Updated Toroparu PEA Confirms GCM Is One Of The Most Undervalued Gold Miners

Summary

• Gran Colombia Gold changed its name to GCM Mining.
• The updated Toroparu PEA confirms the world-class potential of the project.
• Toroparu should reach an average annual production rate of 225,000 toz gold, at an AISC of $916/toz, over the 24-year mine life.
• At a gold price of $1,500/toz, the after-tax NPV(5%) equals $794 million.
• GCM Mining remains one of the most undervalued gold miners.

nopparit/iStock via Getty Images

GCM Mining (OTCQX:TPRFF) made another important news release. Only earlier this week, the company announced the change of name from Gran Colombia Gold to GCM Mining, which should better reflect that the company is not only about Colombia and not only about gold anymore. And yesterday, it released the results of an updated PEA for its shovel-ready and fully funded Toroparu project in Guyana.

The PEA was accompanied by an updated resource estimate. What is positive, the measured & indicated resources increased. On the other hand, the inferred resources decreased. When GCM acquired Toroparu, the project contained measured & indicated resources of 7.35 million toz gold, 6.28 million toz silver, and 444 million lb copper, and inferred resources of 3.15 million toz gold, 276,000 toz silver, and 104 million lb copper. However, according to the new resource estimate, there are measured & indicated resources of 8.44 million toz gold, 6 million toz silver, and 396.29 million lb copper, and inferred resources of 1.21 million toz gold, 177,000 toz silver, and 24.19 million lb copper.

So the overall volume of gold, silver, and copper contained in resources decreased. However, the metals didn't simply disappear. The difference is caused by different cut-off grades used by the two resource estimates. While the old one used a cut-off grade of 0.3 g/t gold, and it focused only on the open-pittable ore, the new one uses a cut-off grade of 0.4 g/t gold for open-pit and 1.8 g/t gold for the underground portion of the deposit. These changes helped to elevate the measured & indicated gold grades from 0.91 g/t to 1.42 g/t, and the inferred gold grades from 0.76 g/t to 2.74 g/t. Moreover, the deposit remains open at depth and along strike.

Source: GCM Mining

The updated PEA confirms that Toroparu should be a very profitable long-life asset. The mine should be developed in two stages. The first stage will have a throughput rate of 7,000 tpd. The second stage will have a throughput rate of 14,000 tpd, starting in year 6, and will include a copper concentrator which will enable the mine to generate valuable by-product credits. The expansion should cost $103 million and it is included in the sustaining CAPEX.

In the beginning, the mining activities will focus only on the open-pit material. Underground mining should start 10 years later. The mine should be able to produce 225,000 toz gold per year on average, over 24-year mine life. The AISC is estimated at $916/toz, and the initial CAPEX at $355 million. At a base-case metals prices of $1,500/toz gold, $20.22/toz silver, and $3.13/lb copper, the after-tax NPV(5%) equals $794 million, and the after-tax IRR equals 46%. These are very good numbers.

Source: GCM Mining

As can be seen, there are several notable changes in comparison to the old PEA. The old PEA envisioned AISC of $780/toz gold, which is approximately 15% below the new projection. On the other hand, the initial CAPEX was originally estimated at $378 million which is 6.5% higher than the updated estimate. Also the NPV and IRR improved. The new PEA presents an after-tax NPV(5%) of $794 million, which is favorable to the old projection of $495.2 million. However, the improvement is partially attributable to higher metals prices, as the old study used a gold price of $1,300/toz, silver price of $16/toz silver, and copper price of $3/lb.

According to Lombardo Paredes, CGM's CEO, the pre-construction activities have already started. The construction itself should start in 2022 and be completed in 2023. The first full year of production should be 2024, with expected production of 280,000 toz gold.

Conclusion

The updated PEA confirms the huge potential of the Toroparu project. And the upside potential of GCM's shares. The company has a market capitalization of $386 million right now. The net debt stands at -$17.9 million which leads to an enterprise value of approximately $370 million. But GCM holds also a 44% equity interest in Aris Gold (OTCQX:ALLXF), a 27% equity interest in Denarius Silver (OTCPK:DNRSF), and a 26% equity interest in Western Atlas Resources (OTC:PPZRF).

The current market value of the equity interests is approximately $93 million (not talking about the fact that Aris Gold alone is significantly undervalued). It means that the market attributes value of less than $280 million to GCM's Segovia mine that produces around 200,000 toz gold per year, and to the Toroparu project with an after-tax NPV(5%) of $794 million (or more than $1 billion at the current gold price). GCM remains one of the most undervalued gold producers.

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Analyst’s Disclosure: I/we have a beneficial long position in the shares of TPRFF either through stock ownership, options, or other derivatives. 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.

Comments

[Darp Research]

"Great Rotation" from Overvalued Growth To Value-Oil-Gold Feb28 2022 YTD Compare Chart
https://imgur.com/a/T9SMuv9

Karora +21%, XOP (Oil) +15%, Galane +13%, GDXJ +2%, SPY-9%, QQQ -14%, ARKK -34%

Just like it felt was going on before charted this. TPRFF is +9%

Cheers

[TopDoggie]

Finally starting to rise. I hope this is a trend in 2022.

