Resource Investor articleAbsolute Fire Sale on Gold-Silver Producer
By David J. DesLauriers
27 May 2007 at 09:48 PM GMT-04:00
TORONTO (ResourceInvestor.com) -- Starcore International Ventures [TSX-V:SAM] is one of the few companies profiled by your correspondent that has actually gone lower. In this case, the fundamentals remain just as good, making this an absolute bargain at 68 cents per share versus the C$1 per share mark at which we first alerted readers to the story.
The reason why Starcore has gone down is not a fundamental operating problem, it is a market problem. Starcore is a perfect example and reminder of the reality that listed companies need to have their business sorted out on two fronts - operationally and from a market standpoint.
Ultimatel, however, we believe that the immense value here will be reflected.
Reasons Why
There are four reasons why Starcore is languishing:
Very few people know the story. Those hired to promote and tell the story didn’t do their jobs properly.
The company has said essentially nothing since it completed its acquisition of the San Martin mine.
37 million shares have come free trading from the 50-cent private placement completed in January.
There is an overhang of warrants held by the people who arranged the debt package for Starcore. The street is aware of this overhang.
The good news is that we believe that these are short-term problems which are fixable. When that is done, the stock will move towards its fair value of around C$2 per share, in our opinion.
Path to Resolution
With reference to the points above:
We believe that the lack of visibility that Starcore has achieved is something that will simply change over time as the company releases news and keeps at it.
News will start to flow next month as the company should be announcing a move to the TSX, quarterly production numbers from the mine, updates on exploration and expansion of reserves, and with any luck, elucidating plans to grow production over the next 12 months to the 55,000-60,000 gold equivalent ounces level.
Now that the private placement shares are free trading institutions that like the leverage to gold and the cheap share price will be able to take critical mass positions, which are necessary to get them interested. As a few of the right institutions get involved and clean this thing up, the stock should start to lift.
We believe that management will find a way to negotiate something with the Investec people and clean this situation up. Hopefully sooner rather than later, but it will be done.
Fundamentally Undervalued - Value Investing 101, Back to Basics
As we’ve noted, the company is operating extremely well and things at the mine are going right according to plan. The issue here has been the handling of the market end of things - this has kept Starcore ridiculously undervalued for the past few months. Along with that has come a perception among some that SAM is a perpetual market dog. That is not the case and as the company clears up its paper, and a renewed enthusiasm emerges for precious metals stories Starcore ought to lead the pack because it is the cheapest of the lot.
This is a situation which will eventually right itself as new institutions lead the way out of SAM’s current morass.
As we stated in our last coverage in late January, at current gold prices, Starcore should cash flow in excess of 25 cents per share, which means that the company with proven and steady operating profitability 12 years running, and a mine-life well in excess of 10 years (and probably more like 20) is trading at under 3X cash flow at current prices! Absolutely ridiculous.
Conclusion
For a proper background on the whole story readers should refer back to the last article linked at the top of this piece.
Essentially it is our view that there is not a single gold-silver producer trading at levels this cheap across the entire universe of junior producers. Under 3X cash flow for a consistently profitable mine in a safe country with years and years ahead of it is unheard of - and will become unheard of again soon once the paper and promotion issues are dealt with and Starcore suddenly bursts higher.
In our view, this is one quality company to load up on and then just tuck away. When you wake up in 12 months it will be a very pleasant surprise. When all of the market issues are behind Starcore, shares should be changing hands at a price of at least C$2, and a lot more if the yellow metal decides to move in the meantime.