Gold closed at $1,606.70 last week, its highest price in nearly a month, after the Cyprus bailout crisis reignited concerns about the stability of the Eurozone and sent investors scrambling for a financial safe haven.
Traditionally viewed as a hedge against inflation and a safe haven in times of economic turmoil, gold is up over 80 percent since the end of 2008. One way for investors to play the bull run in gold is Pan American Goldfields (OTCQB: MXOM), a Canadian junior mining company.
MXOM is generating cash flow from pilot production at its Cieneguita mine in Mexico's Sierra Madre, which hosts a majority of Mexico's gold and silver deposits. A recent mineral resource estimate shows measured and indicated resources of 1.26 million ounces au eq. and a further 700,000 au eq. inferred. The Company is currently mining within an inferred area and recovering more than twice the average grade. The mine has a higher-grade core, which is expected to accelerate the payback and improve the internal rate of return, which is expected to be at least over 30% to possibly more than 40%."
The Cieneguita mine is currently operating under an agreement with partner Minera Rio Tinto, with production averaging over 500 tons per day. Engineering firm M3 is conducting a Preliminary Economic Assessment for a much larger operation, with a scoping study expected to be completed in April 2013. M3 is including measured, indicated and inferred resources in designing the size of the mill, which is expected to be 15,000 to 17,000 tons per day, equating to an annual production level of about 150,000 ounces au. eq. Should the Company reach this production level, MXOM could earn a net cash flow of nearly $134 million annually (based on $1,600 gold and $30 silver and a $600 per ounce eq. cash cost).
On an enterprise value to resource basis, the stock currently trades at a steep discount to its peer group average. RedChip initiated coverage of MXOM with a target price of $1.02, an upside of nearly 400% from recent prices. It's important to note that this price target was issued at a time when the Company was only forecasting a 100,000 ounces au. eq. operation. With production underway and the PEA results just around the corner, now is a great time for investors to build a position in MXOM.
Those who want to learn more about MXOM can participate in the Company's live webinar and conference call on Tuesday, March 26, 2013 at 1:15 p.m. Pacific time (4:15 p.m. ET). Management will be available to discuss its latest metallurgical testing and mineral resource results, and to answer questions from investors. Instructions on how to access the call are available here.
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