It's easy to pick 2 or 3 baggers today, because nearly every gold or silver mining stock has been beat up. But why pick low return stocks, unless you are after dividend paying stocks? If you want low returns, why not just buy the miner ETFs, such as GDXJ (gold miners ETF) or SIL (silver miners ETF)? These two ETFs will do extremely well as gold & silver rise. With the HUI down 82% from the 2011 high (622 in 2011 versus 111 today), and GDXJ down 89% from the 2011 high (175 in 2011 versus 19 today), these ETFs are going to be huge winners when gold and silver prices rise.
So, on the low end you have miner ETFs. But what about the high end? Where do you find the stocks that are going to outperform the ETFs? You have to find companies that have been beaten down, yet are well positioned to take advantage of higher gold & silver prices.
|Stock Name||Symbol||Type||Risk||Share Price||FD Shares||FD Mkt Cap|
|Alexco Resource Corp.||AXU||Silver||High||.34||78M||$26.52M|
|Barkerville Gold Mines||OTCPK:BGMZF||Gold||Moderate||.19||242M||$45.42M|
|Bear Creek Mining Corp.||OTCPK:BCEKF||Silver||Moderate||.42||101M||$42.29M|
|Endeavour Silver Corp||EXK||Silver||Moderate||1.42||108M||$153.36M|
|First Majestic Silver Corp||AG||Silver||Moderate||3.27||166M||$542.82M|
|Integra Gold Corp||OTCQX:ICGQF||Gold||High||.25||415M||$101.86M|
|Midas Gold Corp||OTCQX:MDRPF||Gold||High||.22||195M||$43.64M|
|Orezone Gold Corp||OTCPK:ORZCF||Gold||Moderate||.19||126M||$24.10M|
|Pan American Silver||PAAS||Silver||Moderate||6.50||153M||$994.00M|
|Perseus Mining Ltd||OTCPK:PMNXF||Gold||Moderate||.25||533M||$134.66M|
|Sabina Gold & Silver Corp||OTCPK:SGSVF||Gold||High||.53||215M||$113.30M|
|Silver Lake Resources||OTCPK:SVLKF||Gold||Moderate||.13||505M||$66.38M|
|Silver Standard Resources||SSRI||Silver||Moderate||5.18||84M||$435.12M|
The list of stocks above are what I consider must own if you want big returns. Why? Because most of them are potential 10 baggers at higher gold & silver prices. These are the cream of crop when it comes to risk/reward for large returns. They all have solid projects and growth potential. They all have the "goods" and are extremely undervalued.
If you don't want high risk, then stick with the moderate risk producers. However, when you are going after 10 baggers there is always going to be a degree of risk. Most of these stocks will rely on higher metals prices to boost their share price. Without those higher prices, they could easily drop in value. None of these are low risk stocks.
What they all have in common is undervalued resources. If you compare their resources (ounces in the ground) to their market cap, you will find that they are extremely cheap. None of them are exploration stocks. Most are producers. The rest either have a path to production, or are diligently working on one.
To obtain 10 bagger rewards you need one primary thing: increased free cash flow. Thus, these stocks will require higher gold & silver prices to reach lofty returns. But of all the gold and silver mining stocks, these are perhaps the best positioned to take advantage of higher gold & silver prices.
Here is a short analysis of each stock (from the www.goldsilverdata.com database).
Alexco Resources was silver producer in the Yukon until 2014. They were producing 1.5 million oz annually at their Bellekeno mine. High costs forced them to put it on care & maintenance. They have an excellent 55,000 acre property (Keno Hill) located in Canada. It is already a 60 million oz resource at 300 gpt, plus lead and zinc offsets. They are projecting all-in costs around $15 per oz after expanding annual production capacity to 3 million oz. The capex is $45 million for the expansion, but the IRR is only 22%. That could be difficult to finance until silver reaches $20. The construction period is only 9 months, once they raise the money.
They have a FD market cap of $27 million. I would buy this stock if it wasn't for their streaming deal with Silver Wheaton. They are obligated to sell 25% of their Keno Hill production to Silver Wheaton at $3.90 per oz (think of it as a very large annual debt payment of around $10 million). Also, if they do not resume mining soon, they have an obligation to pay Silver Wheaton (read the streaming arrangement on Alexco's website).
