidity, unwound in the September quarter.

Turquoise Hill’s net income per share in Q3 fell from $0.64 due to the impact of a $300 million deferred tax asset de-recognition.

We can see that TRQ stock has regained momentum in the past month, despite missing consensus forecasts and analyst downgrades. However, Bay Street has a 12-month average price target of $15.16, which is 17% lower than its current trading price.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends BANK OF NOVA SCOTIA.

More on Metals and Mining Stocks

todder holds a gold bar
Metals and Mining Stocks

Canadian Mining Stocks: Buy, Sell or Hold?

Investing in quality gold mining stocks that trade at a reasonable valuation could help you beat the TSX index over…

Read more »

People walk into a dark underground mine.
Metals and Mining Stocks

Is First Quantum Minerals Stock a Buy?

Let's dive into whether First Quantum Minerals (TSX:FM) is worth buying at current levels, or if investors should sit this…

Read more »

nugget gold
Metals and Mining Stocks

Competitive? Beat the Market With These 2 Dividend-Paying Growth Gems

Investors looking to beat the market buying dividend stocks right now need to focus on this right sectors. Here are…

Read more »

nugget gold
Metals and Mining Stocks

A Canadian Billionaire Investor Sold Micron Stock and Bought This TSX Company Instead

Prem Watsa focuses on value over short-term growth.

Read more »

Concept of multiple streams of income
Metals and Mining Stocks

Is Franco-Nevada Stock a Buy for Its 1.2% Dividend Yield?

Gold royalty stocks represent a niche in the precious metals industry. They have different dynamics from mining stocks.

Read more »

todder holds a gold bar
Metals and Mining Stocks

The 1 Mining Stock Canadians Should Buy and Hold Forever

Newmont is a gold mining stock that trades at a cheap valuation, making it a top investment choice for those…

Read more »

Metals and Mining Stocks

Top Canadian Gold Stocks to Buy Now

Canadian gold mining stocks such as Barrick Gold and Kinross Gold are two top investments in October 2024.

Read more »

todder holds a gold bar
Stocks for Beginners

Is the Worst Over for SSR Mining Stock?

SRR Mining stock has been rising higher after recent earnings performance that made a bit of a comeback. So is…

Read more »