Tag Archives: Gold Canyon

Gold Canyon: In scarcity – Large gold projects in Canada up for grabs

Gecko Research, May 15, 2015

M&A is hot and quality projects are scarce. If you are looking for a large gold project in Canada, not already in the hands of a major, your choices are very limited.


M&A activity stronger than ever
In the past we have written a fair bit on mergers and acquisitions in the mining space. Good companies are being acquired, as their share prices have fallen along with the prices of the bad ones in the last few years. It has become very difficult for these small companies to raise funds.

There is an ongoing quest for gold juniors in safe jurisdictions and we are seeing new acquisitions on a weekly basis. We have seen majors being very active in the past year (AEM/YRI bought Osisko, Goldcorp bought Probe Mines) with Agnico Eagle being perhaps the most active major out there. Agnico has also made strategic investments in juniors through private placements which has also been the strategy for our old top pick OceanaGold as they just took a 15% stake in Gold Standard this week.

Lately we have also seen juniors consolidating their assets, making the combination a stronger vehicle going forward, sort of a 1 + 1 = 3 if you will. NovaCopper merging with Sunward Resources is a great example how one company with a management and a project secures its financing by way of merger (NCQ bought SWD at >100% premium).

Our interest is to take positions in companies that are deeply undervalued and have attractive assets and undervaluation enables an acquirer a possibility to offer a premium. For example, Coastal Gold (COD) was trading at $0.015 about a month back. An announcement of a friendly acquisition by Sulliden Mining (SMC) resulted in a bidding war. It is now being acquired by First Mining (FF) for equivalent of $0.06. About 200% on what was invested a month back will been made, tripling your money. Of course, we did not see the acquisition of COD coming.

It’s obvious, isn’t it?
So, let’s have a quick look at why we think Gold Canyon is an obvious take-over target. All these are large, rare projects, and hence attractive to major and mid-sized mining companies. Their share prices, market capitalizations, and global gold resources are in parenthesis:

  • Gold Canyon ($0.25; $40 million; 5.1 million oz)
  • Pretium Resources ($7.40; $1,065 million; 7.5 million oz)
  • Detour Gold ($13.66; $2,335 million; 15 million oz)
  • Rubicon Minerals ($1.32; $520 million; 3.3 million oz)
  • Romarco Minerals ($0.45; $559 million; 4.8 million oz)

Now, the above are not really comparable numbers. In the first two companies capital has not yet been invested. The latter three are either fully financed for production, close to production or have recently started production. Moreover, grade and economics of these projects are different. Some of them even have liabilities on their balance sheets.

What we want to emphasise from our numbers is how difficult it will be for a major mining company (which are mostly struggling financially) to offer much of a premium to, say, Detour or Pretium, given their very high valuation. As a result, we just don’t see the kind of money made in the acquisition of COD by FF to be made in the latter three companies.

Gold Canyon has all the ingredients to attract
For the reasons described above, we have focused on Gold Canyon as they are holding a very large and attractive project, but is available to be picked up at a small fraction of valuation of other companies. That is why they offer a possibility of a high upside. Moreover, given that they are not yet in production, it is easier for an acquiring company to put them in hibernation, if gold price does not recover. You cannot do this easily with a project on which capital has been invested.

The junior sector is so risky that we either want to make a home-run (invest for a big upside) or go home (just stay in cash). We have in the past repeatedly mentioned that Gold Canyon’s Springpole project is one of the rare, large gold projects in Canada. Add to that it also has good economics even in today’s gold price environment which is very unusual. We also know that the rumor mill among institutional investors in Toronto is hot about what might be next for Gold Canyon. It has been brought to our attention that some funds have acquired meaningful positions.

The rumors surrounding GCU is all good for us, but it’s not the only reason for our investment. Gold Canyon is holding a large land package which is virtually very much unexplored (see earlier articles, links below) and the current 43-101 resource is based on a very small part of the overall project. With more than 5 Moz in resources, the potential huge upside is what attracts us the most and we feel this also protects our downside.

What the Springpole project need is for someone to take this project forward. Current management has done a tremendous job up until now and created a lot of value in the company. All that value in our view is not reflected in today’s share price, which is the reason why we haven’t sold a single share.

The point we are making is that the M&A activity is at full speed and we expect this to continue throughout 2015. Deals almost always include a junior company on one side and interestingly enough, both juniors and majors are on the hunt for new acquisitions on the other side as seen in the examples above.

Although there are several very low-grade projects available in Canada, many of them are not really economical projects and will never become mines. That is why Gold Canyon’s high grade open pit Springpole project stands out from the rest and should be on everybody’s radar (including companies looking at acquisitions).
Previous articles on Gold Canyon:
* Gold Canyon – What We Are Looking For As Investors
(http://blog.geckoresearch.com/content/8569, Apr 22, 2015)
* Why Gold Canyon is a keeper and should be held on to
(http://blog.geckoresearch.com/content/8510, Apr 18, 2015)
* Gold Canyon – Just How Cheap Is It?
(http://blog.geckoresearch.com/content/8364, Apr 7, 2015)
* Gold Canyon is Heating up – Institutional Buying is Evident
(
http://blog.geckoresearch.com/content/7964, March 6, 2015)
* Ripe for a Take-over – Gold Canyon Resources
(
http://blog.geckoresearch.com/content/7814, February 26, 2015)

Team Gecko Research
www.geckoresearch.com

 

If you like our work, feel free to share this link with your friends for our free newsletter: www.geckoresearch.com/signup

We are not investment advisors and what we write is our own view only. Please read our disclaimer

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Gold Canyon – What We Are Looking For As Investors

Gecko Research, Apr 22, 2015

Price is what we pay. Value is what we get. The difference is our upside.

