Gold At $1,500/Oz: My Top 5 Gold Developer Stocks

|
Includes: CRDNF, MGDPF, ORZCF, VITFF, WFRSF
by: FI Fighter
Summary

Gold has consolidated a bit in the recent week, but is still trading at ~$1,500/oz.

At ~$1,500/oz gold, project economics and the ability to generate free cash flow should improve drastically for the higher-quality gold projects out there.

My current top 5 developers at $1,500/oz gold are (in order of closest to declare commercial production): Victoria Gold, West African Resources, Orezone Gold, Cardinal Resources, and Marathon Gold.

After breaking out into the ~$1,530/oz range, over the last week or so gold has started to cool off a bit. Still, the yellow metal currently finds itself hovering around ~$1,500/oz, and this must be music to the ears of many aspiring gold producers.

Source: Goldprice.org

For the higher-quality gold projects out there, ~$1,500/oz should be more than a healthy enough gold price needed to produce positive free cash flow from operations.

The following gold stocks (listed in order from closest to declaring commercial production) are my top developer picks in the sector at this given time (the caveat being that gold is able to continue hanging around at these "lofty" levels of ~$1,500/oz or head higher still).

Victoria Gold

Victoria Gold (OTCPK:VITFF) is an advanced-stage developer currently finalizing constructing work at its flagship Eagle Gold Project (contained within the boundaries of the company's Dublin Gulch Property), which is slated for first gold pour next month.

Here are some key stats:

Current Share Price - C$0.51/share (VIT.V)

Average Gold Production (over life of mine) - 190,000 oz/year

Initial CAPEX - ~$487 million

All-In Sustaining Costs (over life of mine) - Sub-$750/oz

Life of Mine - 10 years

Location - Yukon Canada

Status - Finalizing construction (~95% complete); first gold pour scheduled for September.

Source: Victoria Gold Corporate Website Projects Overview

In terms of project economics, the Definitive Feasibility Study (DFS) for the Eagle Gold Project outlined a base-case scenario of $1,250/oz gold (along with an exchange rate of CAD:USD = 0.78), which is estimated to be able to produce an after-tax NPV (5% discount rate) of C$508 million and an after-tax IRR of 29.5%.

When plugging in a gold price of $1,500/oz, the after-tax NPV (5% discount rate) jumps up to C$800 million and the after-tax IRR increases to 41.4%.

Source: Victoria Gold September 2016 DFS

The current market cap of VIT.V is ~C$420 million (~$316 million).

From the company's latest update slides, construction is now ~95%, and as mentioned earlier, first gold pour is scheduled to take place in September during the Denver Gold Conference in Colorado.

Source: Victoria Gold July 2019 Corporate Presentation

From Motherlode TV:

“Right now we are planning to do our first pour in mid-September and do a live broadcast during the Denver Gold Forum,” said McConnell. “We want to do a Grand Opening of the Mine on Victoria Day 2020 when we’ve achieved commercial production. Our stretch internal goal is to achieve commercial production by the end of 2019, but we are pretty certain to have achieved it by Q2 2020.”

With the gold price soaring in recent months and interest starting to pick back up again, Victoria Gold quite possibly couldn't have picked a better time to be starting up production.

Insider buying from the Victoria Gold team has been impressive in recent months, as well.

Source: CEO.CA

Still, Victoria Gold isn't a perfect gold stock by any means, and common (valid) complaints from speculators include too bloated of a share structure, mediocre financing terms that have capped upside and led to a "very nasty" 7% Net Smelter Royalty (NSR) encumbering the Eagle Gold Project, initial CAPEX overrun, etc.

In terms of share structure, for instance, Victoria Gold currently has an "excessive" ~858 million shares issued and outstanding on its registry.

Source: Victoria Gold May 2019 Financial Statement

All things considered, in a $1,500/oz gold backdrop, though, Victoria Gold could still do quite well (despite its flaws) and possibly re-rate significantly if the transition from developer to producers goes smoothly and the company can prove to the market that it is capable of generating ample positive free cash flow.

