A list of reasons to own Luna Gold (LGC)A list of reasons to own Luna Gold (LGC)
I have tried to compile a list of reasons why I am extremely bullish on Luna Gold.
I would like to hear your comments and possible extra points that I might be missing.
1) Production in Q1 2009 of 50,000 ounces annually. A typical valuation for gold
producers is 3000 per annual ounce, which would value us at $150 million. We will
have some dilution to fund the mine, but that should not be more than 20 million shares, leaving us with at most 75 million FD shares. So this alone justifies a share price of
2-3 dollars.
2) They will expand the production quite fast, so a few years later we might be at several hundred thousands ounces per year, putting us closer to $10 at this gold price.
3) Gold is relatively safe metal. Zinc, say, might have a bad year next year, but gold should be safe, I believe. I am bullish on all metals, but I feel more confident about gold in this uncertain economic environment.
4) Gold could go to the moon. But that is just an added upside.
5) We are actually drilling. Many juniors are just staking, preparing, and looking for a driller. We are past that stage.
6) The first assays have come out of the current drill program at Aurizona, but the majority are still pending. This will give us news every 3 weeks or so, and since the first assays were so great, we kind of "know" that the next assays will show high mineralization. So we are not caught in some indefinite waiting game, and the odds are heavily favoured towards good results in the next few NRs.
7) 8 of the the first 9 drill holes hit gold, which is a great success rate. Such a hit rate is only obtainable in a highly mineralized area.
8) The intercepts were long, e.g., 101m, 105m, 47m,43m. Lots of drilling programs might hit 2g/t of gold, but only for 1 or 2 meters. Our long intercepts really confirm the massive mineralization in this area.
9) There is a historical gold resource of 850,000 ounce or so at Aurizona. It is always easier to find new gold near old gold, so to speak. This historical resource is enough to justify the mine plan of 50,000 ounces annually.
10) Brazil is a mining friendly country. We don't have the uncertainty of Venezuela or Ecuador. Actually, I like Ecuador, but if the market doesn't, then the valuations of Ecuadorian companies will be lower.
11) The new property, Cachoeira, has fantastic historical drilling results as well. Examples include 80 m of 2.34 g/t, 110 m of 1.45 g/t, 49 m of 3.11 g/t, 1 m of 136 g/t, 4 m of 31 g/t. The drilling here shall be interesting.
12) Luna gold won the competitive tender for Cachoeira, which is a rubber stamp of management. Good management is crucial to secure long term success.
13) Luna is the first company to consolidate Cachoeira. One question, an investor always should ask, is why a previous owner gave up a property if it is so good. One reason seems to be that the property was never owned by one company and that CVRD chose to exit the gold business for other reasons. But of course, the question is still partly open in my mind, and there might be some problems that I don't see.
14) The geology is fantastic. The properties are in a geological setting with large mineral deposits throughout South America.
15) South America broke off from Africa due to plate tectonic movements. If I am not mistaken, the part of Brazil where Luna Gold is operating is geologically close to Ghana, which is an extremely hot country for minerals. So, in a sense, we get the opportunity of the vast African mineral wealth without taking the risks of buying into Ghana or Congo directly.
16) Lawrence Roulston and Jay Taylor has recommended LGC. That is also a rubber stamp, since they would, presumably, not recommend a company with bad management and inferior projects. Lawrence just gave LGC a rating of 1, which is the highest rating he gives. Someone on this board even mentioned that he had said that LGC was his top gold pick. Newsletter writers can be wrong, but their recommendations exclude the worst mistakes and scams.
17) Given all these drill results, it is hard to see that the total resource should be below 4 million ounces eventually. Producers are valued at ore than $100 per ounce in the ground, which gives us tremendous upside. The total resource might be much higher.
18) The possibility exists for a really massive resource, i.e., more than 10 million ounces. The deposits are open in all directions.
I have chosen not to include the Nevada properties, since they were not a reason for me to buy. I am not aware of any other company in such a nice situation with a low valuation. PEZ is similar, but they are not close to production.
Cheers to all Luna Gold shareholders.