GCM.TO - Gran Colombia Gold Corp

[SafetyinNumbers]

At least it's about half the dilution versus what was proposed.

 

 

[DTEJD1997]

hey all:

 

I've briefly looked at CGM in the past, but never pulled the trigger.

 

It looks like management has turned things around...more sales, more cash flow, better balance sheet, increased stock price, and so on.

 

Here is what I DON'T GET:  CGM just had about $96mm in cash flow.

 

With that level of cash flow, can't they just hold off on making major investments for a year or so?  Get another few quarters of solid production & cash flow under their belt...pay down debt (81mm) even further, build up cash a bit...and a year or 6 quarters from now they would be in a MUCH stronger position.  If they keep going at the current rate, I would think in 6 months that they would be in a SOLID position.  So much so, that they would not have to any dillutive offering.  If they needed more capital for a project, they would probably be able to use a bank line of credit (or other debt), at REASONABLE rates and non-dillutive.

 

Am I missing something?  Is there a time deadline?  Other pressing factor?  OR is it just management wanting to build the company up/out as fast as possible?

[SafetyinNumbers]

hey all:

 

I've briefly looked at CGM in the past, but never pulled the trigger.

 

It looks like management has turned things around...more sales, more cash flow, better balance sheet, increased stock price, and so on.

 

Here is what I DON'T GET:  CGM just had about $96mm in cash flow.

 

With that level of cash flow, can't they just hold off on making major investments for a year or so?  Get another few quarters of solid production & cash flow under their belt...pay down debt (81mm) even further, build up cash a bit...and a year or 6 quarters from now they would be in a MUCH stronger position.  If they keep going at the current rate, I would think in 6 months that they would be in a SOLID position.  So much so, that they would not have to any dillutive offering.  If they needed more capital for a project, they would probably be able to use a bank line of credit (or other debt), at REASONABLE rates and non-dillutive.

 

Am I missing something?  Is there a time deadline?  Other pressing factor?  OR is it just management wanting to build the company up/out as fast as possible?

 

I think that's why the stock reacted the way it did on Friday. Value investors just don't get why you would want to issue equity at this multiple.

 

That being said, I think, they think, the reason why the EV/EBITDA multiple sticks around 2x is because they don't have enough reserves. I have also heard it argued that this keeps them from being a takeover target at a reasonable valuation. Perhaps. that is the rationalization for the move.

 

Most of the current free cash flow is absorbed by the amortization of the current GCM.NT.U, which is going to take up US$37.5m over 2019/20 so having cash buffer if you are going to accelerate capex makes sense.

 

 

[writser]

Gran Colombia crucifying its shareholders upon a cross of gold with this press release:

 

https://globenewswire.com/news-release/2019/03/01/1745407/0/en/Gran-Colombia-Gold-Files-Preliminary-Short-Form-Prospectus-for-Equity-Offering.html

 

 

 

Amateur hour.

 

http://www.grancolombiagold.com/news-and-investors/press-releases/press-release-details/2019/Gran-Colombia-Gold-Announces-C20000000-Convertible-Debenture-Bought-Deal-and-Termination-of-Previously-Announced-Equity-Offering/default.aspx

 

On the flip side: how many CEO's would cancel an equity offering a weekend after announcing it, just because the market didn't like it? And management intends to participate in the new deal for ~ C$2m? They listen to shareholders, aren't stubborn and have / plan to have skin in the game. That sounds better than average.

 

Though I haven't really followed this story - the new deal might still be terrible and/or I can be completely wrong.

[doc75]

I don't understand why they structured the initial equity raise as they did. That's the benefit of letting the pricing be determined by the market rather than just setting a price and seeing what you get?  Wouldn't such an offering always send shares into a self-fulfilling tumble? (ie. uncertainty leads to price drop leads to dilution at lower price leads to price drop leads to...)

 

To me the strike on the convertibles seems a little low.  You now have an unlisted debenture with an 8% coupon and a strike that's only about 10% higher than where the shares were trading prior to being cut by the aborted equity raise.

 

 

 

[SafetyinNumbers]

I don't understand why they structured the initial equity raise as they did. That's the benefit of letting the pricing be determined by the market rather than just setting a price and seeing what you get?  Wouldn't such an offering always send shares into a self-fulfilling tumble? (ie. uncertainty leads to price drop leads to dilution at lower price leads to price drop leads to...)