However, even with this streaming deal, the stock is extremely cheap. For a future valuation, at 3 million oz of production (their share after giving 25% to SLW) that should give them cash flow of around $125 million - if silver prices rise to $100. At a conservative 5x cash flow multiple, that makes them a potential 20 bagger at higher silver prices. The one thing to like about this stock is their exploration potential. The grades on this property are excellent. I'll be surprised if they don't reach at least 4 million oz of production. They are only giving guidance for a mine life of 6 years, but I expect that to be extended significantly with exploration success.
On a positive note, they get about $5 million per year in cash flow from their environmental subsidiary.
Almaden Minerals has decided to build their flagship project in Mexico (Ixtaca). They spun out their 40 exploration properties (Mexico, Canada, and Nevada) and NSRs to their stockholders in a new company (Almadex Minerals). Ixtaca will produce 130,000 oz of gold and 8 million oz of silver with a gold equivalent all-in cost around $750 per oz. Conversely as a 8 million oz silver producer, the all-in costs could be well under $10 per oz. The cash flow in 2019 could be over $500 million at $2000 gold. At a 10x cash flow multiple, that comes to $5 billion market cap potential. That's the extreme upside potential, but it exists.
The project is economic and is likely to get built. The capex is $174 million and the after-tax IRR is 22% at $1300 gold. They have $7 million in cash to fund the pre-feasibility study, which is due to be completed in 2016. Using this cash they should not have to dilute their shares significantly until production. They currently have 94 million fully diluted shares. With their upside potential and path to production, this is a ideal risk/reward stock at the current valuation.
Argonaut Gold is a solid mid-tier producer. There is a lot to like about this company. Their production is forecasted to grow from 135,000 oz in 2015 to 400,000 by 2020. They have two producing mines in Mexico with all-in costs around $1100. They have three more mines to build (two in Mexico and one in Canada) and all of them are similar. This is a very smart company that purchases economic projects with solid resources, low capex, and moderate cash costs. All 5 of their mines should produce 80,000 to 150,000 oz at low to moderate cash costs. Currently their cash costs are higher than investors expected. This is why the stock has crashed from $10 in 2011 to .93 cents today.
They have $44 million in cash and very low debt ($5 million). It's amazing that a growth company that has purchased 2 companies (Pediment Exploration and Prodigy Gold) and a large project (San Agustin), and built two mines, has no debt. They need to build 3 more mines over the next five years, so that will take some debt.
Anyone who analyzes gold mining stocks has to be impressed with this stock. They have executed like pro's. They now have 12 million oz of M&I and excellent exploration potential. The only question to ask is how big is this company going to get? My guess is that they will continue to buy projects and build mines. With a FD market cap of $145 million, the upside potential for this stock is excellent. They are only selling at $10 per oz for my estimated future reserves. I think they have 20 bagger potential at higher gold prices.
Barkerville Gold is highly undervalued. They have potentially 5 to 20 million oz (2 gpt) of gold in British Columbia with a FD market cap of $36 million. In 2013 the stock was halted because they released a 43-101 resource estimate of 10 million oz at 5 gpt (surface) and created a firestorm. They released an updated 43-101 for Cow Mountain in 2015 with 4.8 million oz at 2 gpt. I don't know if the original 43-101 and most recent 43-101 covered the exact same area (probably not).
They have excellent properties on 300,000 acres. They have a mill and are producing about 25,000 oz per year from their high grade Bonanza ledge deposit (12 gpt). Then they have Cow Mountain, which is an open pit project with a pre-feasibility study. Then they have Island Mountain with a target of 5 to 15 million oz based on preliminary drilling. And they have Barkerville Mountain which has 3 to 6 million oz based on preliminary drilling. Combined they are targeting 10 to 20 million oz of gold at 2 gpt.
Management has not done a good job. However, the management team was replaced in 2014 and things are looking much better. They paid off their debt using shares. This created a lot of share dilution, but they have a much better financial position. They are now funded to drill 50,000 meters. After that, they will likely do a feasibility study for Cow Mountain.
