Best risk/reward gold stocks.
All have large resources.
All are highly undervalued.
|Stock Name||Symbol (US)||Stage||Share Price (US)||FD Shares||FD Mkt Cap 1/1/18|
|Paramount Gold Nev.||PZG||Development||$1.30||20M||$26M|
|Pure Gold Mining||LRTNF||Development||$0.44||227M||$101M|
|Rye Path Gold||RPMGF||Producer||$0.22||484M||$110M|
|Spanish Mtn Gold||SPAZF||Development||$0.11||266M||$28M|
Above are my Top 20 gold mining stocks for 2018. All of these companies have large resources and are highly undervalued based on their cash flow potential at higher gold prices. They are on this list primarily because of their upside potential. These are either producers or development stocks, although there is one optionality play (Goldmining Inc).
Below is my analysis from the GoldStockData website for each stock on the list. Some of these analyses are not recent; the date of each analysis is included.
Most of the stocks on this list have high risk and are dependent on higher gold prices. If you are a believer in higher gold prices, then many of these stocks provide excellent leverage to higher gold prices.
Note: The link to each company's chart is their symbol in the list above. The link to the company's website is the company name in the analysis below.
Amarillo Gold (10/11/2017)
Amarillo Gold has an excellent project in Brazil. The Mara Rosa project (1.3 million oz at 1.6 gpt) is economic (30% after-tax IRR at $1300 gold) with cash costs of only $550 per oz. They are working on the final feasibility study, which will be released in 2018. They have $8 million in debt, which is due in 2019.
Mara Rosa is on 150,000 acres and has significant exploration potential to expand production in the future. They own the project 100% and the infrastructure is excellent. The capex is forecasted to be $184 million for 120,000 oz of production for 8 to 10 years. The Lavras do Sul property is an early exploration project on 50,000 acres with several drilling targets. They have already found 500,000 oz (.8 gpt). Lavras do Sul is only owned 51 percent, but there is likely a mine to be found.
With a FD market cap of $20 million, Amarillo is incredibly cheap. They already have their Brazilian Preliminary License, which is the hardest one to obtain. The last two licenses (construction and mining) should not be a problem. Investors don't think they can finance it, but I think they can once it is permitted with a feasibility study. My guess is construction will begin in 2018 or 2019.
Almaden Minerals (6/7/2017)
Almaden Minerals has decided to build their flagship project in Mexico (Ixtaca). They spun out their 40 exploration properties to their stockholders in a new company (Almadex Minerals). Ixtaca has a PFS (pre-feasibility study) to produce an average of 8 million oz of silver equivalent (including gold) for 12 years. The silver equivalent (including gold) all-in cost per oz will be around $15 per oz.
The project is economic with a 40% aftertax IRR at $18 silver and is very likely to get built. They have $18 million in cash to fund the feasibility study, which is due to be completed in 2018. Their production target is 2019. They have 118 million fully diluted shares and should not have to dilute their shares significantly until they finance construction. With their upside potential and path to production, this is an ideal risk/reward stock at their current valuation.
They have enough resources (2 million oz of gold and 100 million oz of silver) to produce more. Plus, there is exploration potential to increase their resource totals. This is a company with excellent exploration experience. Thus, their production totals are likely to increase.
They seem to be focused on becoming a producer. However, they have sold two other large projects in the past and have a conservative approach. If they get an offer for Ixtaca, my guess is that they will take it. And because they have low insider ownership, any hostile offer will probably be approved by shareholders. Hopefully, that won't happen and they will take Ixtaca to production.
I'm surprised this project hasn't been taken out yet by a larger company. Once they complete the feasibility study and permitting, I would expect someone to make an offer. Whatever company gets this project is going to add a lot of value for their shareholders. Hopefully, it will be a company with an FD market cap under $1 billion.
Asanko Gold (12/30/2017)
Asanko Gold (formerly Keegan Resources) is a new mid-tier producer in West Africa (Ghana). They have two flagship projects and are heading towards 400,000 oz of production in 2021. Their 1.7 million oz Nkran open pit project is producing 220,000 oz at around $800 per oz cash costs. Free cash flow is around $20 million annually at $1300 gold. Their second mine (Esaave) has 3.7 million oz (1.2 gpt), with cash costs around $700 per oz.
They recently completed a feasibility study for Essave, with a $350 million capex. It is permitted. They plan to finance the expansion by issuing stock and using free cash flow. They made an announcement that they plan to raise $300 million from issuing stock. That will dilute share substantially, more than 100% of current shares at 220 million shares.
