New update at www.goldsilverdata.comAllied Nevada is one of my favorite stocks. They are currently a mid-tier producer, with production at 200,000 oz. However, they plan to increase that significantly in 2015. They have incredible resources at their flagship Hycroft property in Nevada (25 million oz of gold and 900 million oz of silver), although low recovery rates of 70% for both gold and silver. If you value it as a gold mine and use the silver as an offset, it is a very low cost gold mine, with cash costs projected to be around $200 per oz.
The 2015 expansion is underway and they will spend $400 million in 2013 on construction. That leaves them with about $800 million in capex spending to complete the expansion. They have not yet decided if they are going to spend all of it, or use a phased approach. We will find out very soon if they plan to begin the expansion with a smaller mill and only produce 350,000 oz of gold and 15 to 20 million oz of silver.
If they use a phased approach, they will likely begin construction of phase 2 in 2016, to expand production to 550,000 oz of gold and 25 million oz of silver. Once they reach full production at Hycroft, cash flow could reach $1.5 billion a year at higher gold prices. They can use this to develop two advanced projects: Harbrouck and Wildcat, which have 2.5 million oz of gold. Plus, they have more than 20 early exploration projects. All of their properties are in Nevada.
With a FD market cap of only $350 million, this stock could easily be a 10 bagger. And with their production potential, I'm hoping for much more. The Hycroft mine is going to be incredibly profitable and could be the engine to build this into a very large company. My only concern is that a Major will see the value and make a hostile takeover offer.
Note: There is one significant red flag and that is their debt. At $1300 gold, their cash flow for 2014 will barely be enough to cover interest and debt expenses. If gold prices fall, they could be faced with serious debt issues. It is not inconceivable that they could face bankruptcy in the near term. The real issue here is if gold prices drop, investors could continue selling the stock because of debt concerns. And if that happens, it could be a reinforcing loop of downward prices to $1 or less. This risk is real.