 

To me the strike on the convertibles seems a little low.  You now have an unlisted debenture with an 8% coupon and a strike that's only about 10% higher than where the shares were trading prior to being cut by the aborted equity raise.

 

On the first point, in Canada at least, there is either the bought deal financing where the brokers take the risk (and the price is known) and a marketed offering where no price is set. If I were to guess, management thought they could get a better price by directly marketing and the price offered by the brokers was too low.

 

On the second point, the move in gold price also likely contributed to the decline in the share price.

[Foreign Tuffett]

Gran Colombia crucifying its shareholders upon a cross of gold with this press release:

 

https://globenewswire.com/news-release/2019/03/01/1745407/0/en/Gran-Colombia-Gold-Files-Preliminary-Short-Form-Prospectus-for-Equity-Offering.html

 

 

 

Amateur hour.

 

http://www.grancolombiagold.com/news-and-investors/press-releases/press-release-details/2019/Gran-Colombia-Gold-Announces-C20000000-Convertible-Debenture-Bought-Deal-and-Termination-of-Previously-Announced-Equity-Offering/default.aspx

 

On the flip side: how many CEO's would cancel an equity offering a weekend after announcing it, just because the market didn't like it? And management intends to participate in the new deal for ~ C$2m? They listen to shareholders, aren't stubborn and have / plan to have skin in the game. That sounds better than average.

 

Though I haven't really followed this story - the new deal might still be terrible and/or I can be completely wrong.

 

The new deal is an improvement, but management's apparent surprise at the market reaction last week makes them seem clueless.

 

They just said this in January:

 

"We have established a solid foundation of internally-generated operating cash flow to fund our ongoing programs, including another 20,000 meters of exploration currently planned for 2019 at Segovia."

 

And they said this when they released their Q3 results:

 

"The Company successfully transformed its capital structure in 2018, eliminating the convertible debentures which exposed shareholders to further dilution and providing the Company with greater access to its internally generated free cash flow to explore, expand and modernize its mining operations."

 

But now they're saying this:

 

"The Company intends to use the net proceeds of the Offering to accelerate its ongoing exploration programs at its high-grade Segovia gold project"

 

 

I've seen some speculation that management is setting up the company to be sold, and wants to be able to demonstrate reserve growth to potential buyers. I suppose that's possible, but it seems speculative. Segovia mine is Segovia mine, whether or not management expedites capex spending.

[sculpin]

I would follow this guy on twitter if going to invest in spec mining...

 

Mark_IKN

 

@IKN_Mark

 

So if Gran Colombia Gold $GCM.to is so profitable and in financially good condition all of a sudden, why is it raising $25m by selling paper?

 

Replying to @tombszabo

 

Less about that. More the fact that GCM isn't even a gold miner (it's basically a toll miller), the worst polluter on the TO exchange and has a history of monumental level  wealth destruction.

 

But hey...this time is different, right?

[Foreign Tuffett]

I would follow this guy on twitter if going to invest in spec mining...

 

Mark_IKN

 

@IKN_Mark

 

So if Gran Colombia Gold $GCM.to is so profitable and in financially good condition all of a sudden, why is it raising $25m by selling paper?

 

Replying to @tombszabo

 

Less about that. More the fact that GCM isn't even a gold miner (it's basically a toll miller), the worst polluter on the TO exchange and has a history of monumental level  wealth destruction.

 

But hey...this time is different, right?

 

Any idea why he calls it "basically a toll miller"? GCM owns and operates actual mines, it doesn't just mill ore mined by others.

[tombgrt]

hey all:

 

I've briefly looked at CGM in the past, but never pulled the trigger.

 

It looks like management has turned things around...more sales, more cash flow, better balance sheet, increased stock price, and so on.

 

Here is what I DON'T GET:  CGM just had about $96mm in cash flow.

 

With that level of cash flow, can't they just hold off on making major investments for a year or so?  Get another few quarters of solid production & cash flow under their belt...pay down debt (81mm) even further, build up cash a bit...and a year or 6 quarters from now they would be in a MUCH stronger position.  If they keep going at the current rate, I would think in 6 months that they would be in a SOLID position.  So much so, that they would not have to any dillutive offering.  If they needed more capital for a project, they would probably be able to use a bank line of credit (or other debt), at REASONABLE rates and non-dillutive.

