2 Undervalued Junior Gold ProducersBy: Taylor Dart- Seeking Alpha -
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Teranga Gold
“Teranga Gold is a stock I have never held before, but started a position yesterday at $1.04. The company operates the Sabodala gold mine in Senegal, which has a total global gold resource of 7 million ounces at 1.15 grams per tonne gold. The company is a 200,000 ounce producer currently at all-in sustaining cash costs of under $1,000 / oz. The best part of the investment thesis for me is their well timed acquisition of Gryphon Minerals. The company basically stole Gryphon Minerals as it acquired a company that could see 200,000 ounces of annual production by 2019. Gryphon Minerals adds the Banfora project in southwest Burkina Faso to Teranga's arsenal, which could transform Teranga into a 400,000 ounce producer.”
“Teranga's Q2 results were very strong, and have met the company's guidance. The company produced over 52,000 ounces for the quarter, at all-in sustaining cash costs of $968 / oz. Teranga earned $6 million for the quarter of $0.02 per share, which translates into annual earnings of $0.08 per share. I expect the company may surpass the $0.02 per share mark in Q3, as they should be selling at a gold price of nearly 7% higher. The company now has a cash balance of $70 million dollars, which gives it a very strong treasury to begin to advance Banfora into production. Based on the company's 392 million shares outstanding, it has a market capitalization of $400 million dollars. With annual earnings of $24-30 million dollars, this represents a great value proposition.
I have started a position in Teranga Gold at $1.04 per share, and my stop on the trade is a close below the $0.89 cent level. The stock is currently sitting on support from its June gap up, and I expect it to hold its 200-day moving average at $0.90 cents. The entry to exit represents a risk of $0.15 cents, or roughly 14% on the position. Due to the slightly higher position risk, I have used 7% of my portfolio to enter Teranga Gold, which represents a total portfolio risk of 0.98% on my portfolio.”
“I believe Teranga Gold and Guyana Goldfields to be excellent opportunities to buy blood in the gold sector. I expect them to outperform the GDX, and believe they offer much better value than the Gold Miners Index. While the average all-in sustaining cash costs for the top 10 holdings in the GDX is over $975 / oz, the average all-in sustaining cash costs for these two companies is under $850 / oz. This means that if gold continues to further pull back these two companies should see less of a hit to their bottom line. Despite my strong thesis on these two companies, I will maintain my stop levels even if they become more "valuable" as they drop. I never fight the dominant trend and only hold stocks when they remain above my stop levels. I would be surprised if these stocks broke their stop levels, but I am prepared for that portfolio risk as it represents a 2% total portfolio risk if both are losers.”
https://seekingalpha.com/article/4012250-2-undervalued-junior-gold-producers?page=2