Signal Gold Inc T.SGNL

Due Dilligence Analysis: Is ANX Undervalued? (part 3)

[DoumDiDoum]

You remember in end of February when I posted an analysis where I compared MOZ to ANX to see if we were undervalued? 
Here is the conclusion I published at that time:
 

DoumDiDoum wrote:
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

Here were the conditions when I published it:

• The SP was at 80 cents
• Gold was in a down trend trading at $1730 and reached $1685 in beginning of March
• 6M+ 28 cents “in the money” warrants and about 3M options in the same price range were set to expire during summer (September for the majority) and October 2021.  At todays date, there are still around 2M options under 30 cents which include 425k options at 24 cents expiring in December.

 
Comparing ANX with MOZ clearly demonstrated that ANX “was” undervalued at 80 cents based on the DD with target at 1.50$ per share as of today.  We reached my first target of $1.00 in the end of June,(and Winedoc got his party on Cemetery Hill all by himself) but the second target was never reached … why is it so?  I mean, Gold consolidated during that period around $1770 with a double bottoms at 1670$ showing a nice support zone and the warrants/options expired, meaning that the share structure is now “clean” of any cheap papers.  The conditions just got better, agree?
 
Well, Mr. Market is always right as they say… and I was “wise enough” to include a “risk” notice in my conclusion at that time that could impact the targets I had set for the SP:
 

DoumDiDoum wrote:
For sure, macro factors like gold price, drill results, unexpected events like a third COVID-19 wave or Point-Rousse lock down or any other risks can greatly impact these predictions.

 
Let’s through this list to see if we can find the cause for the SP drop to sub-sixties instead of going up to $1.50.

• Gold price: consolidated around $1770 which is $100 higher
• Drill results: nothing that could justify the drop
• Unexpected events: we got a third COVID wave and are now in the 4th COVID wave but I think we learned to deal with it
• Point-Rousse lock down or any other risks: Argyle development missed the mine plan and we lost 2 quarters moving dirt and building a new plan.

 
So I guess that Argyle was one “the risk” that was not identified when setting my targets.  But does it justify the fact that we are currently in the mid-sixties?  I do not think so.  In order to find out the reason why we are still in the sub-sixties level, let go through the events of both MOZ and ANX since I published my DD in end of February and see if the price drop is justified.
 
 
Events since march 2021
 
MOZ:

• Shares Outstanding : Addition of 33M shares to 244M (an increase of 15.6%)
• Market Cap increased to $730M (an increase of 32%)
• Resources improved by 1.115M Oz to 4.78M Oz (a 30% increase)
• Important News Flow And Catalysts:
  • March 11th: Good drill results for Berry Zone (Gold was in a down trend around 1700$) SP jumped from 2.32$ to 2.56$
     
  • March 18th and 19th: sell off of 17M shares. Anonymous and Morgan Stanley sold 68% of the shares meaning that part of the 30M options and warrants from 1.20$ to 1.77$ were financed through that sell off. SP down from 2.53$ to 2.34$ (Gold was in a down trend in the 1730$ area)
     
  • March 29th: FS showing lowest IRR compare to PFS at 1500$ Gold: from 45% down to 31.5%. SP back to the 2.50$ area (Gold in a sell off to 1680$).
     
  • April 6th : Drill Results From Berry.  SP stayed in the 2.50$ area.
     
  • April 21st : New Ressource Estimate for Valentine Gold Project. Berry zone drill results helped in boosting the RE by 1.115M Oz to 4.78M Oz (a 30% increase) mainly in the inferred category. SP in the 2.60$ area and Gold around 1775$.
     
  • April 26th : Marathon Gold Reports Exceptional Berry Drill Results.  SP in the 2.50$ area and Gold around 1775$.
     
  • May 5th: Marathon Gold and Qalipu Mi'kmaq First Nation Band Sign Socio-Economic Agreement.  SP around 2.75$ and Gold around 1830$.
     
  • May 13th: Marathon Gold Announces C$50 Million Private Placement (which Pierre Lassonde participated for $5M);
    AND
  • May 14th: Marathon Gold and Miawpukek First Nation Sign Memorandum of Understanding;AND
  • May 18th: Marathon Gold Reports Latest Berry Drill Results.SP jumped to 3$.  Gold was climbing up to $1890.
  
  
  • June 9th: Pierre Lasonde and MOZ presenting on Virtual Investor Day IV.  SP Jumped to 3.50$ in the following days.  Gold was in the $1885 area.
     