 

Am I missing something?  Is there a time deadline?  Other pressing factor?  OR is it just management wanting to build the company up/out as fast as possible?

 

This is what has kept me from buying back in so far. Can't say my trust in management has gone up because of this...

 

Nice trade Tom!

 

I would look at the warrants to get back in. They have less liquidity but with the vol so low, you haven’t missed much by buying them now. Basically, at $3.35 and the warrants at $1.80 implies about a 40 vol which is still low versus more senior producers with listed leaps.

 

I think a note holder woke up and decided to sell and move on and not really looking at the vol they are selling at.

 

I'll see what the stock does. If it goes back a bit further I might be inclined to buy the warrants this time around.  :)

[SafetyinNumbers]

To be fair, after I wrote that, the vol shrank to 10 at one point!

 

I'm kind of indifferent between the warrants and stock at this point. Probably depends more on how much leverage you want, if any.

 

 

[SafetyinNumbers]

To be fair, after I wrote that, the vol shrank to 10 at one point!

 

I'm kind of indifferent between the warrants and stock at this point. Probably depends more on how much leverage you want, if any.

 

Anyone still own the equity?

 

I have switched to the warrants and the notes. The warrants are basically trading at zero vol and with over a 10% YTM on the notes, it’s like creating a dividend (although not taxed as nicely) on a gold stock with higher security than the common.

 

 

[awindenberger]

No posts on Gran Columbia for awhile. I've been looking back at gold stocks I was following previously and see this ran very well into the end of the year.

 

Safety what did you think of the Marmato spinoff plan?

 

Also, any idea why they took Eric Sprott's money?

 

Finally, even with the runup, this is still looking cheap. By my math the fully diluted market cap would be about $322M USD, and 4x their Q3 AdjEBITDA of $37.5M is $150M, so about 2.1-2.2x EBIDTA.

 

I haven't followed closely recently, so anything big I'm missing right now?

[SafetyinNumbers]

No posts on Gran Columbia for awhile. I've been looking back at gold stocks I was following previously and see this ran very well into the end of the year.

 

Safety what did you think of the Marmato spinoff plan?

 

Also, any idea why they took Eric Sprott's money?

 

Finally, even with the runup, this is still looking cheap. By my math the fully diluted market cap would be about $322M USD, and 4x their Q3 AdjEBITDA of $37.5M is $150M, so about 2.1-2.2x EBIDTA.

 

I haven't followed closely recently, so anything big I'm missing right now?

 

1. In theory a spinoff of Marmato makes sense as it safeguards GCM’s balance sheet from a capital budget explosion in the expansion. I just think they paid too much for a shell and then are pumping too much money in to effect the spin. We can’t really assess it until they have raised a lot more money in the spinco.

 

2. I think they took Eric’s money because they thought it would increase their multiple. Cynically, it probably was cheaper than getting more analyst coverage and more gold investors probably took a look than if a new analyst launched coverage. For value guys like me, it’s frustrating because they really shouldn’t need the capital so it’s just dilution.

 

3. Gold is up a lot from Q3 and they have a lot of investments now that should theoretically reduce EV so I have it closer to 1.7x EV/EBITDA. The stock has more than tripled since it was first mentioned here but none of it through multiple expansion yet. The next positive catalyst besides production/earnings is probably the potential for GDXJ add in March.

[SafetyinNumbers]

Thanks Cardboard! It still looks cheap and so does DPM.

 

I had a chance to meet with SGI.V this week. It seems like all the bad news is priced in without any optionality for higher grades which would result in higher production and lower costs. Next update will be end of January and we will get Q4 production and the 2019 budget. I expect them to put up guidance they can beat.

 

Check out slide 15 in their deck for TD: https://www.superior-gold.com/site/assets/files/2309/superior_gold_-_corporate_presentation_-_january_2019_web.pdf

 

If they can get to 5g/t vs the reserve grade of 6g/t, they can produce over 125k oz at an AISC less than $900 and that would put the stock at less than 1x EV/EBITDA.

