The rest of the article 
Below is a 5 year, 10%, Discounted Cash Flow on just the recent agreement with MHS.
MHS Deal DCF (Author's Calculation )
Competitive Bidding on additional 50ha
The other 50 hectares that MHS originally wanted to contract are still uncontracted and likely to be competitively bid soon. At a minimum we know that MHS was willing to pay an additional $5.3m CAD ($3.9m USD) for the initial operating rights to these 50 hectares in addition to the 65%/35% split described above. The same value per hectare as the DCF valuation of the property already licensed would yield the numbers below based on the Conservative and Base models.
Additional 50 HA to be bid (Author's Calculation)
Sangihe
Baru’s Sangihe Contract of Works (CoW) with Indonesia covers 42,000 hectares on Sangihe Island in Indonesia. The agreement with MHS discussed here is within a small portion of that CoW. My last article “The Waiting is the Hardest Part” included an in-depth discussion and an NPV analysis that valued this project at between USD $38m (conservative scenario) and $286m (upside scenario) or 5x to 40x current market cap. Rather than rehash old ground I have provided the link for those interested in learning more about the project and the specifics of that analysis.
I will highlight some key steps to unlocking the fuller value that will require some upfront capital and thus why the agreement with MHS is key to the additional growth of Baru.
- Additional drilling to identify the highest risk/reward areas for mining
- Construction of a leach pad
- Construction of a Merrill-Crowe Plant
Miwah
The Miwah gold project was the key asset for Baru in the past and the reason the company was once valued at $600m. Here are some facts that give a sense of the project.
- 3,140,000 million oz Au Inferred Resource (NI 43-101, 2011).
- There has been over $60 m spent on development of the project, of which $20 m was for drilling data that is owned by Baru.
- Informal estimates of potential for 10,000,000 Au ounces for the total project.
- The project was suspended by the government due to a deforestation moratorium. The moratorium has since expired.
- In 2014, the company put the project in temporary suspension.
- Management has indicated that ultimately, they believe the government of Indonesia would like them to begin development again at some point.
- Management has met with representatives of the Aceh government to bring the project back online, and they received a positive response. Significant funding is required to bring this project back online.
Capital Structure:
| Shares Outstanding (October 2022) | 197,816,730 |
| Warrants Outstanding | 56,054,564 |
| Options Outstanding | 19,269,822 |
| Fully Diluted Shares Outstanding | 273,141,116 |
| Current Share Price 8/11/2023 (BARUF, USD) | $0.0337 |
| Market Capitalization (USD) | $11,073,288 |
*Author's table from publicly available data
Valuation
I’ll do a sum of the parts valuation here that builds upon past work done on Baru and incorporates the new information that we now have. For detail on the original Sangihe and Miwah analysis please see the link here.
Sum of the Parts Valuation (Author's calculations )
Here are tables that sum all of this up per fully diluted share for both the US OTC Listing (OTCQB:BARUF) and for the primary Canadian TSX listing BARU
US OTC (OTCQB:BARUF)
Per Share Sum of Parts USD (Author's calculation)
CAD TSX.V (BARU)
Per Share Sum of Parts CAD (Author's calculation)
Risks
Investment in Baru Gold Corp is not without risk. Here are some of the risks that could affect the valuation:
- If Baru is unable to make further progress on the Sangihe project the market value of Baru would very likely drop further.
- The additional hectares contemplated to be bid in this analysis may not occur or the price received could be below what has been estimated.
- The price of gold could fall below my "conservative case" which would negatively impact the valuation.
- Even though the cash flow should be significant relative to the market price there is no assurance at this point that any money spent will be able to fully unlock the value of Sangihe and/or Miwah as these carry operational risks.
- Lack of participation by larger individual or institutional investors could prevent Baru from trading at a higher valuation.
- Baru is a junior miner traded on the US OTC and Toronto Venture Exchange market and subject to significant volatility.
- The government of Indonesia could require Baru to pay a larger portion of its cash flow as taxes.
Conclusion:
I am a longtime shareholder of Baru and have been positive on the valuation. I have hoped for additional progress on the Sangihe project which is now materializing. Baru Gold Corp is a potential high return play with compelling economics. The market’s fear and impatience have provided a low-price entry point for existing and new investors. My sum of the parts analysis highlights the strong potential here and the new deal with MHS and expected cash flow is a key step in unlocking the full value of Baru. I recommend that risk-tolerant and patient investors add Baru Gold Corp to their portfolio. I welcome your feedback and questions.
Analyst's Disclosure: I/we have a beneficial long position in the shares of BARUF either through stock ownership, options, or other derivatives.
Disclosure: I am/we are long BARUF. I wrote this article myself, and it expresses my own opinions. I received compensation from Jemini Capital Market advisors for this article. Additional disclosure: Please do your own research before making any investment decision. Opinion expressed is that of the author only. This article covers a microcap stock which may carry significant risk.