Due Dilligence Analysis: Is ANX Undervalued? (part 1) The new RE that was just published make of Goldoro the second largest gold deposit in Atlantic Canada (for now as would say GoldNHill as we could be the LARGEST with 5M Oz soon). So, as a matter of fact, I was looking at the current largest Gold project in Atlantic Canada, the Valentine Gold project owned by Marathon Gold (MOZ) in Newfoundland, and asked myself “OK, how do we compare to it?”.
Currently, Valentine has a RE of has 3.665M gold with 2.65M M+I and 1.215M Inferred in several deposits:
Marathon:
- Resources: 1.92M M+I @1.65 g/t + 665.5K Inferred @1.96 g/t
- Royalties: 2% Net Smelter Return
Leprechaun:
- Resources: 643K M+I + 410K Inferred
- Royalties: 7.5% on Net Profit Interest + 2% Net Smelter Return
Others:
- Resources: 89.5K M+I + 139.5K Inferred
- Royalties: 7.5% on Net Profit Interest + 2% Net Smelter Return
MOZ is currently working on its Feasibility Study but released a PFS in April 2020 giving the following results:
- Mine Life: 12 years
- Initial Capital needed: $272M CAN
- Mill recovery rate: 93%
- Average Annual Production: 145k ounces
- AISC of $739 US an ounce
- After-tax IRR of 36% and NPV 5% of C$472M (US$354M) based on US$1,350/oz gold, increasing to 55% and C$769M (US$577M) at US$1,650/oz gold.
Not bad at all. Now, we cannot really compare 2 projects only with the resources they have and make a simple rule of three as there are several factors that could influence the maths here. But seeing a SP of $2.65 and a market cap of $554M for MOZ VS a SP of $0.80 and a market cap of $125M, I’m just not getting it why ANX is not valued much closer to MOZ with close to 80% of the resources? Just with the rule of three, we should be around $440 market cap and a SP of $2.75 since ANX has less shares outstanding right? Well, it looks like it’s not the case.
At least, this simple calculation demonstrates that the market does not value ANX as much as MOZ. It could be that Mr. Market overvalues MOZ or undervalues ANX or both reasons at the same time. In order to go a bit further, I decided to do some due diligence and do an analysis to come up with some answers to these question: How much Mr. market should re-rate ANX with the new RE published last week and how will the coming milestones (PEA, FS, Financing) will influence this re-rate short term?
To get some guesstimates, I decided first to go through MOZ last 4 years of activities and accomplishments to have a sense of what could happen to ANX.
In this first part, I outlined the milestone and their impact on the stock price. I did not use the market cap as it’s very difficult and time consuming to get historical data about it. I put the milestones and important events in context by providing macro information like the gold price information and market sentiment. This way, we have a complete picture of the context.
My conclusion for this analysis is that a bad gold trend and market sentiment have a big say in the way the market receive fantastic news. While doing this research, I found out that MOZ has released some very positive NR not benefiting to the SP because they were published in a bad macro context. Logically, the SP got terrific increases when an important milestone was reached during a gold up trend. Also, I noted that RE and PFS reports are bringing more fuel to the SP than PEA. The two biggest SP increases were obtained with the first big RE update confirming a multi-million project in 2017 (+67%) and the publishing of the PFS in a gold uptrend (+100%). We can also note that drilling results published in gold up trends are quite efficient too as it helped the SP increase by bounces between +31% and +50% depending of the macro context.
As for financing, it does not seem to bring that much fuel except when a big name is associated to it. For example, when Mr. Pierre Lassonde participated in a private placement last November and the SP gain +30% in the following weeks.
If you want details about the research, below are the results for this first part of my due diligence. I will publish the rest of my DD in the coming days. Next step, I will try to assess the quality of the Goldboro deposit compared to the Valentine Gold project and see if we can suggest a fair value of THE BEAST to Mr. market.
Research Details
In order to help in determining quickly the type of information, I used to following color code to categorize the type of information:
Macro Information
Company Milestone
% Of Impact On Stock Price : Decrease No Impact Increase
So, here is the timeline for the milestones and important events for MOZ in the last 4 years.
- January 2017: gold was around US $1200 and the first big RE update was published with 1.4M M+I + 766K Inferred representing 76% of resource increase: +67% increase in SP (from $0.60 to $1.00)
- May 2018: gold was in a down trend at US $1275 and a RE update was published adding 50% more gold with 2.14M ounces in M+I and 1.1 Inferred: No impact on the SP (SP was trading between $0.90 to $1)
- End of May 2018: first PEA showing pre-tax IRR of 44% (@5%), payback of 2.4 years and NPV of $619.2 M at US $1400 gold: no impact on the SP (around $1, gold was still in a down trend).
- Summer of 2018: Gold continues is downtrend reaching bottom of around US $1185 : -25% for the SP (around $0.75)
- End of October 2018: gold up to US $1220 and a PEA update showing improved pre-tax IRR of 54% (@5%), payback of 1.4 years and NPV of $745.8M at US $1350 gold: no impact on the SP (around $0.75,).
- Between November 2018 to February 2019, Gold increased to US $1335: +33% SP increase (around $1)
- February 19th 2019, MOZ sold a 2% NSR royalty to Franco-Nevada for $18M: no impact on the SP. (Gold was stable around US $1300)
- End of spring 2019 to middle-summer 2019: drilling results were published and POG went to US $1500: +50% increase in SP (around $1.50).
- End-summer 2019: consolidation and SP traded from $1.50 downto $1.30 for a -13% SP change.
- September 2019: Financing of $20M (closed at $25M on Sept 30) and drilling results allowed the SP to reach $1.70 level: +31%
- January 2020: Gold in an up trend toward US $1600 and RE update with 3.09M M+I and 0.96M Inferred: no impact on the SP.
- End of February 2020 until mid-March 2020: markets droped due to COVID-19 and a US $100 Gold drop to $1500: -50% (around $0.85)
- Spring 2020: gold bouncing to US $1700 and publishing of PFS results on April 6th: +100% (around 1.70$)
- Summer 2020: Gold going to over US $2000: +47% (around $2.50)
- Fall 2020: Gold declined to US $1800 level and SP consolidated between $2.20 and $2.50.
- November 25th 2020: Announcement of a participation of $7.5M from Pierre Lassonde in a in a $8.7M private financing: +14% SP increased (around $2.85).
- SP was fueled by Pierre Lassonde involvement and drill results in December 2020 and January 2021: +19% (around $3.30)
- February 2021: Gold down trend reached sub US $1700 level: -21% (around $2.60 currently)