The key risk at this time is if Victoria Gold will have enough funds on hand to declare commercial production (i.e., get to positive free cash flow) and be able to stave off another financing event (which could be a huge blow/detriment to any type of momentum build-up in both speculator sentiment and the share price of VITFF).

For more information on Victoria Gold, please refer to my previous article.

West African Resources

West African Resources (OTC:WFRSF) is another advanced-stage developer working on bringing on-line the Sanbrado Gold Project, which is currently in the construction phase and ~50% complete at this time.

Here are some key stats:

Current Share Price - A$0.435/share (WAF.AX)

Average Gold Production (over life of mine) - 153,000 oz/year

Initial CAPEX - $186 million

All-In Sustaining Costs (over life of mine) - $633/oz

Life of Mine - 10 years

Location - Burkina Faso

Status - Construction in progress (~50% complete); first gold pour scheduled for H2 2020.

Source: West African Resources

In terms of project economics, the DFS for the Sanbrado Gold Project outlined a base-case scenario of $1,300/oz gold (along with an exchange rate of AUD:USD = 0.71), which is estimated to be able to produce an after-tax NPV (5% discount rate) of $611.6 million and an after-tax IRR of 62.1%.

When plugging in a gold price of $1,500/oz, the after-tax NPV (5% discount rate) jumps up to $599.3 million and the after-tax IRR increases to 78.8%.

Source: West African Resources April 2019 Optimized DFS

Also worth noting is that the payback period for the Sanbrado Gold Project drops to just 1 year when assuming a gold price of $1,500/oz.

The current market cap of WAF.AX is ~A$380 million (~$258 million).

Here is the current schedule for Sanbrado, which shows that commercial production is expected to be declared sometime in H2 2020.

Source: West African Resources August 2019 Corporate Presentation

So far, West African Resources' Sanbrado Gold Project is tracking on time and on budget and, on paper anyway, looks to have the potential to become one of the highest-margin + lowest-cost new producers out there.

Perhaps, the biggest knock on West African Resources is that the share structure is very bloated, with 870.5 million shares on issue.

Source: West African Resources August 2019 Corporate Presentation

Despite the supply "overhang", shares of WFRSF look like they should still be able to perform well in any market environment, due to projected superior profit margins made possible by the exceptionally high-grade gold found at West African Resources' M1 South underground deposit (which is targeted to be processed during the first few years into the mine plan), this stock should hold up a lot better than many of its peer groups should the price of gold decide to drastically pull back from here (e.g., enter back into the $1,200-1,300/oz range).

The key risk at this time is mine construction (i.e., "on time and on budget" could change at a moment's notice), as Sanbrado is ~50% complete, so there's still ways to go before the project is fully completed.

For more information on West African Resources, please refer to my previous article.

Orezone Gold

Orezone Gold (OTCPK:ORZCF) is West African Resources' "next-door neighbor" and is currently working on advancing its Bomboré Gold Project into the construction phase of development.

Here are some key stats:

Current Share Price - C$0.70/share (ORE.V)

Average Gold Production (over life of mine) - 117,760 oz/year

Initial CAPEX - $153 million

All-In Sustaining Costs (over life of mine) - $730/oz

Life of Mine - 13.3 years

Location - Burkina Faso

Status - Working on Resettlement Action Plan (RAP) and obtaining initial CAPEX financing; first gold pour tentatively scheduled for Q2 2021.

Source: Orezone Gold July 2019 Corporate Presentation

A Sulphide Expansion Feasibility Study (SEFS) was recently published for the Bomboré Gold Project in June, and in terms of project economics, using a base-case scenario of $1,300/oz gold (along with an exchange rate of XOF:USD = 550; USD:EUR = 1.19; XOF:EUR = 655.957), which was estimated to be able to produce an after-tax NPV (5% discount rate) of $361 million and an after-tax IRR of 43.8%.

