Due Dilligence Analysis: Is ANX Undervalued? (part 2)Here is the second, and last, part of my due diligence using a comparison with MOZ Valentine Gold Project. In the (
first part), I tried to understand the market reactions, and the impact on the share price, when MOZ reached important milestones. This study will allow some speculation about how ANX SP could be impacted starting with the Resource Estimate update published last week until the Feasibility study planned for Q4 this year.
Comparing the deposits I do not want to go in technical details here, as I’m no expert in geology and mining engineering, but I will try to come up with a baseline for comparing MOZ’s Valentine Project and Goldboro. Also, the full new NI-43-101 Resources Estimate report for Goldboro is not published yet so I’m only using the information available in the news release published on February 22
nd. Moreover, MOZ’s Valentine project is more documented than Goldboro with a PFS study where ANX last PEA must be thrown in the garbage with this new open-pit approach. In my opinion, this situation is perfect to do some DD base on MOZ profile as they share some comparable elements:
- Both projects are in Atlantic Canada, a top-tier jurisdiction for miners
- Both projects are high-grade gold with open-pitable surface resources and underground
- Both projects are multi-million ounces with Goldboro (2.74M) currently at 75% of MOZ (3.67)
Using the current resource estimate for both projects, I must give the advantage to MOZ and its Valentine project for its higher number of gold discovered.
Confidence and Knowledge Of The Deposits As said earlier, the main difference is the fact that Valentine project is more advanced than Goldboro. MOZ drilled a cumulative total of 287km on Valentine projects, mainly on the Marathon and Leprechaun deposits while Goldboro has been drilled a cumulative of 113km. Since MOZ has drilled 2.5 times , it de-risks a lot the Valentine project. However, it also means that chances to make new discoveries on these drilled properties are close to null.
So I give a de-risking advantage to MOZ.
Deposits' Characteristics In here, I validated points with an “Unknown Geologist” and I even used some of his quotes regarding the characteristics of the deposits. Thanks GoldNHill and please feel free to add any comments or details that you find appropriate to complete this DD. MOZ Marathon Deposits Marathon deposit has
1.79M M+I @1.583 g/t open-pit and
132.7K M+I @4.153 g/t underground. Leprechaun has
1.04M M+I @1.956 g/t open-pit and
34.4K M+I @3.616 g/t underground. By consolidating the grades, it gives
1.85 g/t for both open-pit and underground resources. Underground resources are mostly available in small stacked veinlets with size from 2 to 30 cms that are shallowly dipping. This geology makes it costly and difficult to extract gold in these veinlets by underground methods.
ANX Goldboro Deposit Grades are 1.089M
M+I @2.86 g/t open pit, 66% higher than Valentine grade and
856.2K @6.41 g/t underground, 59% higher than Valentine. Goldboro has a consolidated grade of
3.78 g/t, which is two times the consolidated grade of Valentine. The PEA will detail the costs but my guess is that ANX will have a lot less ore to move than MOZ to get the same output, meaning a smaller mill, thus lower capital costs and AISC. Also, underground gold is found in narrow to meters thick veins that dip steeply on the limbs around 70+ degrees which makes them much more easier and safer to work with and with the higher grade, they are much more economic. Since a lot of belts are still available down plunge, the underground resources is something that could provide a pretty good potential to add a lot of ounces to the reserve.
I give an advantage to MOZ for its open-pitable resources and
ANX has an advantage for its underground and much higher grade gold.
Exploration upside Marathon and Leprechaun are the two biggest deposits of Valentine. There is not much exploration upside for them as MOZ drilled them a lot and their characterization is well known. The Sprite corridor, with the Sprite zone being the main deposit, is located between the Leprechaun and Marathon pits. This corridor has some targets identified for exploration and the current focus is the New Berry zone. Also, the Victory deposit, located on the other side of the Marathon pit, can also add some exploration upside. Last resource estimates for both Sprite and Victory deposits were giving a combined resource of
89.6K oz M+I and
139.5K oz inferred.
For Goldboro, the East Goldbrook, Boston Richardson and West Goldbrook areas are tightly connected. The deposit is open at depth and along strike and geological and geophysical studies indicate the structure hosting gold mineralization may continue both east and west of the current resource, as well as down plunge. Dolliver Mountain may offer some surprises as well. And finally, as stated earlier, since Goldboro has only 113km of drilling compared to 287 on Valentine, it means that there is a nice exploration upside as more drilling usually means more gold.
Since ANX has not yet found the deepest belt in Goldboro,
I must give the exploration upside to ANX.
