Part of being a good mining analyst and/or investor is actually acticipating news. So lets consider the news with respect to this company. Red is developing a gold mine in NE Mindanao, the southern island of the Philippines. The area is very prospective, but work has focused on the ore resource below the old pit. Drilling intersections have been very attractive, with even commercial zinc grades encountered at depth. The orebody been tested (SMDD117) to a depth of 900.7m, 200m below the previous deepest intersection of 7m at 11.7g/t and 5.8% Zn near the southern margin of the Resource. Commercial mineralisation was not found suggesting further understanding is required of the deeper ore.
So now the good news:
1. The company is waiting for consultants to complete its Environmental Impact Statement (EIS) which will allow the Philippines government to sign off on it and the mine plan as a condition for the mining license. The need to outsource has taken some time, and rest assured the Philippines government is slow as well. Gloria! Hopefully she hurries up as I'd say she is just about to lose the presidency.
2. The feasibility study was based on a gold price of $US650/oz, thats almost $US400/oz less than the current price. Given my expectation that the gold price is going higher and mining companies have the capacity to lock in future revenues, there is huge upside in the value of this company.
3. In the previous quarter the company was busy drilling to convet 60% of the inferred resource into the 'indicated' category to give it a higher level of confidence.
At the current stock price of 7.5c, the 660 million shares on issue are worth $49.4mil. Considering that the company is sitting on $35mil in cash, you might say they look cheap. Of course those funds are earmarked for capital development, but project feasibility doesn't get much better. At a gold price of $US850/oz the project has an internal rate of return of 84%. I am generally happy if I see a return of >25%.
So you can expect some upside when the company completes its EIS and updates its feasibility study with the new resource figures and a higher gold price. The final good news will be the Philippines government granting mining title.
Post-capital raising I suspect the project NPV is around $250 million, and that ignores the upside in reserves and the gold price. Based on its value of $50mil, the stock appears to be exceedingly undervalued given it will be mining in 18mths - subject of course to mine title being granted in a reasonable time period.
Looking at the weekly stock chart we get the sense that that this stock is in a channel, but looking back over 1o years on the monthly chart we can see that there is in fact an uptrend. Both charts provide confidence in the 7c support level.
-----------------------------------------1. The company is waiting for consultants to complete its Environmental Impact Statement (EIS) which will allow the Philippines government to sign off on it and the mine plan as a condition for the mining license. The need to outsource has taken some time, and rest assured the Philippines government is slow as well. Gloria! Hopefully she hurries up as I'd say she is just about to lose the presidency.
2. The feasibility study was based on a gold price of $US650/oz, thats almost $US400/oz less than the current price. Given my expectation that the gold price is going higher and mining companies have the capacity to lock in future revenues, there is huge upside in the value of this company.
3. In the previous quarter the company was busy drilling to convet 60% of the inferred resource into the 'indicated' category to give it a higher level of confidence.
At the current stock price of 7.5c, the 660 million shares on issue are worth $49.4mil. Considering that the company is sitting on $35mil in cash, you might say they look cheap. Of course those funds are earmarked for capital development, but project feasibility doesn't get much better. At a gold price of $US850/oz the project has an internal rate of return of 84%. I am generally happy if I see a return of >25%.
So you can expect some upside when the company completes its EIS and updates its feasibility study with the new resource figures and a higher gold price. The final good news will be the Philippines government granting mining title.
Post-capital raising I suspect the project NPV is around $250 million, and that ignores the upside in reserves and the gold price. Based on its value of $50mil, the stock appears to be exceedingly undervalued given it will be mining in 18mths - subject of course to mine title being granted in a reasonable time period.
Looking at the weekly stock chart we get the sense that that this stock is in a channel, but looking back over 1o years on the monthly chart we can see that there is in fact an uptrend. Both charts provide confidence in the 7c support level.
Andrew Sheldon www.sheldonthinks.com
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