[Darp Research]

@TopDoggie see my new comment

[Darp Research]

"The new 200 tpd polymetallic plant at Segovia, commissioned in the fourth quarter of 2021, continued to operate in test mode in January, processing an average of approximately 107 tpd of tailings resulting in the production of 81 tonnes of zinc concentrate and 85 tonnes of lead concentrate which have been stockpiled and are awaiting shipment later in the first quarter of 2022. Payable production from the concentrates is estimated to total approximately 63,000 pounds of zinc, 97,000 pounds of lead, 8,500 ounces of silver and less than 50 ounces of gold. "

That is significant and near a freebie. Funny thing is the gold is worth about the same as the zinc or lead, and the silver is the biggest value about $200,000 a month.

[Patrick Irish]

@Darp Research I was curious on how much that stuff helped. Everything seemed to be about $100K/mo with silver at $200K a month. Its another few million a year which is helpful but not going to move the needle.

[Darp Research]

@Patrick Irish I see it as a freebie, eliminating waste. It is not a lot of money for a big operation like GCM, but otherwise $400-500k is flushed down toilet each month.

That is how en.wikipedia.org/... operated, cut waste of gained an edge everywhere he could, and no one could compete with him.

[pro8]

GCM Mining Provides January 2022 Production Update; Declares Monthly Dividend to Be Paid on March 15, 2022

www.gcm-mining.com/...

\Very nice results for Jan22 ..

[Downtown10]

@pro8 All good.

[Darp Research]

5th top was the charm, gold has broken out huge, +$25 $1837, new 2 month high :-), opposite of what gold did Jan 2021.

[pro8]

GCM Mining Reports Fourth Quarter and Full Year 2021 Production; Meets Annual Guidance for Sixth Consecutive Year
January 19, 2022

www.gcm-mining.com/...

Excellent results and the poly mill is up and running

[Darp Research]

@pro8 If you read the details excellent news. Silver way up this Q, and related to poly plant.

[Darp Research]

static.seekingalpha.com/...

Colombia is rated a good place to mine, way ahead of South Africa. In fact ahead of Montana, Brazil, Ontario Canada and Mexico.

[pro8]

@Darp Research Great for mining , bad for those who invest in mining stks that have their main business there....

[Darp Research]

@pro8 the discount should be steady, except it can go away more likely than get worse.

Irrational discounts do not last forever about 3 years is max have ever seen.

Cheers

[Darp Research]

Something appears seriously wrong with GCM. It comes out with news that rationally would cause it to go up 10% and right now it is 10% up.

Kidding aside this is rare for GCM ;-)

[pro8]

GCM out with great drill results this mine will last for decades and its already been around for over a century...

www.gcm-mining.com/...

[Darp Research]

@pro8 The new veins the brownfield veins very exciting. Segovia is an unusual deposit. It is very narrow vein and very high grade and seemingly endless. That is way always has been. Why it has been in operation for 150 years.

Manzanillo: 41.22 g/t Au and 58.2 g/t Ag over 0.63 meters on the Manzanillo Vein (MAN-EU-001);
La Guarida: 62.34 g/t Au and 37.3 g/t Ag over 0.40 meters on the La Guarida Vein (CR-ES-014).

Wow.

[pro8]

GCM Mining Declares Monthly Dividend to Be Paid on January 17, 2022; Provides Updates on Production and Normal Course Issuer Bid for Its Common Shares
..
www.gcm-mining.com/...

GCM Mining also announced today that it produced 17,799 ounces of gold and 24,593 ounces of silver at Segovia in the month of November 2021 bringing the total for the first eleven months of the year to 188,359 ounces of gold and 210,817 ounces of silver, up from 178,923 ounces of gold and 165,832 ounces of silver at Segovia in the first eleven months of 2020.

GCM Mining provided an update today on its purchases of its common shares pursuant to its current NCIB which commenced in October 2021. During the period from December 6, 2021 through December 10, 2021, the Company purchased a total of 286,301 common shares at an average price of CA$5.20 per share with the total cost amounting to approximately CA$1.5 million. After the cancellation of these shares, the Company currently has a total of 98,241,274 common shares issued and outstanding.

These guys are firing on all cylinders

[Peter Arendas]

@pro8 Only the share price doesn't reflect it. But it cannot last forever.

[pro8]

@Peter Arendas And they pay you to wait... the market is not rational and never will be, the more investors understand that the better off they will be . When FOMO and MOMO rule the markets it is time to take heed which seems to be the case right now , unfortunately just as a rising tide raises all ships a falling tide will lower them.... of course GOLD price comes into play here but they are diversifying away nicely here and that should help ...