 

It also has no debt (net cash is about 30 cents of the 75 cent share price), high management ownership at 9% and operates in Australia. But it’s too small for most hedge funds and long only funds to care about.

 

This post on SGI did not age well. That being said, gold is up a lot over the last year and the stock is still 75 cents. I see it about 1x 2021E EV/EBITDA based on guidance. I expect this year and especially the first half to be messy but they should be free cash flow positive this year too.

 

If there was a development play in Australia that was fully funded and guiding to 100k oz and AISC of $1100 with gold over $1600, I think it would have a market cap bigger than US$55m.

 

Obviously, there is a credibility issue and you can see it in street estimates which are way lower. Even they will have to up estimates based on the gold price alone.

 

 

[awindenberger]

Thanks Cardboard! It still looks cheap and so does DPM.

 

I had a chance to meet with SGI.V this week. It seems like all the bad news is priced in without any optionality for higher grades which would result in higher production and lower costs. Next update will be end of January and we will get Q4 production and the 2019 budget. I expect them to put up guidance they can beat.

 

Check out slide 15 in their deck for TD: https://www.superior-gold.com/site/assets/files/2309/superior_gold_-_corporate_presentation_-_january_2019_web.pdf

 

If they can get to 5g/t vs the reserve grade of 6g/t, they can produce over 125k oz at an AISC less than $900 and that would put the stock at less than 1x EV/EBITDA.

 

It also has no debt (net cash is about 30 cents of the 75 cent share price), high management ownership at 9% and operates in Australia. But it’s too small for most hedge funds and long only funds to care about.

 

This post on SGI did not age well. That being said, gold is up a lot over the last year and the stock is still 75 cents. I see it about 1x 2021E EV/EBITDA based on guidance. I expect this year and especially the first half to be messy but they should be free cash flow positive this year too.

 

If there was a development play in Australia that was fully funded and guiding to 100k oz and AISC of $1100 with gold over $1600, I think it would have a market cap bigger than US$55m.

 

Obviously, there is a credibility issue and you can see it in street estimates which are way lower. Even they will have to up estimates based on the gold price alone.

 

I was expecting it to be down 30-50% after your initial ageing comment SIN. This does look like another interesting play particularly with gold continuing to move up.

[SafetyinNumbers]

It was down a lot but the gold price helped it bounce back. I wore it the whole way but have been adding recently.

 

I tried to pitch it to some equity sales people this morning and the pushback reminded me of GCM in 2016. SGI is in the penalty box for sure but unlike GCM, there is some analyst coverage. Even though they don’t believe management guidance yet, estimates have to go up because their gold price forecasts have to go up so it might be the quants that start the rerating.

 

No net debt, in Australia, with a boatload of catalysts, the risk/reward seems skewed for the longs.

[SafetyinNumbers]

Superior Gold is at the BMO conference this week. The higher gold price might make some PMs who don't have a lot of gold exposure to reach for a high cost producer like SGI.

 

Also if anyone in Toronto is interested in free lunch, meeting management and getting a recap of the BMO conference SGI just started hosting regular individual investor lunches. There is one on February 27.

 

https://www.eventbrite.ca/e/superior-gold-investor-access-luncheon-february-27-2020-tickets-94656087907

 

I thought the individual investor lunches at first were a bit promotional but it's probably more cost effective marketing than the alternatives. The free float is pretty small so it doesn't need a lot of buying likely for it to get some momentum. That being said, H1 costs are likely going to be above the high end of the AISC cost guidance so the catalysts outside of earnings are probably more important in the near term. Also that doesn't mean earnings estimates can't go higher.

 

I only have access to a couple of reports but BMO has their 2020E AISC estimate at $1277 and GMP has it at $1366. That's a stark contrast to the midpoint 2020E AISC guidance of $1125. Also, street gold price estimates haven't gone up at the same rate as gold. Moving the gold price from $1500 to $1665 can boost cash flows quite a bit when GMP is expecting cash costs of $1266. On top of that GMP has the gold price coming down next year to $1400. I'm not sure where street estimates for gold but I'm pretty sure no one is modelling higher than the current spot for 2020E and 2021E. That seems like a source of earnings estimates going higher on no news.