Once they get some cash flow they have excellent growth potential. But they are an ideal takeover candidate for a mid-tier producer. They are trading for $7 per oz for future reserves. By the time they get Cow Mountain into production (around 2018), a mid-tier is likely to have purchased them for a very cheap price. From my experience, companies with assets like this rarely make into production without getting taken out by a larger company. Eric Sprott has a big investment, so perhaps he will be able to prevent a takeover.
Bear Creek Mining
I loved Bear Creek Mining until June 25, 2011. That was the day the President of Peru did the highly unusual act of revoking the mining rights at their Santa Ana project. He did this because of political pressure from local resistance to the project in Southern Peru. They still have their huge flagship project at Corani (300 million oz at 50 gpt). Corani is on schedule for production around 2019 at 10 million oz (if they can finance the project). They could reach 13 million oz of production during the first 8 years, then production will drop to 8-12 million oz for the rest of the mine life (22 years).
Because of base metal offsets (4.5 billion lbs of lead and zinc), the cash costs at Corani are projected below $5, making it a cash cow. In fact, for the first 5 years, cash costs are supposed to be negative. Very low cash costs makes it likely the can finance the $625 million capex. However, they might have to scale back the size of the mine to get financing.
If they can get Santa Ana back (management is confident this could happen), this could be an exciting company with two large projects heading to production. Santa Ana will take 18 months and $70 million to begin production of 5 million oz annually, if they get their mining rights back. The cash costs at Santa Ana are projected to be about $8 per oz.
It's hard to predict the outcome of Santa Ana, but it really doesn't matter that much. If they are left with only Corani, this stock is a likely 20+ bagger if they get financing and silver prices rise. The true risk is political. Is revoking of mineral rights the beginning of a change towards mining in Peru? Are higher taxes and potential nationalization a possibility in a few years? On the other hand, there is a possibility that Bear Creak will get back their mining rights for Santa Ana. If that happens, this stock is probably a 50 bagger from this level.
Brazil Resources is a new company. They have a good management team with influential people on the board. Their stated focus is to acquire advanced stage projects and bring them into production. In 2012, they acquired the Cachoeira project. After their initial drilling, the resource size increased from 750,000 oz to 1.3 million oz at 1.2 gpt. I would expect them to fast track this mine into production, but it might be their second mine.
In 2013, they acquired Brazil Gold and their 1.7 million oz Sao Jorge project. This may now become their first mine. It has a PEA to produce 100,000 oz at $650 cash costs. The after-tax IRR is 33% at $1300 gold, thus it is very economic. I'm waiting for them to give guidance that a feasiblity study is under way. They have $2 million in cash and no debt.
In 2015, they acquired the Whistler project in Alaska from Kiska Metals. They got it very cheap. It is a 5 million oz gold equivalent resource (including silver and copper), although only .8 gpt (gold equivalent). I would not expect this project to be built for at least 7 years.
They have several large properties in Brazil: Maua (25,000 acres), Pireneus (250,000 acres), Apa (500,000 acres), and Artulandia (12,000 acres). Once they get some cash flow, this will likely be a growth company. Their current FD market cap is only $36 million, so it is still very cheap. I think this is a company with potential. They have 800,000 acres of exploration targets and an aggressive management team. There are two red flags. First, they are a takeover target. Second, the CEO recently said they were open to JV deals. I prefer companies to build their own projects.
Coeur Mining has underperformed since 2006. They have to reach $70 per share just to get back to where the share price traded in 2006. Today the stock is trading at $3.40. However, they have been aggressive, purchasing Orko Silver, Paramount Gold, and a mine from Gold Corp. In 2015 they will produce about 16 million ounces of silver and 300,000 ounces of gold. That is substantial and with rising gold and silver prices, cash flow could reach $1 billion annually. At 10x cash flow, they could reach a $10 billion market cap. That would make them a 20+ bagger from their current $340 million FD market cap.
I look for this stock to do well. I hope their new management can execute, and become cash focused. The only way they are going to reward shareholders is if they spend their cash wisely and steadily increase production. This company does not need to do too much. They are undervalued versus future production, and all they need is to reach their production targets, and for gold and silver prices to rise. Once Couer begins piling up cash, this stock should do very well. For silver producers, I have been down on CDE. However, they seem to be hitting their stride. Let's hope they can pull it off and reach a new high.