When plugging in a gold price of $1,500/oz, the after-tax NPV (5% discount rate) jumps up to $520 million and the after-tax IRR increases to 61.4%.

Source: Orezone Gold June 2019 Sulphide Expansion Feasibility Study

The current market cap of ORE.V is ~C$150 million (~$113 million).

Here is the current schedule for Bomboré, which shows that first gold pour is tentatively expected to happen sometime in Q2 2021.

Source: Orezone Gold July 2019 Corporate Presentation

With the SEFS out of the way, the main focus at the moment for Orezone Gold's management team is trying to lock down a financing package (e.g., debt, equity, royalty & streaming, etc.) for fully funded Bomboré, so that construction can commence in early 2020 (after the completion of RAP in Q4).

From CEO Patrick Downey:

“The Phase I RAP is progressing on schedule and towards completion by the end of 2019. The support of the local communities for Bomboré is integral to the successful development of the Project. The Company continues to invest in local livelihood restoration programs and community assistance projects with a focus on local hiring and training, education, business promotion and social and health aspects.”

During Phase 1 of the RAP, Orezone will resettle 377 households from several local traditional villages.

As it pertains to insider buys, speculators would be hard-pressed to find many other junior mining stocks out there who have a leadership team in place as eager to buy up shares on the open market (on a consistent basis) as the Orezone Gold team (Nighthawk Gold (OTCQX:MIMZF) would be another prime example).

Source: CEO.CA

Further, Orezone Gold is a company that has a strong track record of being able to raise capital on very good terms (i.e., no warrants). As a consequence, it has just ~213 million shares on issue, and even on a fully diluted basis, there are still only ~229 million shares.

Source: Orezone Gold July 2019 Corporate Presentation

The key risk at this time is the unknown/uncertainty associated with how ongoing discussions are going between Orezone Gold and prospective lenders/financiers/partners/etc. who are needed to help secure a financing package needed to fund initial CAPEX for Bomboré.

For more information on Orezone Gold, please refer to my previous article.

Cardinal Resources

Cardinal Resources (OTC:CRDNF) controls the large-scale Namdini Gold Project, and it is currently wrapping up metallurgical testwork, which is the last piece of work still needed to be completed in order for the company to finalize its DFS, which is due for release to market by the end Q3/early Q4.

Current Share Price - A$0.45/share (CDV.AX)

Average Gold Production (over life of mine) - 294,000 oz/year

Initial CAPEX - $414 million

All-In Sustaining Costs (over life of mine) - $769/oz

Life of Mine - 14 years

Location - Ghana

Status - Finalizing DFS in end Q3/early Q4; first gold pour tentatively scheduled for H2 2022.

Source: Cardinal Resources Namdini Project

In terms of project economics, the Pre-Feasibility Study (PFS) for the Namdini Gold Project outlined a base-case scenario of $1,250/oz gold, which is estimated to be able to produce an after-tax NPV (5% discount rate) of $586 million and an after-tax IRR of 38%.

Please note: A $1,500/oz gold price scenario was not provided in the PFS for the Namdini Gold Project, but due to the gold price breaking out to new highs not seen since 2013, this "higher price" scenario will likely be included in the upcoming DFS.

Still, when plugging in a gold price of $1,350/oz (the highest gold price scenario accounted for in the PFS), the after-tax NPV (5% discount rate) looks impressive at $758 million and the after-tax IRR is a robust 46%.

Source: Cardinal Resources August 2019 Corporate Presentation

The current market cap of CDV.AX is ~A$170 million (~$116 million).

Here is the current schedule for Namdini, which shows that first gold pour is tentatively expected to happen sometime in H2 2022.

Source: Cardinal Resources August 2019 Corporate Presentation

Perhaps, the biggest knock on Cardinal Resources is that the share count is quite bloated (for a company currently at the DFS stage of development), with 385 million shares on issue, plus an additional 109 million options on issue (with an exercise price of A$0.15/share set to expire on September 30), not to mention an extra ~34 million unlisted options on issue (with various expiry dates and exercise prices).

