Saturday, April 23, 2016

Gold Standard Ventures - Hold These Shares

This article was written on request of one of my readers


It is not easy to prepare a proper analysis of the exploration company. In my opinion, the most important thing the analyst has to focus on is to answer a question whether such a company has an asset / assets, which may become an operating mine in the not so distant future or may be sold to a major producer.

There are thousands of exploration companies but a vast majority of them will never build a mine or even sell a property to a major mining company. Some people call these explorers "zombie companies". I am sure that my readers know what zombie is but let me remind this definition, just in case:

Zombie is a living dead, which means that a zombie company is a dead company fed by its shareholders to pretend to be alive. 

Note: if somebody has still some doubts about this definition, I recommend watching a classic movie "Night Of The Living Dead", directed by George Romero (1968).


However, the company I am describing in this article is not, in my opinion, a zombie explorer. Quite contrary - this company owns a prospective property, located in a notable gold district in a very safe jurisdiction. What is more, this company is within a scope of interest of a few big miners, which means that construction of a mine / selling property is quite probable. The company is called Gold Standard Ventures Corp (GSV). 

Gold Standard Ventures

Gold Standard Ventures is a Canadian exploration company, exploring its Railroad - Pinion project in Nevada, USA. The project is located within the famous gold district, called Carlin Trend:


                               source: Gold Standard Venture

As the picture shows, Pinion - Railroad comprises the following main deposits:

  • North Bullion
  • Railroad
  • Pinion
and the following deposits, currently classified as prospects:

  • Bald Mountain
  • Dark Star
  • JR Buttes
  • Dixie Creek

The Pinion - Railroad Project has been under extensive exploration since 2009, resulting in publication of two technical reports, delivering the estimates of mineral resources for the Pinion and Dark Star deposits (there are no estimates of mineral resources attributable to the Railroad and other deposits).

Pinion Resources


  • Indicated: 31.61 million tons of ore, grading 0.62 grams of gold per ton - 630,300 ounces of gold
  • Inferred: 61.08 million tons of ore, grading 0.55 grams of gold per ton - 1,081,300 ounces of gold

Dark Star Resources
  • Inferred: 23.11 million tons of ore, grading 0.51 grams of gold per ton - 375,000 ounces of gold
As the data above shows, the company has not established mineral reserves. However, it is not a problem - at this stage of exploration it is no wonder.
To remind my readers - only mineral reserves represent the economically viable material. 

What kind of ore is it, as far as metallurgy is concerned? The company underlines that the whole project is a typical Carlin Trend deposit. It means that both oxidized and refractory ores appear. However, as far as the Pinion and Dark Star deposits are concerned, the oxidized ore prevails, which should make the ore processing much easier and cheaper.

Now, Pinion - Railroad is adjacent to a few operating open - pits mines, of which the Emigrant Spring, belonging to Newmont Mining, is very similar to Pinion - Railroad.

Let me dig a little bit deeper into Newmont's open - pit mines. According to Newmont, all its open - pits in the Carlin Trend hold 89.1 million tons of ore, grading 0.87 grams of gold per ton, which is equal to 310 thousand ounces of gold. So, as far as resources are concerned, Newmont open - pits are quite similar to Gold Standard's deposits (vide Pinion - the ore grade of 0.62 grams per ton and 630.3 thousand ounces of gold). 

Note: Of course, Newmont has been operating its pits for many years (Emigrant is its newest mine in the Carlin Trend) so the company has established mineral reserves, which, at the end of 2015, amounted to 226.1 millions tons of ore, grading 1.21 grams of gold per ton (8.9 million ounces of gold).

On the other hand, Gold Standard's Pinion and Dark Star deposits are a bit better than Newmont's ones because, contrary to Newmont's open - pits, the ore at the company's properties is easier to process (it is oxidized). Newmont's ore is both oxide and refractory. 

Summarizing - Gold Standard controls a property, which may be an interesting target for a big mining company.

And, indeed, a few miners are interested in Railroad - Pinion. These miners are:


  • Oceana Gold - on May 20, 2015 Oceana purchased 25.0 million shares of the company, paying C$0.65 per share; then, in February 2016, Oceana, exercising its anti-dilution rights, increased its stake by another 13.83 million shares (this time it purchased Gold Standard shares at a price of C$1.0 a share). As a result, now Oceana holds 38.83 million shares of Gold Standard (a stake of 19.0%, calculated on undiluted basis)
  • GoldCorp - this company, one of the biggest world's miners, purchased 16.1 million shares of the company at a price of C$1.0 a share; it means that GoldCorp owns a stake of 7.9% in the company (calculated on undiluted basis).


What does it all mean?

Well, firstly, it means that both companies, Oceana and GoldCorp, value the Railroad - Pinion project at around C$205 million (number of shares outstanding x C$1.0 per share). It is much more than book value of these assets:



                       source: Gold Standard Ventures

Railroad - Pinion is included in "Exploration and evaluation assets" line in the company's Statement of Financial Position. As the excerpt shows, these assets are accounted for at C$74.7 million (at the end of 2015). Assuming that GoldCorp and Oceana are interested in Railroad - Pinion only, they value this deposit nearly three times higher than its book value.

Next thing - Gold Standard has not prepared any feasibility study yet so it is not possible to find the value of Railroad - Pinion in a proper way. At least theoretically because such experienced miners as GoldCorp or Oceana should be able to do it. So, keeping in mind that they were inclined to pay C$205 million for Railroad - Pinion, it should be worth more that that in the long - term. Writing "in the long - term" I mean that the value of any prospective project goes up in line with an extent to which it is de-risked: 



source: Brent Cook's Exploration Insights


Simply put, I am sure nobody would pay C$1.0 per Gold Standard share a few years ago, when the company started drilling its properties - it was just too risky. Then, on the announcement of the first technical report, risks associated with the project went substantially down. As a result, the company's de-risked shares increased in its intrinsic value (and their market value as well). 

I think that this de-risking process will be continued as far as the company will be exploring its properties. Going back to the chart above, Railroad - Pinion is currently at its "Exploration, Discovery" phase, which means that the company's shares are vulnerable to very volatile movements (brown area).


Summary

Gold Standard Ventures is an interesting explorer. It owns / controls a prospective deposit, located in the famous Carlin Trend, Nevada, USA. The company is still exploring its properties. Although it has published technical reports on its Pinion and Dark Star deposits, investors should expect more reports on other prospective properties. 
Despite the fact that there is still much work to do, two big industry names, namely Oceana Gold and GoldCorp, has purchased relevant stakes in the company. These companies value the company at around C$200 million, which is much higher value than that reported in the company financial statements. On the other hand, Mr. Market values the company even higher - currently its shares are trading at C$1.53 a share, which is equal to C$313 million in market capitalization.
In my opinion, the company is currently in its highly speculative stage of development, which means that the best strategy for investors, who bought these shares some time ago, is to hold them.  

3 comments:

  1. Thanks for taking the effort to write up on GSV. I do hope you will cover NuLegacy gold as well sometime near future since these 2 company profiles are almost similar.

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  2. Thanks for the analysis. I bought into GSV after I saw the CEO Jonathan Awde on BNN. He is a former broker who over the last few years combined a lot of separate claims to create GSV. I was impressed with his knowledge and drive. Recently GSV has taken a 19% stake in Battle Mountain Gold which also holds claims in Nevada. All these claims are in prolific gold districts.

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  3. Roger
    NuLegacy is very similar to GSV. Do you have any insight to share?

    ReplyDelete