Before you get too excited that stock is going to blast off, they do have debt issues, which has kept the stock price low. They have $545 million in debt, $205 million in cash, and are losing money. Their all-in costs are around $17 per oz, so they are a high risk investment at low gold and silver prices. However, if the survive and silver prices rise, they will benefit big time. My guess is that silver prices will rise in the next year or two and CDE will be fine. With $205 million in cash, they have a buffer. It's a race between when silver prices rise and they run out of money. Place your bets.
Endeavour Silver is an elite stock in the silver production category. They have everything working. They have 3 high grade silver mines in Mexico producing 8.5 million oz (silver equivalent including gold) in 2015. They are expanding production and reserves at a fast rate, projecting 10 million oz of production in 2017. They have moderate cash costs ($9 per oz) and a pretty good balance sheet with $33 million in cash and only $25 million in debt. They are cheap, with future reserves valued at $1.50 per oz. The stock price is down 85% since 2011 ($12 high) and will likely reach a new high if silver prices rise. There is some risk, because their breakeven is around $16 to $17 per oz.
Strong silver producers like Endeavour could really fly if we have a mania in stocks, since they are so few elite silver producers. Look for Endeavor to use their cash flow and exploration to become a 12 million oz producer long term. Endeavor should be a 5 bagger, with potential to go even higher depending on silver prices. This is an excellent company that is getting beat up because it does not have low cash costs. But their management team and properties are solid. The only thing that could fatally hurt them is sub $16 silver prices for an extended period. Any share price under $2 appears to be a steal from my perspective.
First Majestic Silver
First Majestic Silver is a large silver producer in Mexico. They have 6 producing mines at 15 million oz of silver equivalent. That total is expected to reach 18 to 20 million oz after they add two development projects by 2018. They have $26 million in cash and no debt. Their all-in costs for 2016 should be around $17, with cash costs about $10. These high cash costs are making them lose money and is hurting the stock price, which is down 86% the past three years. If silver prices remain below $17 for an extended period they might have to close some mines. But in the long term, they are well positioned to take advantage of higher silver prices.
At $100 silver, I expect them to reach $800 million in cash flow. If they get valued at 10x cash flow, that would make First Majestic a potential 10+ bagger. I never thought this stock would crash to $3 a share. It is well positioned to blast off once silver prices rise. For this stock to go back into the $20s, all we will need is silver back in the 30s. As long as Mexico does not raise their taxes again, First Majestic looks very good at this valuation.
Hummingbird Resources has two advanced open pit gold projects in West Africa (Mali and Liberia). It looks like a can't miss stock. They have 6 million oz at 2 gpt and another 150 targets on 1 million acres. The Yanfolila project in Mali is a near-term producer at 60,000 to 80,000 oz. The $52 million capex is funded and it has a 50% after-tax IRR. They will use this project as leverage to finance Dugbe in Liberia.
The Dugbe project is also economic and heading toward production of 125,000 oz in 2018 or 2019 - if they can raise the $212 million capex. I'm confident they can, even though it has been difficult in this environment to raise money. They have a very good management team and it is a shallow open pit, which is easy to mine. And Liberia is a mine friendly country. Perhaps the best place to mine in West Africa. Another reason I am confident is because it had a 20 year life mine. It's too economic not to get built.
Another good thing about this stock is that it is cheap. They have a FD market cap of only $33 million. It could easily be a 10+ bagger if they build the mine and gold prices rise. But with any luck and this stock could have much larger returns than that. I'm expecting a 20+ bagger in the long term, but then I tend to be overly hopeful that stocks with this much potential pan out. I could easily be wrong, but if they aren't a 5 or 10 bagger, I'll be surprised. They have all of the factors I look for: Cheap valuation, large resources, economic project, a pipeline for growth, strong management, good location (I like Liberia and western Mali seems okay), path to production, likelihood of financing, and a decent ore grade.
Integra Gold is close to becoming a mid-tier producer in Quebec, Canada. They have a high grade 4 million oz resource in Quebec (7 gpt), in an ideal place to mine. It is located next to a large producing gold mine and permitting is almost completed. They have $20 million in cash to continue advancing their Lamaque project. Their goal is to begin production 2016 at 100,000 oz. The updated PEA has a capex of only $50 million and an after-tax IRR of 65%. Thus, it should easily get financed. Plus, they own a nearby mill with enough capacity to mine 200,000 oz annually. At higher gold prices, it is going to provide excellent cash flow to grow the company.
