"Beat the Market" on GCMBy Christopher Skidmore "Beat the Market" issued Aug 21.
Gran Columbia Gold
GCM-TO
.77
Shares Out… 389M
Market Cap… $300 million
Initiating coverage @
.77
52 week high... $2.49
52 week low...
.73
Gran Columbia has everything in place to be the next big producer and may be the South American version of Goldcorp one day. Gran Columbia is a leading gold producer in Columbia producing 120,000 oz’s by the end of 2011 from some of the deepest, richest mines in Columbia. GCM has the largest growth profile of any producer going from 120,000 ounces of gold in Q3 to 630,000 ounces per year by 2016. GCM has been in production since 2010 and a stage in start up operations where they are smoothing out efficiencies and maximizing initial start up operations. GCM isn’t receiving any value for its operations at Sergovia even though production costs will be around $600 which is below industry average of $700.
Kirkland Lake Gold KGI-T has a $1.25B market cap and is set to produce 130,000 ounces in 2012 at a cost of $750. This certainly seems like a price mismatch to me… KGI producing 130k ounces for $750/oz trading at $1.25B while GCM will produce $165k ounces by the end of 2012 at close to $600/oz trading at $300M. WOW.
I know some of you… or at least your wives will equate to this type of sale.
Ladies and gentlemen... GCM is trading at a 75% discount!
This is equivalent to HP blowing out their tablets for $100 this weekend. They were gone at Costco at open. (If you didn’t line up you didn’t get one.)
Most companies that produce 600,000 oz’s per year trade from a $5B - $10B market cap while tiny little GCM trades at a paltry $300M market cap so the growth profile for GCM is at least 20 to 3 times its current market cap holding arguably some of the best projects in Columbia which is has been and will continue to be the land of opporuntity for gold companies. GCM’s long term future is in the million ounce range with there underground operations having half a million ounce potential over the long run.
Columbia… the hottest ticket in Gold Development
Columbia is arguably the hottest ticket in gold exploration and development over the last few years with several major discoveries. My other big Columbia pick is Galway GWY-V at
.90 who is an imminent takeout of Ike Batista, but they are a developer ... which not this months theme that I am trying to hammer home. The next stage for Columbia from discovery and development is to produce from these deposits and GCM is on the inside track in the lead at the quarter post. GCM is already producing, is at the stage where they are realizing operational efficiencies, is the leading Columbian gold producer and has a growth profile unlike any other miner in Columbia, or any where else in the world for that fact. With 2 major projects, one undergound high grade and one open pit bulk tonange low grade project, GCM has both ends of the spectrum covered when it comes to large scale lucrative mining projects.
Sergovia
The Segovia operations have a global resource base of close to 700,000 ounces in all categories grading between 13 and 15 g/t au. This is plenty to support current operations especially since the property has plenty of potential to grow the resource. The property has received little exploration since the mine was placed in receivership in 1989. Historically the area has produced more than 5M oz’s of gold in the last 150 years with an average grade of 9.3 g/t gold. The land package covers a vast area with potential to ramp up operations and expand beyond the current targets. Current mining only covers 4 of 29 known veins that have a total strike extent of over 50km on the property. The property is fully permitted, is close to excellent infrastructure and has access to power and water.
GCM is planning a 50,000 meter drill program to upgrade and expand the resource at Sergovia. GCM is increasing the mill capacity from 600tpd to 1200 tpd which will get GCM to over 100,000 oz’s per year and is considering adding a second mill to the site for longer term development plans which would put the site well over 200,000 oz’s per year.
Gran Columbia has another small operation at El Zancudo which is near their flagship development property Marmato. El Zancudo project has commenced trial mining with year end production estimated at 25,000’s andcosts at around $600 per oz. GCM is drilling 12,000 meters at this site looking for large near surface disseminated gold systems.
Marmato
Marmato is Gran Columbia’s flagship asset for long term growth. It is expected to produce close to 500,000 oz’s a year once in full production. Marmato is a classic bulk tonnage open pit operation with an 18 year mine and still room to grow. It is a mammoth gold deposit containing 10M ounces of gold at just under 1 g/t gold and an additional 60M ounces of silver at a grade between 5 and 8 g/t ag. Cash costs are project at less than $500 per oz which will make GCM one of the lower cost producers in the industry similar to Kinross once all their projects are in production. With Marmato in production and Sergovia at full steam… Gran Columbia has a chance at being a million ounce gold producer in Columbia with attractive costs when compared to the industry.
GCM has the biggest growth profile of any miner
The growth profile of Gran Columbia is almost identical to a company I used to trade options of 6 years ago ELD-TO. Eldorado Gold went from being a 100,000 ounce producer to the 650 – 700 k ounces they currently produce and will be producing a cool million ounces by 2015. That took 10 years to go from 100,000 oz’s to a million ounces and GCM in my opinion has a chance to do it faster because it is all organic growth in a nation whose goldfields sat idle for 30 years. ELD’s cash costs are some of the lowest in the industry at around $400 per ounce which makes GCM very comparable once in full production.
Bottomline… I have never seen more of a ‘no brainer’ buy in the industry than Gran Columbia Gold. It is truly undervalued when compared to its peers trading at 25% the price of KGI and has a growth profile that goes from 100,000 ounces to 600,000 plus in 5 years. There is no other gold company that I have reviewed over the past year that fits my newsletter theme any better than GCM-TO.
It’s both stupidly cheap and has the highest growth rate of any producer I can find.