Undervalued stock I bought this company’s shares in Sep 2009 for $3.09, at the time of the take over of West Timmins gold. Since the SP increased so rapidly to $4.10 three months later, I sold it. I did the same again in 2010 from $2.62 to $3.12, but then decided to switch to Metanor, which I considered had a more attractive upside potential. Metanor, lurched from one problem to another, but has not fallen as much in percentage terms as LSG.
I revisited LSG, since I am a non professional trustee of a fund seeking a gold exposure. I resisted professional investor advice for any South American operations and suggested a look at LSG. However, the professional was in LSG at about $0.80 in another fund and exited at $1.00, due to “expensive financing”. However, the Sprott interest rates do not seem too high at circa 6%, whereas Metanor has recently raised working capital finance at over 10%, with conversion options.
A quick review of LSG’s numbers shows that:-
- Cash and gold bullion stocks are more than long term debt at September 2012. Therefore, with issued capital at over $1bn, the company is not over leveraged.
- The company has over 3.6m ounces of gold reserves.
- The Market cap is about 33% of the book value of assets.
At 2012 production, gold reserves give a 36 LOM and at the budgeted 150 once production this would give 24 years LOM. There seems to be a possibility that management sought reserve expansion at the cost of delaying production on existing reserves?
This looks to be a much undervalued prospect at todays and I will continue to monitor it, particularly as the high short position may have to cover quickly.