 

On that basis, maybe the quants will get it going if the other catalysts don't. It just seems too cheap on the optionality. We don't know what the open pit guidance is going to be when it comes out but it could be in the 30 oz/year range. If that's the case, next year production could easily be 100k oz. If costs for the underground are comparable to open pit then EBITDA will easily eclipse the current EV at current spot. I don't know if they will make their cost guidance. Maybe the analysts know they won't but even at $1366 AISC at 100k oz of production, that's still less than 2x EV/EBITDA at the current spot price.

 

Meanwhile they still have a lot of exploration potential. Every management team will tell you that so I take it with a grain of salt but the option seems cheap to me.

 

Obviously, this idea is for the gold bulls. The story gets better if gold keeps on moving higher but a lower gold price and higher than expected costs would be a painful result.

 

Potential non-earnings catalysts:

 

- Conferences (BMO & PDAC)

- New Life of Mine Plan for Open Pit Operations

- Year End 2019 Reserves and Resources Update

- Global Reserves and Resources Update

 

 

[SafetyinNumbers]

I really don't want to start a new thread on Superior Gold so hopefully no one minds a bump.

 

Since the BMO conference in February the gold price has gone up a lot so BMO is now forecasting US$66m for 2021E EBITDA using $1697 gold. They have an outperform rating and a C$1.00 price target which is less than 1x EV/EBITDA.

 

SGI also recently put out some interesting drill results which shows they are finding some high grade material. We still don't know if it's economic to mine. I don't know much about mining so I probably shouldn't have an opinion on this but GCM worked out well so I'll keep trying.

 

BMO is definitely the most bullish. Consensus EBITDA is actually about half their estimate at around US$33m. Stifel has the lowest estimate at US$14 showing there is giant variance.

 

This is what Stifel wrote about the recent press release:

 

___________________________________________________________________________________________________________________________________________________________

 

Impact: Slight Positive

• 17 intersections came in above 5 g/t Au, showcasing the asset potential of Plutonic. These grades are above the 2019 average stope grade of 3.10 g/t Au.

• With approximately 52% of mill feed coming from Plutonic and the rest from a series of proximal open pits in 1Q20, the operation is not mill constrained, meaning new discoveries are relatively low capital to monetize.

• SGI trades at 0.41x spot P/NAV vs. peers at 0.63x, and we model a free cash flow yield of 16% in 2021. Recommendation: Maintain HOLD rating and C$1.30 target

 

___________________________________________________________________________________________________________________________________________________________

 

It all sounds pretty bullish except the HOLD rating.

 

Even the 16% FCF yield looks very attractive for 2021.

 

That's based on production of only 73k oz (vs 72k this year), cash costs of US$1297 and a gold price of US$1650.

 

Just moving to spot gold would more than double their free cash flow yield estimate.

 

I used to work in equity research (not in mining though) and I can't imagine having to justify the Hold rating to clients given these estimates especially since they might be a fraction of where we end up next year.

 

GMP's EBITDA estimate is US$14.3m next year based on the above metrics. Management has previously told me it's best to assume similar cost estimates for the open pit mine plan vs the  underground. I'm not sure if that will end up being accurate. However, it's pretty easy to see if that grades go up enough because they start including some higher grade material, costs are going to drop dramatically from US$1297. Every US$10 costs drop, increses EBITDA by US$1m. Every US$10 the gold price is above $1650 increases EBITDA by US$1m.

 

If we add 28k oz of production at his cost and gold price estimate, that adds US$10m to his EBITDA. If we move costs to the mid-point of guidance (US$1125) that adds US$17m to EBITDA. If we go to spot gold (US$1760) that adds another US$11m. So his EBITDA estimate would increase to US$58m. From US$14m.

 

To me, US$58m for EBITDA is closer to a fair estimate than US$14m but since it's cheap on US$14m, I'm happy to own it and see what happens.

 

It's also pretty close to BMO's estimate of US$66m.

 

Who knows, maybe less variance in the estimates will be enough to get some quant investors on board.

 

I own more SGI than GCM.WT.B now so wish me luck.

 

Also for SGI, there are a few catalysts up coming. They are supposed to put out a resource update and an open pit mine plan but I think they might have been pushing the latter back to account for some of the new drill results. They also have the AGM on Thursday morning so that could be a good time to have news. The AGM is webcast over LUMI, I believe.

