Categories: General Market Commentary / Precious Metals
Topics: General Market Commentary / General Precious Metals

10 Gold Mining Development Projects

Summary

  • Large development projects with a long mine life.
  • Low valuations for their gold/silver in the ground.
  • Excellent cash flow potential at higher gold/silver prices.
  • Exceptional takeover targets.

It seems like M&A season has begun in 2019 due to the uptrend in gold prices. Since September we have seen merger announcements for Barkerville Gold Mines (OTCPK:BGMZF), Detour Gold (OTCPK:DRGDF), Continental Gold (OTCQX:CGOOF), and Centamin Plc (OTCPK:CELTF). All of them had one thing in common, quality properties and long life mines. You could also say they had low valuations, if you took into consideration higher gold prices. It seems like the favorable acquisition targets are companies that have large resources with excellent potential future cash flow.

Most of these were acquired for a 29% premium, which seems to be the going rate today. The irony with these low premiums is that most gold investors are after large returns. A 29% return is hardly what gets a gold mine investor excited. Oddly, shareholders always seem to approve these deal. I usually cringe when one of my share holdings is acquired. I just hope I also own the company doing the acquiring, or that the companies are of somewhat comparable value.

It’s not a terrible strategy to own stocks with high takeover qualities. You might not get your expected large return, but you could get a quick 30% gain. Plus, if gold prices rise, it’s possible that the premiums will begin to rise. The worst case is usually a 30% premium, but it’s possible the premium could be much higher.

Another thing to take into consideration is that projects that have bad management teams and bad share structures will suddenly increase in value. Also, large low-grade projects could become highly valuable if gold/silver prices rise. You might own a dog that has large resources that is worth more than is currently given credit by the market.

10 Takeover Candidates

Almaden Minerals

Falco Resources

First Mining Gold

Granada Gold

Integra Resources

Midas Gold

Paramount Gold Nevada

Sandspring Resources

Spanish Mountain Gold

Treasury Metals

Stock Name Symbol (US) Type Category Share Price (US) FD Shares FD Mkt Cap (12/4/2019)
Almaden Minerals AAU Gold Development $0.53 132M $70M

Almaden Minerals has a development project in Mexico. It’s a 2 million oz. gold and 100 million oz. silver project. They have a feasibility study to produce 80,000 oz. of gold and 5 million oz. of silver annually. The afer-tax IRR is about 30% at $1,300 gold. The capex is $174 million. All that is left to de-risk the project is permitting. They are projecting production in 2021. They have a $70 million market cap with potential future free cash flow of about $300 million at $2,500 gold. The only red flag is some local resistance to the project.

Stock Name Symbol (US) Type Category Share Price (US) FD Shares FD Mkt Cap (12/4/2019)
Falco Resources OTCPK:FPRGF Gold Development $0.16 228M $36M

Falco Resources has a development project in Quebec. It’s a 5 million oz. gold project. They have a feasibility study to produce 220,000 oz. of gold annually. It has low cash costs around $500 per oz., and pretty good grade (1.4 gpt) for a large open pit project. The after-tax IRR is 15% at $1,300 gold. The capex is $800 million. All that is left is permitting (due in 2020) and financing. They are projecting production in 2022. They have a $36 million market cap with potential future free cash flow of about $200 million at $2,500 gold. The red flags are the low grade, high capex, and marginal economics.

Stock Name Symbol (US) Type Category Share Price (US) FD Shares FD Mkt Cap (12/7/2019)
First Mining Gold OTCQX:FFMGF Gold Development $0.17 647M $110M

First Mining Gold has several development projects in Canada. They are focusing on building their first mine in Ontario. It’s a 4.5 million oz. (1.3 gpt) gold project. They have a pre-feasibility study to produce 400,000 oz. of gold annually. It has low cash costs around $650 per oz., and pretty good grade (1.3 gpt) for a large open pit project. The after-tax IRR is 22% at $1,300 gold. The capex is $800 million. All that is left is permitting (due in 2022), final feasibility, and financing. They are projecting production in 2025. They have a $110 million market cap with potential future free cash flow of about $320 million at $2,500 gold. The red flags are the long lead-time until production, potential permitting issues, high capex, and marginal economics. Note that this is only their first mine and have several more in their pipeline.

Stock Name Symbol (US) Type Category Share Price (US) FD Shares FD Mkt Cap (12/7/2019)
Granada Gold OTCPK:GBBFF Gold Development $0.07 95M $7M

Granada Gold has a development project in Quebec. It’s a 2.3 million oz. (1.2 gpt) gold project. They have a pre-feasibility study to produce 100,000 oz. of gold annually. It has a high capex of around $250 million and a low after-tax IRR of 10% at $1,450 gold. Normally you would never consider a project with such terrible economics, but they could build a smaller starter pit with a grade of 1 gpt. Plus, it is a large property with a lot of drill targets. This could easily be a 3 million oz. project. And, the CEO has said he is not selling. He is motivated to get a large return and understands that their gold in the ground is worth a lot more than $3 per oz. They have a $7 million market cap with potential future free cash flow of about $60 million at $2,500 gold. The red flags are the low grade, high capex, and poor economics.

Stock Name Symbol (US) Type Category Share Price (US) FD Shares FD Mkt Cap (12/7/2019)
Integra Resources OTCQX:IRRZF Gold Development $0.89 104M $93M

Integra Resources has a development project in Idaho. It’s a 3.8 million oz. (gold equivalent including silver at .4 gpt) gold project. They have a PEA to produce 120,000 oz. of gold annually. It has a capex of $161 million and a low after-tax IRR of 30% at $1,300 gold. Cash costs are projected to be $700 per oz., so the low grade is not impacting economics. A feasibility study is due in 2021, so production won’t begin until 2022 or 2023. They have a $93 million market cap with potential future free cash flow of about $97 million at $2,500 gold. The red flags are the low insider ownership to hold of a low premium acquisition once it is de-risked, and the long lead-time until production.

Stock Name Symbol (US) Type Category Share Price (US) FD Shares FD Mkt Cap (12/7/2019)
Midas Gold OTCQX:MDRPF Gold Development $0.46 394M $182M

Midas Gold has a development project in Idaho. It’s a 6.4 million oz. (1.6 gpt) gold project. They have a pre-feasibility study to produce 400,000 oz. the first 8 years (production could drop after that, but perhaps not). It has a capex of $970 million and a low after-tax IRR of 17% at $1,300 gold. Cash costs are projected to be around $600 per oz., so it is highly leveraged to higher gold prices. They still need a feasibility study and permits, so production won’t begin until 2023 or 2024. They have a $182 million market cap with potential future free cash flow of about $315 million at $2,500 gold. The red flags are the weak economics, share dilution to finish permitting and the feasibility study, and a long lead-time until production.

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