Comparing The Companies Equity Structure MOZ:
- Shares Outstanding (November, 2020): 211.5 million
- Options (average price $1.20): 12.6 million
- Warrants: (average price $1.77): 18.9 million
ANX:
- Shares Outstanding: 160.2 million
- Options (average price $0.30): 5.9 million
- Warrants: (average price $0.28): 5.6 million
MOZ has 31.5M of warrants and options (representing 14.2% of the O/S) averaging $1.50 waiting to be exercised will cause a lot of pressure on the SP in the near future IMO. Also, a 2% NSR pertains to Franco-Nevada for all the gold that will be produced at Valentine plus a 7.5% on Net Profit Interest on the Leprechaun gold produced. For ANX, it’s 11.5M warrants and options (representing 7.2% of the O/S) averaging 29 cents, a lot less than MOZ.
The equity structure is better for ANX in my opinion.
Company Ownership MOZ:
- Institutions,Funds and Insiders: about 40%
- Retail: about 60%
ANX:
- Institutions: 17%
- Mgt & Board: 3%
- Retail: 80%
MOZ has a better participation from institutions and funds, helping in sustaining a higher market cap. ANX is starting to open some eyes on this side and I’m expecting a catch up. This will cause a nice support for the share price for ANX which will start moving up in my opinion. Nevertheless,
I give MOZ the advantage for ownership distribution.
Catalysts MOZ is supposed to release its Feasibility Study (FS) before the end of March. Drill results will be published also but I do not think they are considered as catalyst unless they hit a major discovery. ANX, is also publishing a FS this year for Goldboro, about 9 months after MOZ, not too far behind. Prior to the FS, the PEA will be published in Q2 this year. Add to this drill results from Newfoundland properties. A lot of catalysts to expect for ANX. If Gold is bouncing back in March after the healthy consolidation period we got during the last for the last 8 months and people are starting to understand the potential of THE BEAST (Goldboro) then I can foresee a big run up happening base on the research I have done in part 1.
ANX has more catalysts that will bring more upside impacts in my opinion.
Other Differences MOZ is a pure exploration play burning money right now and will need to go on the market to get financing to keep going. They have about $45M in treasury which should be enough until the mine get its financing. ANX on the other side is already producing gold in Newfoundland and is making free cash flow each quarter. In 2020, they generated $14M is cash flow from the Point-Rousse operations and 2021 should be around those numbers, and even a bit better, if the POG stays in the 1700$-1800$ range. This cash flow allows for financing exploration and studies for developing ANX properties. Having a mill in production is also de-risking a lot the operations of the company as the mill has been optimized and the workforce is already on place and experimented. Also, we did not yet take into consideration the other properties located in Newfoundland for ANX. The exploration upside in Newfoundland could be a game changer for the company. The fully permitted tailing facility is another asset worth mentioning.
ANX is generating cash flow with an operating mine in Newfoundland and this give it an advantage over MOZ.
Back Of The Napkin Speculations For this DD, I tried to list all the major differences between Valentine and Goldboro projects but also between MOZ and ANX as companies. This was necessary to answer the questions I had at the beginning of the analysis: 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?
If we assign some arbritray values to the listed differences, I am of the opinion that we could give about the same value to both companies in 2 years from now. Currently, MOZ is a bit over-valued IMO with a market cap of $550M. If we compare MOZ with Victoria Gold which has about the same resources size but just started commercial production at $1700-1800 gold, they are valued at $700M. They are having some issues reaching their guidance of 200K oz per year right now and are fine tuning their operations, but it shows nevertheless that MOZ is far from producing gold and having 78% value of a middle-tier producer is too much. Another element proving my point is the fact that Insiders sold for 3M shares during the last year for MOZ.
So, should we consider a market cap of $550M for ANX before the year end? Well, if Mr. Market thinks it worth it, I will not complain but this is certainly not a “fair-value” as far as I’m concerned unless gold reaches more than US $2500.
So what should be a fair value for MOZ? Well, I think that in the current context, $400M would be fair (but it’s just a number I’m comfortable with with the time I passed doing this DD). So, I think that if gold stays in the US $1700-$1800 range and ANX has an outstanding PEA, nice results from Newfoudland properties and institutions participating in its story, we could see $400M with the FS at the end of the year. For sure, if POG goes stellar and people are coming back to the gold junior sector, than I cannot tell where the market cap will be as it’s tough to predict Mr. Market comportment when he goes in a frenzy. But what I will know is that I will be so happy to have accumulated my position under a buck and seeing my portfolio going to the roof!
So Mr. Market, here is what you should expect paying for an ANX share if management continues its excellent work and the story gets promoted properly at current gold price:
- New resource estimate when you will have digest the numbers: $1.00 per share
- Publishing of the PEA in Q2: $1.50 per share
- Publishing of the FS in Q4: $2.25 per share
For sure, macro factors like gold price, drill results, unexpected events like a deaadly third COVID-19 wave or Point-Rousse lock down or any other risks can greatly impact these predictions up or down.
Note that I did this due diligence for my own personal use and you must not take it as an investment advice. Please do you own due diligence and feel free to comment!
GLTA