I would expect Esaave to be producing in 2020. They currently have $60 million in cash and $150 million in debt. The capex is a bit high and one of the reasons investors have dumped the stock. There were also two companies that shorted the stock and released information for why they shorted. These articles hurt the stock. Their main argument was that their current producing open pit was close to caving in and would bankrupt the company. The share price has crashed value from a $559 million FD market cap to $155 million today. The stock price is down 82% if the past year.
They own 90% and the Ghana government owns 10%. If you don't mind investing in Ghana (currently a stable democracy with several large mining operations, such as Newmont and Kinross), this stock has significant upside potential. The key will be higher gold prices and cleaning up their balance sheet. The red flags are the location (although Ghana isn't a bad place to mine), Ghana’s high taxes (35%, plus 5% royalty), their debt, and looming dilution. I would consider it a high-risk speculation stock until they clean up their balance sheet and resolve their potential cave-in issue. However, I am making it a top pick because of the potential for higher gold prices. This company will be extremely valuable at $1400 gold. If you want a leveraged stock to gold, this is one.
Falco Resources (9/2/2017)
Falco Resources has a large gold project in Quebec on 175,000 acres. The Horne mine is a 5 million oz deposit at 2.6 gpt, with significant amounts of silver (25 million oz), copper (260 million lbs) and zinc (1.2 billion lbs) for offsets. The gold equivalent is 8.8 million oz. Revenue is projected at 67% gold, 15% zinc, 10% copper, and 8% silver. Cash costs are projected to be under $500 per oz because of offsets. Cash costs could be even lower with higher silver prices.
The capex is larger than I would like at $680 million. That will be difficult to finance. Also, the after-tax IRR is only 18% at $1300 gold because of the high capex. They plan to produce 230,000 oz of gold annually, but that is a bit misleading because of the large offsets. Revenue could be a lot higher than just the gold production. I would like to see what the gold equivalent production is going to be, along with the gold equivalent cash costs. The feasibility study is due in Q3 2017. They are cashed up with $35 million to complete the feasibility study and permitting.
Production at Horne stopped in 1976, but it still has significant infrastructure and should be easy to permit. The CEO is a proven mine builder and operator. What I like about this stock is their potential to find another mine on their 175,000 acres in a gold district. It's usually the second mine where you make your big returns.
There are a few red flags: takeover target, financing needed to build mine, potential share dilution to finance the mine, and the timeline until production. I would expect production around 2021. Permitting will be the key, which is projected to complete in 2019. A delay in permitting will delay production. Management appears to be solid, delivering both an updated 43-101 and a PEA relatively quickly in 2016.
Goldmining Inc. (10/10/2017)
Goldmining Inc. (previously Brazil Resources) stated strategy is to acquire advanced stage projects. They have done an incredible job achieving that strategy. In 2012, they acquired the Cachoeira project. After their initial drilling, the resource size increased from 750,000 oz to 1.3 million oz (1.2 gpt). Since then they have not attempted to move it to production, or advance any of their other projects towards production.
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 underway. They have $16 million in cash and no debt.
In 2015, they acquired the Whistler project in Alaska from Kiska Metals. It is a 5 million oz deposit (.5 gpt), with copper offsets.
In 2016, they acquired the Titiribi project in Colombia from Nova Copper. It is an 8 million oz deposit (.5 gpt), with copper offsets.
In 2017, they acquired the Yellowknife project in Canada (Northwest Territories) for 4 million shares from Tyhee Gold. It is a 2.2 million oz (2 gpt) resource on 35,000 acres with significant exploration potential. The feasibility study calls for producing 100,000 oz for 15 years. It is not economic to finance at current gold prices, with a 20% pretax IRR at $1400 gold. That's around a 10% IRR post-tax at $1300 gold.
In 2017, they acquired the La Mina project (1.5 million oz) from Bellhaven Gold & Copper for $10 million by issuing shares. They gave Bellhaven shareholders 6% ownership of Goldmining Inc. They only paid a 20% premium, which was a fantastic deal for Goldmining Inc.
In 2017, they acquired the Crucero project in 2017 for 3.5 million shares and $750,000. The price they paid was a steal. It is an advanced 2 million oz (1 gpt) deposit. It's on 4,600 acres in Peru.
They also 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 FD market cap has exploded from $36 million to $194 million, but it is still very cheap versus their resources.
I think this is a company with potential to become a very large company, once they decide to become development company. They have 800,000 acres of exploration targets and an aggressive management team. I get the feeling that they are not for sale (insiders own 25%) and want to grow this company. My concern is that they appear to be more about deal-making than mine building. I'm starting to think it is ironic that they renamed their company to Goldmining Inc. I'm not sure they want to be a mining company. However, worst case I think they will be a 5 bagger from their large projects and potentially more on the way. Once gold prices rise, they are going to have several large advanced economic projects.