  • Mid June to end of June: Gold lost 110$ and went down to $1775 area.  SP set back to $3.25.
     
  • July 20th: Marathon Gold Enters into Indicative Term Sheet for US$185 Million Senior Secured Project Financing Facility for the Valentine Gold Project;AND
  • July 22nd: Marathon Gold Reports Latest Berry Drill Results and Provides Update on Exploration.SP around 3$ and Gold around 1800$.
  
  
  • Aug 24th: Marathon Gold Reports Latest Berry Drill Results.  SP around 2.90$.  Gold around 1800$.
     
  • September 7th: Marathon Gold Provides Valentine Gold Project Development Update.  SP jumped to 3.50$.  Gold around 1800$.
     
  • September 28th: Marathon Gold Reports Latest Berry Infill Drill Results. SP around 3$. Gold down to 1730$.
     
  • October 18^th: Marathon Gold Investing in Newfoundland & Labrador.  Communication explaining the benefits of developing the Valentine mine for the province. SP around 3$. Gold around 1775$.

 ANX:

• Shares Outstanding : Addition of 33M shares to 174,4M (an increase of 9%)
• Market Cap decreased to about $120M (a decrease of 7%)
• Important News Flows And Catalysts:
  • March 3rd: ANX Initiates Further Infill Drilling at Goldboro Following Resource Update, Targeting Growth in M&I Resources.  SP around 77 cents and Gold in a down trend around 1700$.
     
  • March 11th: ANX Commences 4,000 Metre Drill Program to Extend Point Rousse Life of Mine.  SP around 77 cents and Gold around 1700$.
     
  • March 25th: Interview On BTV.  SP around 77 cents and Gold around 1730$.
     
  • April 6th: ANX Continues to Expand Stog'er Tight, Intersecting 3.62 g/t over 20.0 metres and 3.86 g/t Gold over 7.0 metres. SP around 77 cents and Gold around 1745$.
     
  • April 20th: ANX Continues to Successfully Infill at Stog'er Tight, Intersecting 8.46 G/T Gold Over 5.0 Metres and 7.91 G/T Gold Over 6.0 Metres. SP around 67 cents (the drop might be related to the upcoming bad Q1 results) and Gold in a up trend around 1780$.
     
  • April 22nd: ANX Reports Q1 2021 Production Results and Provides Operations Update.  Bad 1st quarter report. SP around 65 cents and Gold around 1780$.
     
  • End of April: ANX Announced Flow-Through Private Placement Offering To Up to $8.5 Million. SP around 67 cents and Gold around 1770$.
     
  • May 6th: ANX Announces First Quarter 2021 Financial (pretty bad) Results. SP around 67 cents and Gold in a up trend around 1825$.
     
  • May 18: ANX Discovers New Zone of Gold Mineralization at Pumbly Point and Broadens Prospectivy at Point Rousse. SP around 70 cents and Gold in a up trend around 1880$.
     
  • May 27th: ANX Intersects 4.99 g/t Gold over 4.0 Metres and 1.74 g/t Gold over 12.0 Metres at the Tilt Cove Project;AND
  • May 28th: ANX Completes $8.5 Million Flow-Through Private Placement. SP around 75 cents and Gold in a up trend around 1900$.
  • June 3rd: ANX Commences 20,000 metre Drill Program and Geophysical Survey at the Goldboro Gold Project;AND
  • June 9th: ANX Intersects 9.47 G/T Gold Over 10.0 Metres and 2.75 G/T Gold Over 11.5 Metres From Infill Drilling at Goldboro. SP jumped around 90 cents and Gold around 1885$.

• • June 18th to 23rd: Anticipation of the PEA and delivering PEA for Goldboro.  SP climbed to 1.02$ and then profit taking dropped it to 92 cents. Gold lost 110$ From Mid-June to End of June to 1755$.
  • July 6th: ANX Continues to Successfully Infill at Stog'er Tight, Intersecting 1.54 g/t gold over 29.4 metres and 4.72 g/t gold over 7.0 metres;AND
  • July 8th: ANX Initiates Drilling and Geophysical Exploration Programs at Point Rousse, Newfoundland.  SP dropped to 80 cents and Gold was around 1800$.

• • July 20th: ANX Announces (pretty bad) Q2 2021 Production Results and Strengthens Liquidity With $3 Million Revolving Credit Facility;AND
  • July 22nd: ANX Finalizes Infill Drilling at Stog'er Tight and Progresses Development Activity;
    AND
  • July 29th: ANX Announces (pretty bad) Q2 2021 Financial Results.
    SP dropped to 70 cents and Gold was around 1825$.