One red flag for Integra is their high share dilution of 415 million shares. But with all-in costs below $1,000, this is a good entry price. They are going to have a very good balance sheet and will be ready to grow via acquisitions and exploration (they are drilling aggressively, with another 100,000 meters planned for 2016). The other red flag is the lack of guidance on their website for a timeline until production. I'm not completely sure of their near-term plans, other than more drilling coming in 2016 and an attempt to finish permitting.
McEwen Mining is a mid-tier gold and silver producer. In 2015, they will produce 90,000 oz of gold and 3 million oz of silver and (150,000 oz of gold equivalent). By 2018, they should be producing somewhere around 300,000 oz gold equivalent (including silver). Long term this company has a lot of potential. It is currently profitable with a good balance sheet.
I think McEwen Mining is a likely 5 bagger long term, with 10 bagger potential at higher gold prices. And they have Rob McEwen as CEO. He is one of brightest in the business. They also have significant exploration potential on their six projects. It's probably not wise to bet against Rob McEwen, who built Gold Corp from its beginning. Their El Gallo property (500,000 acres in Mexico) has 9 gold discoveries, 1 producing mine, and 2 others under development. That property alone is probably worth double their market cap.
They also have other excellent properties. Gold Bar in Nevada is currently being permitted to produce 65,000 oz. Their San Jose and Los Azules properties in Argentina were considered a political risk, but the newly elected president is a free-market conservative. The Los Azules property is a huge copper project with 20 billion lbs of copper and a $4 billion capex. I would expect them to sell this project to fund growth of their gold and silver projects. San Jose is a long-life gold/silver mine that is producing 90,000 oz of gold equivalent.
Midas Gold is highly undervalued. They have a very large project in Idaho that is heading to production around 2020. Stibnite is a 6.4 million oz resource (1.6 gpt) that is growing in size, and has significant exploration potential. They have a FD market cap of only $43 million, and the project will produce 400,000 oz of gold at low cash costs (years 2-8). The low cash costs (around $500 per oz) are from offsets in silver and antimony (used in batteries and flame retardants). Production is forecasted to drop to 300,000 oz in years 9-14, and cash costs will increase, but with exploration success that production drop likely won't happen.
It's possible that Midas could maintain production at 350,000 oz for 15 years. Also, they could take that cash flow and buy another mine to grow the company. Thus, the upside potential is significant. It pencils to a 50 bagger at $2500 gold. That said, there are three significant risk issues. 1) They need to get financing without substantially diluting the stock or hedging profit. 2) They need higher gold prices to finance such a large project. 3) They need to get permits in a timely manner. This mine likely won't begin production until 2020, so the timeline risk is significant. If they were further along in mine development, with permitting and financing completed, I would like the stock a lot better. That said, it is an economic project at low gold prices and will get built.
Midas is a takeover target with their low valuation and de-risked economic project. With Stibnite's low cash costs and an NPV over $1 billion at higher gold prices, they are a sitting duck. Their future reserves are valued at $7 per oz. It's amazing that no one wants to own stocks like this. Everyone believes that either gold prices will drop or financing will dry up.
Orezone Gold has a late stage project in West Africa (Burkina Faso). Their first mine (Bombore) should begin production in 2017. It is a 5 million oz deposit, the largest undeveloped mine in West Africa. It will get built. The economics are good at 1 gpt surface mine. If they use heap leach for the 2 million oz of oxides, production will start at around 100,000 oz with all-in costs around $1000 per oz. They are also considering a mill at 150,000 oz, with a higher capex. My guess is they will go with heap leach to begin and a 85% recovery rate. Final permits are due in 2016. With financing, they could begin construction in 2016.
I think they have a good chance to produce 200,000 oz in 5 years. They have a second potential surface mine (Bondi) that could produce 50,000 to 100,000 oz. If you don't mind investing in West Africa, this looks like a good risk/reward stock at this value. It pencils as a potential 50 bagger at higher gold prices. The current FD market cap is only $25 million. That is incredibly cheap for a company with 5 million oz of resources and significant exploration potential. The only red flag is the large capex ($250 million), which could be difficult to finance.
