Summary
- Integra Gold just announced a $10 million bought deal private placement.
- The net proceeds raised from the sale will be used for surface and underground exploration at the company's Lamaque Gold Project and for general corporate purposes.
- Integra remains an attractive junior gold stock that is well on its way towards profitable production.
Integra Gold (OTCQX:ICGQF); TSX:ICG.V
ICG data by YCharts
Recent Stock Price: $.25 (U.S. exchange)
Shares Outstanding: 245.48 million
Market Cap: $60.49 million
Enterprise Value: $55.38 million
52-Week Range: $.13-.32
Integra Gold is well on its way towards advancing its high-grade Lamaque gold project to initial production by 2017. The project is located in the highly prospective Val-d'Or (known as the "Valley of Gold"), in Quebec, Canada. Recent positive developments improve the company's chances of success, in my view.
As I previously covered here on Seeking Alpha, the company recently announced a significantly expanded resource estimate at its Lamaque property, with indicated resources expanding 40% to 1.057 million ounces of gold (7.1 g/t), and inferred resources up 13% to 330,990 ounces (8.4 g/t). This is exceptional, given the fact that just two years ago, the deposit contained just 730,000 ounces of gold, or nearly half the current estimate. The resource growth has been impressive, as you can see in the graphic below.
(click to enlarge)
(Credit: Integra Gold Corporate Presentation)
But ultimately, I feel this deposit could contain 2+ million ounces of gold once Integra completes its aggressive drilling campaign this year (50,000 metres of drilling in 120 holes is planned in 2015, according to the company in the press release), and since the new resource will include the previously completed 26,200 metres of drilling.
There are numerous unexplored targets, and the company's two highest priority targets to resource expansion are the Parallel and Triangle zone, which remains open for expansion to the south and the west. Exploration success at these targets could lead to even better economics, so this is something to keep an eye on in 2015.
Private Placement is Positive News
The company is well funded: Integra just announced it has entered into an agreement with Macquarie Capital Markets Canada Ltd. and Paradigm Capital Inc., and on behalf of a syndicate of underwriters, the underwriters will purchase 15,151,515 flow-through common shares and 17,857,143 common shares of Integra Gold at a price per share of C$.33 per flow-through share and C$.28 per common share, for total proceeds of C$10 million.
This is great news for a few reasons. First, the private placement was done at a fair price (the flow-through shares are at a 15% premium to the current share price, while the common shares are at a small discount), and it gives Integra the necessary capital to explore and advance Lamaque to initial production.
Next, it further shows that Integra has had zero trouble raising capital through equity in this tough gold environment, so it gives investors more confidence that the company will successfully finance Lamaque through production.
With this latest capital raise, Integra Gold should have around C$15 million in cash (C$6.95 million as of the last quarter, minus this past quarter's regular expenses, plus the C$10 million raise), compared to zero debt.
Positive Mine Economics
So why has Integra been able to raise money so consistently? I think it's because Lamaque contains excellent economics - even at $1,175 gold, the preliminary economic assessment projects a pre-tax net present value of C$184.3 million, a 77% pre-tax internal rate of return, cash costs per gold ounce of C$551, and a payback period of 1.3 years. On an after-tax basis, the projects net present value is C$113.5 million, the internal rate of return is 59%, and the payback period is 1.6 years.
Average annual production is estimated at 109,900 ounces, with a mine life of 4.5 years and pre-production capital requirements of C$61.9 million. All-in sustaining costs are estimated to come in under C$700 per ounce, according to the study, which is outstanding, given the mine's expected output and profitability.
(click to enlarge)
(Credit: Integra Gold Corporate Presentation)
But once the company completes its 50,000 metre drilling campaign this year and includes the already completed 26,200 metres of drilling in the resource estimate, I'm confident the economics will be even better, with higher production levels and a potentially longer mine life beyond the sixth year.
The Stock is Cheap
Given the current resource base, results of the preliminary economic assessment, the exploration potential and the company's financial position, I think the stock is cheap here.
Currently, on the Canadian exchange, Integra carries a market cap of C$74.46 million. With roughly C$15 million in cash and no debt, the company has an enterprise value of approximately C$59.5 million. But as previously mentioned, Lamaque carries a net present value of C$184.3 million on a pre-tax basis (at C$1,175 gold), and a net present value of C$113.5 million on an after-tax basis (at C$1,175 gold).
The project also compares very favorably to the company's peers, with less initial capital, a higher internal rate of return, and assuming a lower gold price. For example, Roxgold (OTC:ROGFF) requires close to double the initial capital of Integra, but carries a lower pre-tax return of return and assumes a $1,300 gold price, according to Integra's corporate presentation. Dalradian (OTCPK:DRLDF) carries a lower rate of return than both Integra and Roxgold, but requires close to 5 times the initial capital that Integra requires, the presentation says.
(click to enlarge)
(Credit: Integra Corporate Presentation)
Meanwhile, once in production, Integra's projects $483 per ounce cash costs, which is second only to Roxgold and lower than five other similar junior explorers, according to the presentation, which took its data from each company's filings.
With C$15 million in cash, no debt, a 1+ million ounce (and growing) high-grade gold resource base located in one of the best mining jurisdictions in the world, strong institutional investor support, solid project economics, and an undervaluation compared to its peers, I think Integra Gold is a solid junior mining stock pick. I intend to add more shares in the coming months.
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