Market News

Karora Resources De-Risks Growth Plans Through New Acquisition

Story Highlights

Karora’s acquisition reduces the risks associated with the company’s growth plans. However, insider actions don’t appear to align with analysts’ overall sentiment.

In this article:

Karora Resources (TSE: KRR) is a gold exploration and production company. Its two primary gold-producing operations are its 100% interests in the Beta Hunt Mine and the Higginsville Gold Operations, both located in Western Australia.

The stock has performed well year-to-date, up 22% despite its recent pullback. With growth plans to increase gold production to between 185,000 and 205,000 ounces by 2024, Karora stock has the potential to continue rewarding shareholders if gold prices remain favorable.

In pursuit of its growth targets, Karora has announced that it will acquire the Lakewood Gold Mill for approximately A$80 million. The price will be paid with A$70 million in cash and A$10 million in Karora shares.

The company believes that the acquisition will provide immediate strategic and operating benefits. In addition, management claims that it will de-risk its growth plans by eliminating the schedule and construction risks associated with a significant expansion. In today’s inflationary environment, it appears to be a sensible move to simply acquire a functioning mill as opposed to building from scratch.

Insider Transactions

Insiders were very active two months ago, with a wave of selling. Although insider selling in itself is not a bad thing, ideally, investors would like to see insiders buy shares because it demonstrates confidence in the business. However, many insiders, including the company’s CEO, offloaded millions of dollars worth of shares.

As you can see from the image above, the insider confidence signal is very negative, which is much below the sector average that is leaning towards the positive side.

Wall Street’s Take

Turning to Wall Street, Karora has a Moderate Buy consensus rating based on two Buys and two Holds assigned in the past three months. The average Karora price target of C$7.13 implies 46.7% upside potential.

Analyst price targets range from a low of C$7 per share to a high of C$7.25 per share.

Final Thoughts

The company’s move to acquire the Lakewood Gold Mill appears to be a good move for expanding production instead of building from scratch. Although insiders have been selling, analysts still have a favorable view of the company and see significant upside potential.

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