 

[SafetyinNumbers]

SGI.V is up 42% since this post but with the gold price move, it has lagged the underlying earnings increase. It still trades around 1x EV/EBITDA even as the find new high grade areas and develop the open pit mine plan. Peers trade 4-6x and they are all being chased while this one has a lot of catch up to do. There is always risk of an operational stumble. They have done it before.

 

I really don't want to start a new thread on Superior Gold so hopefully no one minds a bump.

 

Since the BMO conference in February the gold price has gone up a lot so BMO is now forecasting US$66m for 2021E EBITDA using $1697 gold. They have an outperform rating and a C$1.00 price target which is less than 1x EV/EBITDA.

 

SGI also recently put out some interesting drill results which shows they are finding some high grade material. We still don't know if it's economic to mine. I don't know much about mining so I probably shouldn't have an opinion on this but GCM worked out well so I'll keep trying.

 

BMO is definitely the most bullish. Consensus EBITDA is actually about half their estimate at around US$33m. Stifel has the lowest estimate at US$14 showing there is giant variance.

 

This is what Stifel wrote about the recent press release:

 

___________________________________________________________________________________________________________________________________________________________

 

Impact: Slight Positive

• 17 intersections came in above 5 g/t Au, showcasing the asset potential of Plutonic. These grades are above the 2019 average stope grade of 3.10 g/t Au.

• With approximately 52% of mill feed coming from Plutonic and the rest from a series of proximal open pits in 1Q20, the operation is not mill constrained, meaning new discoveries are relatively low capital to monetize.

• SGI trades at 0.41x spot P/NAV vs. peers at 0.63x, and we model a free cash flow yield of 16% in 2021. Recommendation: Maintain HOLD rating and C$1.30 target

 

___________________________________________________________________________________________________________________________________________________________

 

It all sounds pretty bullish except the HOLD rating.

 

Even the 16% FCF yield looks very attractive for 2021.

 

That's based on production of only 73k oz (vs 72k this year), cash costs of US$1297 and a gold price of US$1650.

 

Just moving to spot gold would more than double their free cash flow yield estimate.

 

I used to work in equity research (not in mining though) and I can't imagine having to justify the Hold rating to clients given these estimates especially since they might be a fraction of where we end up next year.

 

GMP's EBITDA estimate is US$14.3m next year based on the above metrics. Management has previously told me it's best to assume similar cost estimates for the open pit mine plan vs the  underground. I'm not sure if that will end up being accurate. However, it's pretty easy to see if that grades go up enough because they start including some higher grade material, costs are going to drop dramatically from US$1297. Every US$10 costs drop, increses EBITDA by US$1m. Every US$10 the gold price is above $1650 increases EBITDA by US$1m.

 

If we add 28k oz of production at his cost and gold price estimate, that adds US$10m to his EBITDA. If we move costs to the mid-point of guidance (US$1125) that adds US$17m to EBITDA. If we go to spot gold (US$1760) that adds another US$11m. So his EBITDA estimate would increase to US$58m. From US$14m.

 

To me, US$58m for EBITDA is closer to a fair estimate than US$14m but since it's cheap on US$14m, I'm happy to own it and see what happens.

 

It's also pretty close to BMO's estimate of US$66m.

 

Who knows, maybe less variance in the estimates will be enough to get some quant investors on board.

 

I own more SGI than GCM.WT.B now so wish me luck.

 

Also for SGI, there are a few catalysts up coming. They are supposed to put out a resource update and an open pit mine plan but I think they might have been pushing the latter back to account for some of the new drill results. They also have the AGM on Thursday morning so that could be a good time to have news. The AGM is webcast over LUMI, I believe.

[awindenberger]

Safety,

 

Any reason Gran Columbia hasn't moved the new highs over the past couple months with gold prices breaking out? This looks like a comparative buy opportunity but I want to make sure I'm not missing something.

[SafetyinNumbers]

Safety,

 

Any reason Gran Columbia hasn't moved the new highs over the past couple months with gold prices breaking out? This looks like a comparative buy opportunity but I want to make sure I'm not missing something.

 

I think it’s because management has been using all of the cash flow to fund investments that help their business associates. They might actually well timed and good investments especially with gold doing what it’s doing but that combined with insider selling are making investors switch into other names.

