for those of us who are investers...
Yukon-Nevada (“YNG”) is a deeply under-valued US-based small-cap gold miner with operations in Nevada, USA and British Columbia, Canada
YNG is in the later phases of a turnaround:
Company was previously mismanaged, leading to loss of environmental permits and a liquidity crises Today, company is newly-recapitalized and under the leadership of a proven turnaround CEO:
In 2009, a Swiss group along with Eric Sprott put $60 million into YNG and installed new management
Company is now debt-free
Most operating permits have been re-instituted and YNG is executing on a court-supervised consent decree that spells out all of the remaining steps that YNG must take to become fully-compliant; YNG currently permitted to run at 75% of capacity, with remaining permits expected soon; note that future environmental liability is capped and constrained by the limits specified in the consent decree
YNG re-commenced operations in October 2009 and recently achieved 150k oz/year operating rate
*Under low-risk expansion plan (based on the re-starting of existing mines and the milling of stockpiled ore), YNG’s production will grow from 150k oz per year over the next 12 months to ~400k oz in 2012 at a cost of ~$450 per oz
*No new equity issuance will be required to finance growth
*Company is currently finalizing $40mm loan and forward gold sale to finance re-opening of existing mines
*Free Cash Flow is expected to be over $75 million over the next 12 months at current metals prices, rising to $250-300 million-plus by the end of 2012 at current metal prices
*This is against an adjusted market cap of approximately $145mm Market does not yet appear to be aware of the progress of YNG’s turnaround:
*Company is currently net-debt-free trading at an adjusted market cap of $145 million—or 2x NTM free cash flow, and <1x expected 2012 FCF
*Mid-cap gold miners typically trade for 10-15x operating cash flow
*YNG is also trading at a market cap per resource oz of gold of approximately $35 per oz compared to a peer average of $150-200 per oz (peer group comprised of Alamos Gold, Aurizon Mines, Centamin Egypt, Kingsgate, Kirkland Lake, Mineral Deposits, Capital Gold and Semafo)
*There are multiple upcoming positive catalysts for YNG (see below) that will unfold over 2H 2010 that should quickly lift YNG closer to fair value
*Near-term price target of $1.00, or 6x NTM FCF should be realized fairly quickly as market becomes aware of the progress of YNG’s turnaround
Note: If YNG were re-valued to simply trade on a market cap/resource oz in-line with its peer group, YNG would currently be valued at $1.25-1.50/share
*Longer-term price target of $2.50.