Stockhouse Ticker Trax is equity specific research (Canadian listed and market cap < $300 million) published every Monday to paid subscribers. Our free Friday column may feature companies previously featured to paid subscribers (with a minimum one month delay) or discuss topics of interest to the general investment community and relevant to overall portfolio management.
While my report this weekend centers on Victoria Gold (V.VIT; 17 cents), it shouldn’t matter if you see value in VIT or not. The underlying issue is that we have a six million ounce gold project in one of the most stable countries in the world – close to worthless.
It doesn’t take rocket science to see that something is VERY seriously wrong. If we were discussing an obscure metal or mineral it would make more sense. But we’re not.
And we are doing so in the following environment:
1) The Dow set record highs on the back of a recovery that is faltering
2) U.S. National Debt of $17 Trillion is completely out of control
3) Many believe gold is being shorted by the U.S. government to support the dollar
4) European economies are in serious trouble
5) Cyprus is only the tip of the iceberg in an unstable global banking system
6) Central banks around the world continue to stockpile gold
7) Investors continue to pile into gold & silver coins at a record pace
7) North Korea poses a serious risk to world security
8) H7N9 (new) in China is a very real threat to global economic recovery
Not to mention that if we ever see rotation out of paper gold (gold ETF’s for example) into physical gold, the positive impact on the price of gold would be incredible as it would become clearly apparent the physical supply is not there.
The situation with silver is no different as people lose faith in currencies, governments and even the banking system (thank you Cyprus). Mint production of silver coins in Canada and the United States was suspended recently because of silver supply shortages. Yet the commodity price has barely moved.
Gold & silver continue to see huge demand yet the junior exploration companies who (for decades) have been critical to global supply (through discovery), are trading at the lowest valuations we have seen in decades.
I can fully appreciate why investors have moved away from higher risk investments. However, at the same time they are piling into blue chip stocks at the high end of charts like cattle being lead to slaughter. Apple was a classic example of this mentality.
Yet even as the better gold & silver junior exploration companies hit rock bottom, few want to touch them - even when they see problems all around that support the fundamentals of a higher commodity price.
No doubt we will see herd mentality kick in at some point and the masses will pile in – typically once the shift in trend is well underway. For those with cash and risk tolerance, some of these companies are worth a very serious look (sooner rather than later).
Victoria Gold (TSX: V.VIT, Stock Forum; 17 cents)
www.vitgoldcorp.com
Shares outstanding: 340 million / Market cap: $58 million (M)
Net cash & receivables: approx. $35 million
Yukon Measured & Indicated (M&I) gold resource: 4.8M oz / Inferred: 1.5M oz
Market Cap – Approx. Net Cash = $23 million (enterprise value or EV)
Allocating only 20% to the 1.5M inferred = 300k + 4.8M M&I = 5.1M ounces
$23 million EV / 5.1M gold ounces = $4.50 per gold ounce
Victoria’s Proven & Probable Reserves (the lowest possible risk based upon drilling and geosciences to date) show 2.3 million ounces with an average grade of 0.78 g/t in 92M tonnes. Even using this as the benchmark, this is one of the most attractive (for a takeover) gold projects in Canada.
Peer comparison – Takeovers the past six months
1) November 2012 takeover of junior Andina Minerals (ADM) by Hochschild for $103 million. Andina was sitting near a five-year low with a resource that had well known metallurgy issues and questionable economics (plus the company was running out of money). The reserve in Chile was 6.6 million ounces at an average grade of 0.73 grams per tonne.
Value per risked resource approx. $15 per gold ounce
2) October 2012 takeover of Prodigy (PDG) by Argonaut Gold for $340 million. This was a Canadian gold resource of 5.8M ounces with an average grade of 0.87 grams per tonne.
Value per risked resource approx. $42 per gold ounce
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The following images are available in their corporate presentation but for now they provide an excellent overview of the strong economics. There is also an older (but useful) four-minute video on their home page:
https://www.vitgoldcorp.com/i/pdf/ppt/VIT-Corporate-Presentation-Mar-2013-lr-v2.pdf
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Disclosure: Danny Deadlock owns 125,000 shares of Victoria Gold (TSX: V.VIT) bought in the market over the past six months.
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