Vista Gold: Enormous Option Value

Vista Gold Corp. (VGZ) ($4.40) is the lowest-priced option play on gold that I've found with fairly well-developed properties. Measured and indicated reserves at its seven properties totaled an estimated 9.7 million ounces in the company's latest report. In addition, Vista reports inferred gold of 3.8 million ounces. Altogether: about 13.5 million ounces on 33.9 million fully diluted shares, or about 0.4 ounces behind each share. At today's price a buyer gets gold in the ground for about $11 an ounce.

The company has estimated capex and production costs at four sites—plus market values for other measured and indicated resources and cash on hand—as a basis for calculating a net present value on a pre-tax basis. At $650 gold, the total NPV by the company's calculation is $1.1 billion or $33 per fully diluted share. At $750 gold, the company puts a $1.7 billion NPV on its properties, or $51 a share.

Put a stiffer discount rate on this—20%—and allow for taxes and the NPV would be much lower. But that's not the point. The point is a gold bank with the metal priced at little more than $11 an ounce. This provides option-like leverage to a move in gold.

Using the company's valuations, which add $600 million to NPV for each $100 gold move, running the numbers at $1,200 gold raises the hypothetical value of VGZ to $126 a share. Regardless of the discount rate you want to use, VGZ holders would seemingly stand to be well rewarded by a continuing bull market in gold.

Vista is a comparable value to Seabridge Gold (SA) ($27.93) when I mentioned it on May 18, 2007 at $14.97.

The factual statements here can be confirmed at the company's excellent web site.

Disclosure: I've owned this one for years and have been a buyer this week.

Comments

[REBEL:]

At $4.40 I see a good profit potential; however, the mines in Indonesia and Bolivia give me pause.

2007 Sep 08 04:50 AM