The materials sector includes companies involved in developing and processing raw materials such as chemicals, metals, mining, construction materials, and forest products. This sector underpins the global economy by providing inputs for the construction, manufacturing, and infrastructure sectors.
Materials stocks offer portfolio diversification benefits with a lower correlation to the technology and consumer sectors. They can also potentially serve as an inflation hedge through commodity price exposure.
In this article, I have identified one fundamentally strong materials stock in Allied Gold (TSX: AAUC), which you should consider adding to your equity portfolio right now.
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Is this TSX stock a good buy right now?
Valued at a market cap of $2.14 billion, Allied Gold explores and produces mineral deposits in Africa. It explores for gold and silver ores, and its flagship project is the Sadiola gold project, an open pit mine located in the Republic of Mali.
Earlier this month, Allied Gold outlined ambitious growth plans at its annual shareholder meeting. It targets a 50% production increase next year, driven by two tier-one assets that distinguish the mid-tier gold producer from competitors.
It expects production to rise 8% this year to 375,000-400,000 ounces, then surge to approximately 600,000 ounces as its transformational Kurmuk project in Ethiopia comes online in 13 months.
CEO Peter Marrone emphasized that the production increase represents just the starting point. Due to higher-margin ounces, EBITDA (earnings before interest, tax, depreciation, and amortization) and cash flow are expected to multiply by three to five times current levels.
Allied Gold’s foundation rests on Sadiola in Mali and Kurmuk in Ethiopia, generational assets with substantial mineral inventories. Sadiola currently produces 200,000-230,000 ounces annually and will expand to over 300,000 ounces through a phased expansion, completing this year. The mine holds more than 10 million ounces of resources with all-in sustaining costs below US$1,200 per ounce.
Kurmuk represents the company’s crown jewel, targeting 290,000 ounces annually for 15 years at all-in-sustaining costs below US$950 per ounce. Construction and mining are progressing on schedule and budget, with mechanical completion expected by year-end.
The company also operates complementary assets in Côte d’Ivoire, producing 180,000 ounces annually. Allied Gold has completed share consolidation requirements and plans a New York Stock Exchange listing to improve liquidity and access institutional investors.
Is the TSX stock undervalued?
Allied Gold delivered solid first-quarter results with production of 84,000 ounces at all-in-sustaining costs of US$1,811 per ounce, positioning the company to meet its 2025 guidance of 375,000-400,000 ounces.
The gold producer reported revenue of US$346 million and operating cash flow of US$145 million. It ended the first quarter (Q1) with US$232 million in cash and raised US$65 million through an equity offering in April.
Allied Gold implemented a gold price protection program covering 155,000 ounces through March 2026, ensuring minimum prices of US$2,048 per ounce with a full upside potential of US$2,400.
Analysts tracking the TSX stock expect sales to rise from US$730.4 million in 2024 to US$2.26 billion in 2028. Comparatively, adjusted earnings are forecast to expand from US$0.42 per share to US$5.37 per share in this period.
If the TSX mining stock is priced at 10 times forward earnings, which is relatively cheap, it will trade around US$53 in May 2028, indicating an upside potential of over 250% from current levels.