 

I still own a decent chunk because it’s so cheap but I’m not a fan of this activity.

[5xEBITDA]

They have also had a lot of issues trying to get the financing deal for Caldas done, the first cut of which would've been an insanely good deal for Gran Colombia had it closed.

[SafetyinNumbers]

Superior stumbled again on Q2 production.

 

It’s the lack of communication that is the real problem and it cost the CEO his job this time while putting the company up for sale.

 

Anyway, I still see it trading less than 3x EV/EBITDA on the annualized back half production and cost guidance. I’m not sure how the market reacts. The M&A market is heating up and SGI could use a suitor with some cash to increase efficiency and consistency while drilling a whole bunch.

 

SGI.V is up 42% since this post but with the gold price move, it has lagged the underlying earnings increase. It still trades around 1x EV/EBITDA even as the find new high grade areas and develop the open pit mine plan. Peers trade 4-6x and they are all being chased while this one has a lot of catch up to do. There is always risk of an operational stumble. They have done it before.

 

I really don't want to start a new thread on Superior Gold so hopefully no one minds a bump.

 

Since the BMO conference in February the gold price has gone up a lot so BMO is now forecasting US$66m for 2021E EBITDA using $1697 gold. They have an outperform rating and a C$1.00 price target which is less than 1x EV/EBITDA.

 

SGI also recently put out some interesting drill results which shows they are finding some high grade material. We still don't know if it's economic to mine. I don't know much about mining so I probably shouldn't have an opinion on this but GCM worked out well so I'll keep trying.

 

BMO is definitely the most bullish. Consensus EBITDA is actually about half their estimate at around US$33m. Stifel has the lowest estimate at US$14 showing there is giant variance.

 

This is what Stifel wrote about the recent press release:

 

___________________________________________________________________________________________________________________________________________________________

 

Impact: Slight Positive

• 17 intersections came in above 5 g/t Au, showcasing the asset potential of Plutonic. These grades are above the 2019 average stope grade of 3.10 g/t Au.

• With approximately 52% of mill feed coming from Plutonic and the rest from a series of proximal open pits in 1Q20, the operation is not mill constrained, meaning new discoveries are relatively low capital to monetize.

• SGI trades at 0.41x spot P/NAV vs. peers at 0.63x, and we model a free cash flow yield of 16% in 2021. Recommendation: Maintain HOLD rating and C$1.30 target

 

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It all sounds pretty bullish except the HOLD rating.

 

Even the 16% FCF yield looks very attractive for 2021.

 

That's based on production of only 73k oz (vs 72k this year), cash costs of US$1297 and a gold price of US$1650.

 

Just moving to spot gold would more than double their free cash flow yield estimate.

 

I used to work in equity research (not in mining though) and I can't imagine having to justify the Hold rating to clients given these estimates especially since they might be a fraction of where we end up next year.

 

GMP's EBITDA estimate is US$14.3m next year based on the above metrics. Management has previously told me it's best to assume similar cost estimates for the open pit mine plan vs the  underground. I'm not sure if that will end up being accurate. However, it's pretty easy to see if that grades go up enough because they start including some higher grade material, costs are going to drop dramatically from US$1297. Every US$10 costs drop, increses EBITDA by US$1m. Every US$10 the gold price is above $1650 increases EBITDA by US$1m.

 

If we add 28k oz of production at his cost and gold price estimate, that adds US$10m to his EBITDA. If we move costs to the mid-point of guidance (US$1125) that adds US$17m to EBITDA. If we go to spot gold (US$1760) that adds another US$11m. So his EBITDA estimate would increase to US$58m. From US$14m.

 

To me, US$58m for EBITDA is closer to a fair estimate than US$14m but since it's cheap on US$14m, I'm happy to own it and see what happens.

 

It's also pretty close to BMO's estimate of US$66m.

 

Who knows, maybe less variance in the estimates will be enough to get some quant investors on board.

 

I own more SGI than GCM.WT.B now so wish me luck.

 

Also for SGI, there are a few catalysts up coming. They are supposed to put out a resource update and an open pit mine plan but I think they might have been pushing the latter back to account for some of the new drill results. They also have the AGM on Thursday morning so that could be a good time to have news. The AGM is webcast over LUMI, I believe.