• • August 4: ANX Initiates Exploration Programs at the Tilt Cove Gold Project in Newfoundland. SP around 70 cents and Gold in a down trend around 1750$.
  • September 16th: Anaconda Mining Intersects 1.81 g/t over 30 metres at Stog'er Tight and Initiates Mineral Resource and Reserve Update at Point Rousse. SP around 70 cents and Gold in a down trend loosing 40$ around 1750$.
     
  • September 29^th: Anaconda Mining Intersects 2.21 G/T Gold Over 11.0 Metres and 1.61 G/T Gold Over 14.7 Metres as Part of Feasibility Study Work at the Goldboro Gold Project.  SP jumped to 70 cents but closed at 67 cents.  Gold was around $1750
     
  • October 12^th: Anaconda Mining Intersects 7.88 g/t Gold Over 7.9 Metres and 6.19 g/t Gold Over 2.6 Metres on Underground Targets at the Goldboro Gold Project. SP around 64 cents and Gold around $1780.
     
  • October 13^th: Anaconda Mining Reports (bad) Q3 Production Results and Announces Updated Mineral Reserve and Resource for Argyle. SP around  63 cents and Gold around $1780.
  • October 19^th: Anaconda Mining Announces Updated and Expanded Mineral Resource for Stog'er Tight, Increasing Potential for Mine Life Extension at Point Rousse Operations. SP around  63 cents and Gold around $1780.

 These events give us elements we could used to revised our comparison analysis:

• The last 7 months saw MOZ’s SP go from 2.60$ to 3.00$ with a low of $2.20 and a high of $3.65.  During that time, ANX SP went from 80 cents to 63 cents yesterday with a low of  62 cents and a high of $1.04.
• MOZ’s FS showed a decrease in the IRR compared to the PFS (from 45% down to 31.5%).
• MOZ’s Berry zone might be indicative of what could happen when ANX drills the Dolliver Mountain area in Goldboro.
• We saw a selloff in both companies for profit taking and warrants’ financing : in spring for MOZ and during all summer for ANX.
• MOZ’s MC increased by around 30% mainly backed by the 30% resource increase.  ANX’s MC decreased by 7% which can corresponds to the share dilution (9%) caused by the warrants and option conversion and the financing done in April. 
• The Argyle’s mess and warrants conversion killed the momentum that started in March with the publishing of the new RE for Goldboro and cancel any catalyst from the publishing of the PEA.

So what does it mean for my targets of 1.50$ and 2.25$?   Well, IMO, Kevin and Rob failed to deliver with the Argyle mess (which could be delegated to the exploration team) and Mr. Market is now waiting to see if “the ca$h generation mill” in Point-Rousse will be adding ca$h flow instead of decreasing the tresory before getting too excited about any "good" news coming from NFLD operations .  It’s unfortunate but they will need to build back their credibility.  MOZ is doing fine as they are still in the “design” phase and their numbers cannot be challenged yet as the risks associated to developing and processing a mine will kick in later.  ANX does need to deal with such risks and unfortunately, we saw what could happen when it does not go as planning. 

So, I think Mr. Market was right, once again, and now with the tax loss season arriving, it might be tough to gain our SP back to what it should be as some people bought in the 90 cents to 1$ area and have the possibility to declare a loss at current level.  However, there might be a "Fear Of Missing Out" for the tax loss sellers if management is playing it properly and time the catalysts to make them “nervous” about selling their shares. 

I do not think we will see 2.25$ after the PEA is published but rather 1.75$ in January if the roof is not falling on us once again. Again, macro factors like gold price, drill results, unexpected events can greatly impact this prediction up or down. I might also note that PROMOTION will need to get OUTSTANDING to change the momentum.  I think it might worth it to try something new on this side, like releasing a video describing Goldboro mine development with the publishing of the FS for example.  People prefers to "see" things rather than reading through a boring and loooong report!  Videos are easy to share and promote too.  Come on guys, I think it worths it!

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!

[ggrellette]

Based on what you wrote I would think u would be buying like a madman since we are undervalued it would seam.

[DoumDiDoum]

Well, no as I already bought from 90 cents down to 72 cents.  The only option would have been to ba "all in" by selling other plays but that will expose me too much.  I have enough right now.  We need new buyers.

[ggrellette]

I hear what u are saying. I sold a little at the $1.00 range and bought it back at 75 cents thinking it had bottomed there but was obviously wrong. Went as low as 62 cents thus I should have waited a little longer but never thought it would go below 70 cents.