Note: 9/16/2017. The jurisdiction for their Titiribi project in Colombia is considering banning all mining. If it passes, not only will Goldmining Inc's share price take a hit, but all development/exploration stocks in Colombia will get downward pressure. Each jurisdiction in Colombia can decide if they want mining.
Goldquest Mining (6/7/2017)
Goldquest Mining has an advanced gold project in the Dominican Republic. The Romero project is 2 million oz at 2.5 gpt with a 28% after-tax IRR at $1300 gold. It looks solid, with a capex of only $158 million. Cash costs are projected to be $400 per oz with copper, zinc, and silver offsets. But without the offsets it is still economic. Their FD market cap is $91 million with 10 bagger potential at higher gold prices and exploration success. They have $19 million in cash to complete permitting and the feasibility study, plus do more drilling.
They released a solid drill hole in May 2012 of 231 meters at 2.4 gpt. That single drill hole pushed the stock from 7 cents to $1. Then they released a monster hole of 258 meters at 4.5 gpt in July 2012. The stock doubled to $2. However, after that it crashed 90% to 8 cents. Today it is at 31 cents, although there has been significant share dilution since 2012. FD shares are now 293 million and they will likely dilute to build the mine.
They have 75,000 acres in the Dominican, including a 30 mile trend with five discoveries to drill. With their exploration potential, they should find more gold. I consider this an excellent speculation stock. If they make it to production in 2019 without damaging their cash flow potential with financing, they could be a growth stock. They are currently working on a feasibility study, which is due in Q4 2017. The only red flag is they could get taken out by a larger company, although they probably have enough insiders to prevent one.
Hummingbird Resources (11/5/2017)
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 6.4 million oz at 2 gpt and another 150 targets on 1 million acres. The Yanfolila project (2.2 million oz at 2.5 gpt) in Mali is a near-term producer (Q1 2018) at 100,000 oz, with cash costs of only $650 per oz. The $80 million capex is funded ($70 million equity financing) and it has a 50% after-tax IRR. They will use this project as leverage to finance Dubge in Liberia.
They have a smart management team and know that cash is king in the mining business, keeping their cash balance high. They have $50 million in the bank and construction at Yanfolila is 86% completed. Plus, they will have significant cash flow in 2018 to advance Dugbe, their next mine.
The Dugbe project (4.2 million oz at 1.5 gpt) is also economic (29% IRR at $1300 gold) and heading toward production of 125,000 oz in 2020. The capex is $212 million, but should be easy to finance. 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.
It's no longer cheap, with a FD market cap of $180 million. However, it could still be a 10 bagger if they build both mines and gold prices rise. I could 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: large resources, low to moderate costs, economic projects, a pipeline for growth, strong management, a path to production, likelihood of financing, and a decent ore grade. It's not in a great location (West Africa), but Liberia and western Mali aren't too bad.
K92 Mining (9/2/2017)
K92 Mining is an emerging mid-tier gold producer in Papua New Guinea. They purchased a past producing mine (2006 to 2009) from Barrick Gold for $2 million, plus $60 million in future payments. The Kainantu mine has about 1.5 million oz at 7 gpt, with extensive exploration potential and an additional 1.3 million oz of historical resources. Once they reach 1 million oz of production, or M&I resources, they have to pay Barrick $20 million (they currently have 250,000 oz M&I). Then they have to pay another $40 million as resources increase in size ($5 million increments for every 250,000 oz). I spoke with them and this will not likely get triggered for at least 7 years. Plus, the agreement expires after 10 years.
They began production in Q4 2016 at Irumafimpa. The CEO said he expects their cash costs to be about $600 per oz, with all-in costs (free cash flow) around $1000 per oz. They raised about $20 million to resume production. About half is debt, about 1/3 is a gold loan for 20,000 oz (paid over the first 36 months of the mine life), and the rest in equity financing.
They planned to reach full commercial production of 50,000 annual production in September 2017. However, this has been delayed 30-60 days due to vandalism. This caused their share price to drop.
In addition to their Irumafimpa mine and mill, which has about a 7-year mine life, they have a second deposit. Kora is already 1 million oz at 7 gpt. They plan to add Kora production of about 100,000 annually to their Irmafimpa mill in 2018. That will take production to 150,000 oz. Plus, they recently found a step out discovery at Kora that is 500 meters away. If that vein connects to Kora, then they just found a lot of gold to expand the mine life.
Kainantu is a large property (100,000 acres) with a lot of exploration potential. The CEO thinks they could find 8 million oz. If they find half that much, this stock should do really well. They have a solid team and with just a little bit of luck they will be able to grow. The risk/reward looks very good.
They have a strong board and will likely be successful. The key is going to be exploration and production growth, as well as higher gold prices. Plus, they need to hit their guidance targets for costs and production.
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