RE:Drilling ResultsAnd this from Paridigm
200%. It has paused in the first month of 2023, down 8% YTD versus +4% for its explorer peers. We are asked, is RGD now expensive? We think not. Yes, with a market cap of $314M there is clearly a lot of anticipation of further good results. Based on our 4Moz estimate, this works out to ~$90/oz, once mill recovery is considered, well above our Takeover Twenty average developer at $62/oz. Once quality (i.e., AISC and capex) is considered, however, our analysis suggests that RGD’s current market cap is attractive (i.e., it is not overpriced). Nor does this static calculation allow for RGD’s exploration upside, a quality lacking in most developers.
o On a Level Playing Field, RGD Looks Great: Market cap per ounce is an imprecise measure because not all ounces are created equal. We use a measure called the Investor Total Cost (ITC) as a helpful first-pass analysis tool. The ITC adds together the Market Cap/oz plus Construction capex/oz plus the AISC. The ITC is essentially the total pre-tax cost to the investor per ounce of estimated mine-recoverable resource. It levels the playing field by considering quality. In Figure 4 we show how Reunion stacks up to our Takeover Twenty group of development-stage companies. If we were to make RGD’s ITC the same as the average of our Takeover Twenty developers, we would attach a market cap of $114/oz to RGD, making its current $90/oz look attractive. If we used the Takeover Twenty median it would be $164/oz. Either way, RGD is not expensive and has nice upside, even if Oko West does not exceed our 4Moz estimate — however, we bet it will. Interestingly, S&P Global estimated that it cost the 20 largest gold companies $132/oz to discover new greenfield projects over a 10-year period (2010–2019). Few of those discoveries would match Oko West.
A Race Against the Clock? | A few dynamics suggest that RGD only has 2023 to do as much drilling in as it can. First, there is an obvious scarcity of high-quality discoveries in today’s gold world. Second, as we point out above, it costs the major producers a lot to find them on their own. Hostile takeovers are rare today. Several major gold companies have signed confidentiality agreements (CA) with Reunion to access as much additional information as possible before they decide a course of action. A CA typically binds them for two years from making a bid without approval by the board. In our opinion, Reunion will be in a race against the clock to see how much of the potential it can outline before the early CA signer’s handcuffs come off late this year and in 2024.