Gabriel Resources Ltd. (GBRRF.PK), Allied Nevada Gold Corp. (ANV) and NovaGold Resources Inc. (NG) are three gold miners with big upside potential and a catalyst to unlock value. All three companies have a catalyst that will unlock value, and at the same time all three are potential takeover targets.
Gabriel Resources Ltd.
Catalyst: Gabriel Resources is probably a year from receiving the constructing permits and starting work on developing one of the largest undeveloped gold and silver deposits in Europe. To date, the company is still considered risky and that is why it is under the radar of the public. Significant value will be created by this gold producer through its reserves and low cash-costs per ounce expected production.
Shareholders: Paulson & Co 16%. Electrum Strategic Holdings LLC 16% (There is rumour that it's a Rothschild's company). BSG Capital 16%. Baupost Group 13%. Newmont 13%. Few value investors plus one gold miner own 74% of the company's shares, and will probably hold it until the price of the company triples. Not much is left for the public to buy at a free-float of 26%. It seems a special group of value investors have positioned aggressively in the control and potential of this company.
Reserves and resources: 14.6 million oz of gold, 64 million of oz silver. At $1,700 oz/gold and $32 oz/silver such a deposit has a rough value of $27 billion USD. Gabriel Resources has a market cap of $2.2 billion USD. Compared to other gold miners, Gabriel Resources has a one of the best (resources and reserves value/enterprise value).
Cash-costs per ounce: 626,000 oz at $272/oz - first 5 years, 500,000 oz at $335/oz - LOM. One of the lowest cash-costs compared to peers. Gabriel Resources will have one of the best profit margins in the world of gold miners. For comparison, HUI gold producers had average cash-costs in 2011 of $574/oz, while junior miners' average cost was $723/oz.
Other costs: Corporate tax in Romania is much lower compared to other gold producing regions, currently 16%. The royalty of 8% that the Romanian government will take is normal.
Upside potential of the investment: Depends on the price of gold, but in my view not less than 300% within 5-7 years.
I will visit the gold deposit Rosia Montana in Romania probably this month as it's near Bulgaria, where I live.
Allied Nevada Gold Corp.
Catalyst: Hycroft's expansion project, which will increase the company's production multiple times and will lower the cash-cost. Milling study places Hycroft among the largest gold producing mines in the US and the largest silver producers in the world. Production from the Hycroft mine for 2011 was 104,000/oz of gold and 479,440/oz of silver, while in 2012 production is expected to be in the range of 180,000 to 220,000 oz of gold and 750,000 to 850,000 oz of silver.
Expected annual production to average 616,800 oz of gold and 25.9 million oz silver from 2015-2024. In my opinion, a successful investment in a gold miner is not only related to how much gold or silver it has, or how cheap it is to produce it, but also for how long it will have extra resources. I don't want to wait decades. We need to benefit from the rising gold prices until they last. Allied Nevada Gold will start producing huge amounts of precious metals from 2015.
Reserves and resources: 16.9 million oz of gold, 593.7 million oz of silver. At $1,700 oz/gold and $32 oz/silver, Allied Nevada Gold's reserves and resources have a rough value of $47.7 billion USD. Allied Nevada Gold has a market cap of $2.87 billion USD and perfect balance sheet with no debt but some cash, so the enterprise value is even lower than the market cap. Compared to other gold miners, Allied Nevada Gold has the best (resources and reserves value/enterprise value) in the world of gold and silver miners. Half of its resources and reserves are of silver. I'm very optimistic about silver price going up long-term, so I believe that will create additional value to the company's worth.
Cash-costs per ounce: 616,800 oz of gold and 25.9 million oz of silver from 2015-2024 at adjusted cash costs to average to $190 per oz of gold sold and (with silver byproduct credit). One of the lowest cash-costs compared to peers. Allied Nevada Gold, along with Gabriel Resources, will have some of the best profit margins in the world of gold miners. For comparison, HUI gold producers had average cash-costs in 2011 of $574/oz, while junior miners' average cost was $723/oz.
Upside potential of the investment: Depends on the price of gold and silver, but in my view not less than 400% within 5-7 years. The risk is higher than Gabriel Resources because the price of silver might spike suddenly for a few years and then collapse without giving an opportunity to Allied Nevada Gold to profit from its huge silver resources. The price of development of the mine will also be much higher than Gabriel Resources Ltd.
NovaGold Resources Inc.
Catalyst: NovaGold Resources has three world-class projects - good grade, excellent partners, large resource and all within geopolitically stable North America (Galore Creek, Donlin Gold, Ambler). Ambler is a giant copper deposit. Copper is not why investors buy Novagold, so they don't pay much premium for it, that's why Novagold will spin out it off by creating NovaCopper. Novagold will also sell Galore Creek, and will use the cash to build DonlinGold and to significantly reduce NovaGold's projected corporate capex. In my view, these are very smart moves that the management is doing. That is a smart move and will increase the value of NovaGold. Novagold will also be able to focus more on its great gold deposits.
Shareholders: The Electrum Group LLC 21.63% (there is a rumour that it's a Rothschild's company). M&G Investment Management 15.31%. Paulson & Co., Inc 8.42%, Tradewinds Global Investors 7.19%, Aletheia Research and Management 4.82%. Five value investors own 57.4% of the company's shares.
Reserves and resources: 39 million oz of gold. It's hard to value the resources of NovaGold Resources Inc. because soon the copper deposit Ambler will be spin off by creating Novacopper and Galore Creek will be sold. As this is my short summary, I will not go into details about the valuation of the resources. NovaGold has a market cap of $2.02 billion USD. The remaining resources, mainly gold that NovaGold will have left after the sale and spin-off, are with the following net present value:
NPV of Donlin Gold* at $4.6 billion at $1,700 gold, rising to $6.7 billion at $2,000 gold, $10.2 billion at $2,500 gold. NPV Increases ~20x with a ~2x increase in gold price, so NovaGold offers great leverage on the price of gold. Not included in NPV is the value of 5.2M oz of M&I resources.
* Not included in NPV is the value of 5.2M oz of M&I resources.
NPV of Arctic range of $505 million to $1.6 billion
The expected value to be created by NovaGold is roughly: NovaCopper stocks (that shareholders of NovaGold will receive and might if want sell for cash, it's still a wonder how much they will trade at), NPV of Donlin Gold at least $4.6 billion at $1,700 gold + NPV of Arctic at least $0.5 billion.
Cash-costs per ounce: First 5 full years production: 1.5M oz per year at cash cost of $409/oz. LOM production: 1.1M oz per year at cash cost of $585/oz of gold for 27 years of life.
Upside potential of the investment: Depends on the price of gold and copper, but in my view not less than 300% within 5-7 years.
Disclosure: I am long Allied Nevada Gold Corp., NovaGold Inc. and Gabriel Resources Ltd.