[Ido Peer]

1) * TERRIBLE * management in regards to minority shareholders.
2) A history of value desruction.
3) Shady uneconomic deals

4) Toroparu very risky
(FS was not completed by GoldX for a reason, given the deal with NEM):

- significant capex pushed to years 4-6,
- almost no significant cash flow in years 4-12 in comparison to later years (try to use 8% discount rate and you'll see a 35% cut in NPV)
- no costs per tonne in the press release... why? maybe because mining costs too low falling on a 6:1 strip ratio will crash th margin.

[Peter Arendas]

@Ido Peer
1. I don't think that paying quite high dividends and buying back shares is terrible in regards to minority shareholders
2. Yes, this was mentioned above, however, the company is more mature now, and it shouldn't be an issue going forward
3. I'm not sure what exactly do you mean
4. Every development project is risky, but I don't think that Toroparu is riskier than the others. Also Wheaton Precious Metals seems to like the project.

[Ido Peer]

@Peter Arendas
Leaving 1,2,3 aside just to avoid discussion overr the quality of management (I was a share holder for much more than i would like to admit):

4) Toroparu is much more risky than most projects:

- 6:1 strip ratio makes it extremely sensitive to mining costs.
- Staged approach that pushes significant amount of the cash flow from the later years is a big risk
- Let's check the OPEX in years 4-9 before stage 2 begins:
total OPEX: $769M
total tonnes processed (7k tod): 15.3M

Assuming 3:1 strip ratio in years 4-9 (based on GoldX previous PEA), we get to 60M tonnes of ore + waste which gives us $12.8/t OPEX + $2.3 freight and insurance + $6.9/t sustaining costs = $22/t costs

Revenue for those same years is $1.65B which is $27.5/t.

these are 6 years of pretty much no cash flow, and given the 6:1 strip ratio, a $0.5 in mining costs cut the operational cash flow significantly.

remember, strip ratio gets extremely high in the later years so the whole project is really for a very high gold price.

[Peter Arendas]

@Ido Peer But as you mention, these are years 4-9, which leaves enough time for the gold price to increase (which would expand the margins), or for GCM to further optimize the mine plan (they keep on drilling). Moreover, you should have enough time to sell the shares after Toroparu starts full production and before the potentially problematic years start.

[permanent]

Hi Peter,

thank you for the great article. I agree that about the undervaluation but that still is no indication for a change of that any time soon. It might and that is why I hold share but it could be far out in the future.
First time for a long time I am getting a little more positive on miners. It is that time of the year, the charts are not looking that bad anymore, sentiment is quite negative and so on. So it might be a good time to ad to existing positons.

On the flipside; I should have sold way more of my investments a few weeks ago and now buy back.
Painful examples for me are EGY and GLGDF.

Have a great weekend

[Peter Arendas]

@permanent I agree, it may take time. But the risk/reward is so favorable that I don't mind waiting for another year or two, adding more shares to my position along the way.

[shota_showtime]

So on the back of a napkin sum of the parts in US$:
Equity interest in other companies: 100M
Segovia: 500M (4 * EBITDA)
Toroparu: 800M
Total: 1,4B
MC/EV: 400M

Price target in C$ at about $17,75. (price now C$ 5,15)

Not bad :-)
Thank you!!

[RickMcKC]

Is the ticker also changing or will it still be TPRFF?

[pro8]

@RickMcKC TPRFF

[Peter Arendas]

@RickMcKC The ticker should remain the same.

[pro8]

Nice article ... I like a well laid out thesis when new data is put forward by a company . It reinforces the great investment narrative in my mind but with GCM that has been there for a while honestly . We may need to see the actual revs start being produced from Toroparu to see the market react but that may happen before hand if investors wise up. Last QTR these guys were still buying back shares and paying a nice monthly div easily with the CF they have now. Just think of what they could do when an already fully funded Toroparu more than doubles the gold output alone.... Would not be surprised that this is not taken private or bought by a bigger miner. Hopefully if mgmt is approached they will go with a larger public miner so shareholders can get the full benefit if that should happen .

[theendisnearlyhere]

The question is: Why has this stock been so undervalued for so long?

[Peter Arendas]

@theendisnearlyhere I believe that there are two main reasons:
1. Segovia has relatively small reserves. They keep on drilling and replenishing the extracted reserves every year, but the overall number remains low, sufficient for approximately 3 years of mining at the current production rate.
2. Colombia has a bad reputation and many potential investors are simply afraid of investing in a company fully dependent on this country. However, this is something that the management tries to eliminate by acquiring Toroparu and changing the name to GCM.

[Freedom Seeker]

#3. TPRFF has diluted the small investor to oblivion:

In June 2013 they imposed a 25 : 1 reverse split
Then again in May 2017 a 15 : 1 reverse split

If someone started with 10,000 shares, now they hold only 26.6 shares.

[Peter Arendas]

@Freedom Seeker Yes, it is possible that this plays a role too. But the company is in a completely different phase of its life cycle now. And it makes quite the opposite, reducing the share count.

[Downtown10]

Good stuff Peter. And while a shareholder waits for the market to assign a proper value to GCM, he gets paid a 3.6% dividend to wait. If there’s a more undervalued gold miner I’d love to hear about them.