Source: Cardinal Resources August 2019 Corporate Presentation

Compared to the other gold developers mentioned in this article, Cardinal Resources' Namdini Gold Project presently has the largest reserve defined and highest projected production output of ~294,000 ounces/year, which should give shares of CRDNF very potent leverage to a rising gold price (and arguably, could make Namdini a prime target for takeover from a larger-cap gold producer).

The key risk at this time is if the results of the soon-to-be-released DFS for Namdini has any unexpected "bad" surprises - stay tuned. Also, the company still needs to receive environmental approvals/permitting (which are expected by year's end) for the Namdini Gold Project.

For more information on Cardinal Resources, please refer to my previous article.

Marathon Gold

Marathon Gold (OTCQX:MGDPF) is a mid-stage gold developer working on advancing its Valentine Lake Gold Project to production, but when compared to the aforementioned companies, it would rank as the "newbie" of the group, since the company is still working on its PFS, which should be complete by the end Q4/early Q1 2020.

Current Share Price - C$1.32/share (MOZ.TO)

Average Gold Production (over life of mine) - 225,100 oz/year

Initial CAPEX - $355 million

All-In Sustaining Costs (over life of mine) - $666/oz

Life of Mine - 12.2 years

Location - Newfoundland, Canada

Status - Working on PFS due in Q4/early Q1 2020; first gold pour tentatively scheduled for H1 2023.

Source: Marathon Gold

In terms of project economics, the updated Preliminary Economic Assessment (PEA) for the Valentine Lake Gold Project outlined a base-case scenario of $1,250/oz gold (along with an exchange rate of CAD:USD = 0.769), which is estimated to be able to produce an after-tax NPV (5% discount rate) of $493.2 million and an after-tax IRR of 30%.

Please note: A $1,500/oz gold price scenario was not provided in the updated PEA for the Valentine Lake Gold Project, but due to the gold price breaking out to new highs not seen since 2013, this "higher price" scenario will likely be included in the upcoming PFS.

Still, when plugging in a gold price of $1,350/oz (the highest gold price scenario accounted for in the PEA), the after-tax NPV (5% discount rate) looks promising at $615.6 million and the after-tax IRR is a solid 36%.

Source: Marathon Gold October 2018 Updated PEA

The current market cap of MOZ.TO is ~C$214 million (~$161 million).

Here is the current schedule for Valentine Lake, which shows that first gold pour is tentatively expected to happen sometime in H1 2023.

Source: Marathon Gold June 2019 Corporate Presentation

Marathon Gold has a relatively tight share structure in place with ~160 million shares outstanding, and on a fully diluted basis, there are ~171 million shares in total.

Source: Marathon Gold June 2019 Corporate Presentation

To date, Marathon Gold has been able to successfully delineate a total resource base of over 4 million ounces, and there's still likely more exploration potential that exists at Valentine Lake to uncover more ounces; Franco-Nevada (FNV) seems to believe so anyway, as it agreed to invest $18 million earlier this year to acquire a 2% NSR on the property.

The combination of large size (based on the PEA, Valentine Lake should already be capable of producing over 200,000 ounces/year) and safe jurisdiction (Newfoundland) helps to make Marathon Gold a standout developer play in the gold space.

The key risk at this time is that PEAs by nature are very crude studies, so a lot of things can change from now until the time the PFS is released (e.g., cost estimates could go up, project economics could look less promising, there are no guarantees that resource can be successfully converted to reserve, etc.). Further, because Marathon Gold is only at approximately the mid-stage of its development life cycle, the company will still need to go through the environmental/social/permitting process.

For more information on Marathon Gold, please refer to my previous article.

Honorable mentions: Sabina Gold and Silver (OTCQX:SGSVF), Liberty Gold (OTCPK:LGDTF).

Disclosure: I am/we are long VITFF, WFRSF, ORZCF, CRDNF, MGDPF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.