This week’s healthy pullback in Gold stocks has created even greater opportunities in the sector.
Almaden Minerals (AMM, TSX) owns 100% of the 14,000 hectare Ixtaca Gold-Silver deposit while sister company Almadex Minerals (AMZ, TSX-V) holds a 2% NSR on the project (we’re also very bullish on AMZ given its Au-Cu porphyry discovery in Mexico, and this morning the stock has bounced off strong support near 70 cents).
AMZ was recently added to the BMR Top Opportunities List at 70 cents; this morning we’re adding Almaden at $1.78 (its price as of 7:30 am Pacific) – thank you, Mr. Market, we love sales!
An alignment of the stars…
Knowing that far less than 1% of exploration stocks will graduate to become miners, the stars must really align to make it happen. Aside from Gold occurring in enough quantity and quality in the ground, it helps when Gold prices are perceived to be going higher. Of course, financing must be available to move forward with building a mine. Yet financing will rarely or never be available unless all the boxes are checked.
Even if the Gold deposit is exceptional, if it’s located under an ocean or in the North Pole, the “accessibility” box won’t get checked – deal breaker.
What are the boxes?…
The most important boxes relate to accessibility, power, water, rocks, metallurgy, financing, people, and community acceptance.
From the outside looking in, Almaden’s Ixtaca Gold-Silver deposit in Mexico appears to check all the boxes.
Let’s go down the list, checking them off one by one:
“Accessibility” – the project is located 2 to 3 hours from Mexico City and is accessible via paved roads, relatively flat-lying land;
“Power” – regional power sourced from the Laguna Verde nuclear power plant is available on site;
“Water” – the latest assessment of regional weather patterns suggests management of rainfall and runoff from within the project area will provide sufficient water for operations for the Ixtaca mine plan (natural springs could supplement if needed);
“Rocks” – the Ixtaca zone, an epithermal Gold-Silver deposit, occurs in deformed carbonate rocks.
“Metallurgy” – test work continues to indicate overall process recoveries to average 90% for Gold and Silver for limestone hosted mineralization (limestone comprises 91% of the metal produced);
“Financing” – on October 19, 2015, Almaden secured the option to purchase the Rock Creek mill, which only operated for several months before the mining operation was curtailed in 2008. The mill was built to process 7,000 tonnes per day and is in excellent condition. This smooth move reduced initial capex to approximately $100 million. Using $1,150 Gold and $16 Silver, the Ixtaca PEA shows an after-tax IRR of 30%;
“People” – this father-son Gold hunting team has a long track record of discovery and a superb reputation within the industry;
“Community Acceptance” – Almaden’s team is actively engaged in the local communities, continuous outreach is possible via its permanent community office in Santa Maria. To date it has taken a total of approximately 380 people on 19 separate mine tours. The company has employed up to 70 local people in its drilling program who live in the vicinity of the Ixtaca deposit. Local employees have made up virtually all the drilling staff, and have been trained on the job.
Going above and beyond the call of duty, on September 22, 2015 Almaden representatives presented 15 local students with academic scholarships.
Almaden has now awarded a total of 40 scholarships to local students.
If only every exploration and mining company attempted to treat surrounding communities with such respect.
Ixtaca priced 50% below industry average…
According to BMRs internal research, recent M&A transactions have averaged $64 per-ounce of Gold resources.
Almaden’s market cap is $150 million (CDN) as of yesterday’s close, and it has 86 million shares outstanding.
Its estimated Gold resource base including Measured, Indicated, and Inferred ounces stands at 4.2 million ounces.
Dividing Almaden’s $150 million market cap by 4.2 million ounces ounces of Gold resources we get almost $36 (our cost per ounce in-situ) – nearly 50% below the industry’s average M&A transaction price.
Bottom Line: It’s rare to find a quality asset backed by a quality team that checks all the boxes. Having these stars align precisely as Gold continues a new bull market is icing on the cake. Paying a price that’s 50% below industry average is the cherry on top!
Don’t expect Almaden to languish at these depressed levels forever. It has roughly $7.2 million cash on hand (more than 1 year’s worth) to fund regional drilling and advance Ixtaca to a Pre-Feasibility Study. Those two catalysts should serve to further increase confidence in the project’s economics and resource base.
Corporate Video Here>>> 6 Minute video that brings Almaden’s Ixtaca project to life
About the writer: Daniel T. Cook, the newest member of the BMR team, is from the great state of Texas. Daniel has a strong passion for the junior resource sector and has followed the Venture and broader markets with great interest since he bought his first stock 18 years ago at the age of 12. He’s also a licensed investment professional who was a Bright Future’s Scholar at the University of Central Florida, graduating in 2010 with a major in Finance. We know our readers will enjoy his material and benefit from his wisdom and insight. We welcome him aboard!
Note: Jon holds a share position in AMZ.
