Investing in the equity markets is a great strategy for generating inflation-beating returns and building long-term wealth. While Canadian investors should allocate most of their funds to diversified low-cost index funds, doubling down on quality growth stocks trading at reasonable valuations makes sense for those with a higher risk appetite.
In this article, I have identified one top TSX stock you should buy now and hold over the next few years to benefit from outsized gains. So, let’s see where I’d invest $6,000 in the TSX today.
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Is this small-cap TSX stock a good buy?
Valued at a market cap of $2 billion, Allied Gold (TSX:AAUC) is positioning itself as an emerging precious metals powerhouse. It currently produces 375,000 to 400,000 ounces of gold annually from three African mines.
The Toronto-based miner operates the Sadiola mine in Mali alongside the Bonikro and Agbaou mines in Côte d’Ivoire. Planned expansions are expected to boost production to over 600,000 ounces by 2026 and approximately 800,000 ounces by 2029.
With substantial mineral reserves of +11 million ounces and additional resources of +16 million ounces, Allied is executing a growth strategy focused on operational improvements and phased expansions at existing sites, including its developmental Kurmuk project in Ethiopia.
During its first-quarter (Q1) earnings call, CEO Peter Marrone highlighted the company’s unique status as a mid-tier producer underpinned by two tier-one assets. Moreover, according to management estimates, the gold miner’s production growth is projected to drive a three to five times increase in EBITDA (earnings before interest, tax, depreciation, and amortization) and cash flow.
“We are a mid-tier gold producer with a large and increasing mineral inventory and production platform,” Marrone told shareholders, noting that Allied’s two cornerstone assets differentiate it from peers.
The Sadiola mine in Mali, described as “generational” with over 10 million ounces in mineral resources, is undergoing a two-phase expansion. Phase one completion is expected by year-end, with production set to increase from 200,000-230,000 ounces to over 300,000 ounces annually at all-in-sustaining costs below US$1,200 per ounce. A second phase could potentially increase production to 400,000 ounces.
The company’s Kurmuk project in Ethiopia is advancing on schedule and budget, with mining already underway and production expected to begin in 13 months. Kurmuk is projected to produce 290,000 ounces annually at all-in-sustaining costs below US$950 per ounce, with a 15-year mine life.
In Côte d’Ivoire, Allied Gold operates the Agbaou and Bonikro mines as a complex, currently producing 180,000 ounces annually. Through exploration, Allied aims to increase mine life to 10 years, which management estimates could add approximately $2 per share in value.
What is the target price for the TSX mining stock?
Allied announced its imminent listing on the NYSE in mid-June, which should improve liquidity and broaden its investor base. For 2025, Allied is guiding production of 375,000-400,000 ounces at all-in sustaining costs below US$1,790 per ounce, with a US$20 million exploration budget that could be increased based on results.
“We are hiding in plain sight,” Marrone concluded. “We are better than what we currently show, and we will demonstrate that over the course of the next year.”
Analysts tracking Allied Gold stock expect adjusted earnings per share to expand from US$0.14 in 2024 to US$1.80 in 2028. Comparatively, Allied Gold is projected to end 2028 with a free cash flow of US$581 million, compared to a free cash outflow of US$84 million in 2024.
If Allied Gold stock is priced at 10 times forward FCF, the stock could surge close to 200% over the next three years. Analysts tracking the TSX stock also remain bullish and expect it to gain 43% over the next 12 months.