Pan American Silver
Pan American Silver is one of the best silver producers. They plan to increase silver production from 25 million oz to 30 million oz. As long as silver prices stay high, they are going to be a cash flow machine. Cash costs in 2015 will be around $11 per oz (cost of production). I would estimate all-in costs (free cash flow) around $17 per oz. They have $275 million in cash and only $62 million in debt. They are extremely leveraged for higher silver prices with such a good balance sheet. They will be able to grow and pay a high dividend.
They are very cheap, selling at $1.17 per oz (silver equivalent including gold) for future reserves. There are really no red flags with this stock, unless you think silver prices will remain below $17. They do have mines in Bolivia and Argentina, which creates location risk. They could lose production from their Bolivian mine at 3 million oz per year (if it were to be nationalized), but they can make up for that from their 5 development projects. Also, I expect them to buy a few projects with their cash flow. Plus, they have 5 million oz of gold resources, producing 165,000 oz annually.
If silver mining stocks come into favor for investors, this stock could do really well. It's trading at $8.45 today, but reaching $50 would not be that big of a surprise. Pan American, First Majestic, Endeavor Silver, Fortuna Silver, Silver Standard, and Hecla Mining are all basically the same: strong companies that are likely 3-5 baggers. At its current valuation, Pan American might be the best bet from a risk/reward standpoint.
Long term at $100 silver, you could get 30 million oz x $75 per oz free cash flow = $2 billion in cash flow. If they get valued at 10x cash flow, that will make them a potential $20 billion market cap at $100 silver. The stock bottomed in August at $5.92. I wish I would have bought it then.
Perseus Mining is a mid-tier producer in West Africa. In 2012 when I analyzed it, the FD market cap was a $1.3 billion market cap. Today the stock price has dropped 90% and it is down to a FD market cap of $113 million. They will produce about 200,000 oz in 2015 (Edikan in Ghana), with cash costs of about $700 and all-in costs under $1000. Their second mine (Sissingue in Cote D'Ivoire) will get a production decision sometime in 2015. If gold prices remain low, they may delay building the mine.
With Sissingue, they could expand production to 300,000 oz. That could easily make this a 10 bagger from this valuation. They have a good balance sheet with $77 million in cash and no debt. One red flag is very high share dilution (534 million shares). And they are mining in West Africa which has political risk and investor apathy. Even with these negatives, this stock has a very good risk/reward profile at this valuation.
Sabina Gold & Silver
Sabina Gold & Silver has a large high grade gold project in Canada. The Back River project has 7 million oz (6 gpt) and significant exploration potential. The feasibility study calls for 200,000 oz of production annually at 3,000 tpd. The capex is $320 million, which will not be easy to finance. However, if they get financing and permits in a timely manner, they could be producing in 2019. They have a solid balance sheet with $22 million in cash and no debt.
They received their cash from selling their 260 million oz Hacket River silver project. They sold it for $50 million, plus a 22% royalty of the first 190 million oz of production, and 12% for the rest of production. Hacket River likely won't get built for a long time, but it is in their back pocket.
Back River is in Nunavut, which is in the far north of Canada. However, it is still economic, with cash costs of only $600 per oz. All-in costs (free cash flow) should be around $1000 per oz. By the time this project begins production around 2019, I would expect gold prices to be much higher. Once Hacket River get's built, you could consider that as by-product income to lower their cash costs.
Back River alone makes this a possible 10+ bagger, but they also have Wishbone which is next door to Back River. Wishbone also has high grade and is likely to be fed into the same mill which will be expanded. In the long term, I would expect production to reach 300,000 oz. One final comment: they seem like an ideal takeover candidate for a mid-tier producer because of their high grade. That would not be good for investors with the stock bouncing on the bottom.
Silver Lake Resources
Silver Lake Resources is a mid-tier gold producer in Australia. They have a solid flagship property (Mount Monger) with 3.7 million oz, and all-in costs around $1100 per oz. Plus, over 1 million acres of exploration properties. Production is forecasted to increase from 125,000 oz in 2015 to 180,000 oz in 2018. Two new surface mines and two new underground mines at Mount Monger should come online between 2016 and 2018.
