Undervalued Vista Gold May Present a Buying Opportunity

Vista Gold (VGZ) shrugged off the overall gold market decline on Tuesday and advanced 4.5% on heavy volume. There was no news, and Vista was one of the only gold miners to advance amidst a sea of red. Vista was up again on Wednesday 8% on higher-than-average volume, while the GDX was only up 1%. The stock is selling at just under $5, and looks cheap when compared its high of over $12, just 18 months ago.

There has been some speculation of a buyout coming and certainly there are investors accumulating shares with some belief in a breakout. With 9.7 million measured and indicated ounces, and a market cap of just $166 million, the company appears to be undervalued. A quick calculation (market cap/M&I ounces) gives Vista an “Enterprise Value per Ounce” of just $17, while most advanced explorers are well over $50. Plus, most of Vista’s properties are located in low-risk areas such as the Paredones Amarillos and Guadalupe de los Reyes in Mexico, Mt. Todd in Australia, Yellow Pine in Idaho, Awak Mas in Indonesia, Long Valley in California, and Amayapampa in Bolivia.

Vista Gold has recently changed its strategy, and is now focused on moving to production. With gold prices nearing $1,000 per ounce, it is becoming economically viable for smaller companies to consider producing. Vista Gold's CEO Michael Richings stated:

In the past we acquired properties with proven mineralization and added value through exploration to build our resource and reserve base. Now we are focused on moving our properties to feasibility and positive production decisions.

I am not sure what is moving Vista’s share price higher, but quiet accumulation of this type often precedes a breakout. Risk-tolerant investors might consider taking a position at these levels in anticipation of an acquisition or significant news. With high quality properties, nearly 10 million M&I ounces, and such a small market cap, I would not be surprised to see a resource-hungry major swoop in, and buy the company. Higher metals prices are here to stay and with BHP (BHP) aggressively going after Rio Tinto (RTP), I expect the industry’s consolidation to pick up pace in 2008.

Disclosure: I do not currently own shares of Vista, but will be keeping a close eye on the stock and am considering taking a position in the coming days.

Comments

[E.D. Hart:]

Vista gold is a company I owned for a while and then dumped for a small profit. I have followed the company for ten years. I think the author is onto something. They have something like gold in the ground at approximately $9.11 market cap/oz. assuming a 165 million market cap, and 18 moz resource base. It is a company to watch. see: money.cnn.com/news/new...

2008 Feb 07 09:02 PM