The management team appears to be extremely conservative. They are trying to sell two non-profitable assets at low gold prices: Murchison and Great Southern. Both of these are 1 million oz deposits, but they want to focus on the high quality Mount Monger property. Basically, they don't want to take any risk and sleep well at night. They even want to sell them today at the bottom of the market. The only reason to do this is to avoid the risk of even lower prices. This is a very risk averse management team. They even hedged gold production at $1135 until September 2016. I do like how detailed and thorough management lays out their business strategy in the company presentation. It's a smart team.
They have a good balance sheet with $25 million in cash and $12 million in debt (owed via a gold stream). They have a line of credit for $70 million, which they probably will use to expand production. I like their properties, growth prospects, and cash costs. From their current $67 million FD market cap, I would expect them to be 10 bagger long term. As gold prices rise, I expect this to be a growth company.
Silver Standard Resources
Silver Standard Resources has significant potential. They have 1 billion oz of silver resources and 6 million oz of gold. Plus, they have 1 million acres of exploration land. Production should steadily rise. Currently, the Pirquitas mine in Argentina is their only producing silver mine at 10 million oz. It has cash costs around $11 per oz, so it is currently losing money.
They purchased the Marigold mine in 2013 from Barrick Gold in Nevada for $275 million. This was a good deal for SSRI. This will give them 200,000 oz of gold production for 20 years. It's a 6 million oz deposit, although only 75% recovery rate. All-in costs are around $1100 per oz. Long term it should be a cash flow machine at higher gold prices.
The key for Silver Standard is future growth. They had a huge project in Mexico called Pitarrilla. It was supposed to produce 15 million oz for 30 years, but is currently on hold because they could not obtain water rights. They may have to turn it into an underground mine, which will have higher costs, but it is a huge mine that should get built at higher silver prices. They also have two more mines under development with 85 million oz of silver resources.
Silver Standard will never be a low cost producer, but they can make up for that in output. If silver reaches $100 and stays there, they could have huge cash flow in the long run. Buying their future silver reserves for .70 cents an ounce in the ground today, is not a bad bet. When you can buy a stock with 1 billion ounces of silver for a fully diluted market cap of $430 million, it seems pretty cheap to me.
True Gold Mining
True Gold Mining is advancing a 2 million oz (.9 gpt) open pit project in West Africa (Burkina Faso) called Karma. It is permitted and financed, with production scheduled for Q2 2016. They have a FD market cap of $62 million, so they are cheap. Future reserves are valued at $20 per oz. It's a good entry price, although currently Burkina Faso has a domestic political crisis. This could be either a good buying opportunity or a falling knife depending on the political outcome. I personally feel okay with my investment. Gold production represents 20% of their GDP. It is a very important economic sector for this country.
I'm not a fan of how they financed the mine using gold streaming with a royalty company. These are always one-sided deals. As usual, this deal favors the royalty company who gets to buy 6.5% of gold production for the life of the mine at 20% of the spot price. Thus, True Gold will be selling 6.5% of production below cost. The price for the $100 million gold streaming loan will end up being huge if gold prices take off. However, if a bank won't loan you $100 million, then you have to find a loan shark. Franco Nevada and Sandstorm could make $50 to $100 million on this deal if gold prices rise significantly.
But regardless of the streaming deal and political risk, I like the stock because of their growth potential and solid management team. They already have a second mine discovered (North Kao) that is 2 million oz inferred. Plus, they have about 40 targets to explore on 200,000+ acres. The odds are good they will find a third mine. They have three large properties in Burkina Faso and all of them look interesting. Liguidi has been delivering very good drill results. In addition to a myriad of drilling targets in Burkina Faso, they have a 65% interest in Ball Creek (NASDAQ:GOLD) in British Columbia that has potential.
True Gold appears to be heading in the right direction, with cash flow less than a year away. One factor that will be important for this stock is investor interest in African mining stocks, especially in Burkina Faso after their current crisis. If everything falls into place, this stock should be a 10+ bagger long term.
Disclosure: I am/we are long AXU, AAU, ARNGF, BGMZF, BCEKF, BRIZF, CDE, EXK, AG, HUMRF, ICGQF, MUX, MDRPF, ORZCF, PMNXF, SGSVF, SVLKF, SSRI, RVREF.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.