As we have learned the hard way, too often the upside stays an illusion, simply because the management keeps frittering away the value, either because they are not business-wise or because they use the company credit card to maintain their lifestyle – we call it theft. Of course, in times of fear or greed, despite good management and all their best attempts, value might still go unappreciated. Sometimes the value goes unappreciated for no good reason and we must wait and watch.

We try our best to avoid investing in life-style companies and we have sold companies in the past even though we knew they had significant upside. We held on to them for too long hoping that the market would see value and our share prices would go up. They never did, as the management slowly and surely wasted away the value.

Among the companies we keep an eye on, we not only want an upside from a valuation perspective, but we also try to find a catalyst that would make the upside reflect in the share price. It makes sense since the sooner value reflects in the share price, the earlier we can move our money to another opportunity.

We want to invest our hard earned money with a management that understands this and ensures that they continue to do what provides the best value for their shareholders. If the market is driven by fear (as is the case these days in the mining industry) or greed, we might invest if we see a possible event that bypasses fear and greed. This is what we think is currently the case with Gold Canyon: the possibility of a takeover.

Consider this. During the past week GCU, MGP, ME, INM, and KTN have shown quite a bit of strength, all on the basis of rumors of possible takeovers. We talk to a lot of industry people to stay in touch with the pulse of the market and we are certain about one thing, the mining industry is in consolidation mood.

In our view the best rewards continue to be in Gold Canyon and at $0.24, GCU still looks like the best bargain. We are not here to fall in love with a stock, so we must continue to keep revising and refining our valuation as the stock goes up.

In our note to subscribers dated March 29th (letter #568 – Weekly Update), we said that our ideal price of Gold Canyon would be “way over a dollar/share”. That may sound like a lot, but if anyone starts to crunch the numbers and compare Gold Canyon to Goldcorp’s take-over of Probe Mines (Goldcorp bought Probe Mines for $526 million), you will be happily surprised to your findings. We were.

Our internal valuation is based on the known in-pit resources in the north-western corner of the Springpole project. A vast remaining area – with a possible district level potential – has had no drilling and stays very prospective. Also, Gold Canyon’s CEO Akiko Levinson has very good connections in Japan, which has resulted in their projects in Malawi and Tanzania, both in association with the Japanese government and companies. The structure of the Tanzanian project is such that Gold Canyon has virtually no financial commitments. This does not come easy.

Astute investors might have noticed that Akiko Levinson is also a Director on the board of Kaizen Discovery (KZD), another holding of ours which has massive Japanese backing. What we do know is that Robert Friedland finds the very best people for his companies. We will let you connect these dots.

For now, we continue to give zero value to everything outside the pit considered in the PEA. We continue to give zero value to the African projects. We give no value to the Japanese connections. Why? For we continue to see so much upside still left in Gold Canyon that we will worry about the above when we are at least half way through our per share valuation of Springpole.

Now, a fair question to ask would be why we should be considering NPV that is based on U$1,300/oz gold (assumed gold price in the PEA). One must remember that Springpole is in Canada, and in terms of Canadian dollar, gold price is now higher than what it was when the PEA was released. But the upside does not only come from change in currency values. Oil and steel prices are much lower, so are labor costs in Canada (as a result of fall in mining activities) and equipment.
(This is actually discussed in the Feb 26 podcast we conducted with Gold Canyon’s Technical advisor Quinton Hennigh, link here)

gold_cad_vs_usd

Finally, the cost of electricity used in the PEA is U$0.08/Kw. This will of course be lower now, given that Canadian dollar has fallen, but as this linked article shows, there is a good possibility that the cost of electricity might come down to C$0.06/Kw. This by itself has the potential to save as much as $9 million per year in costs, based on our quick calculations.

The market has not noticed the benefit from the likely cut in electricity price, which eventually it will. This also shows that Canadian government has started to feel the pinch from falling tax revenues. Hopefully they are also feeling the pressure to speed up permitting processes.

So, our current target is based merely on the in-pit resources and even there without taking into account what see as huge benefits from the above reduction in costs. We have given zero value so far to any upside from project area outside the pit as well as for the African projects.

With all these obvious cost reductions as well as a higher gold price (in Canadian dollars), we have advised the Gold Canyon management to update their PEA, to help the market better understand about the latest on their economics. In the meantime, we will be updating our own valuation by taking the above into account.

If we didn’t already own a significant chunk of GCU stock, we would still be accumulating with both hands. But given that we are already invested, we are sitting easy. If for any reason it weakens we will buy more. We are not investment advisors but if you haven’t bought any so far, it might be worth considering buying a small position and placing some stink bids. You never know, Gold Canyon might just be the next junior to be taken out.
Previous articles on Gold Canyon:
* Why Gold Canyon is a keeper and should be held on to
(http://blog.geckoresearch.com/content/8510, Apr 18, 2015)
* Gold Canyon – Just How Cheap Is It?
(http://blog.geckoresearch.com/content/8364, Apr 7, 2015)
* Gold Canyon is Heating up – Institutional Buying is Evident
(
http://blog.geckoresearch.com/content/7964, March 6, 2015)
* Ripe for a Take-over – Gold Canyon Resources
(
http://blog.geckoresearch.com/content/7814, February 26, 2015)

Team Gecko Research
www.geckoresearch.com

 

If you like our work, feel free to share this link with your friends for our free newsletter: www.geckoresearch.com/signup

We are not investment advisors and what we write is our own view only. Please read our disclaimer

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Why Gold Canyon is a keeper and should be held on to

Gecko Research, Apr 18, 2015

The following was part of our ‘Weekly Update’ newsletter that we sent to subscribers today.

———————————————————————————————————–

On April 10th we posted a short piece containing some technical analysis on GCU (Is Gold Canyon getting ready for a breakout?). Although technical analysis is useful to us, it’s not 100% reliable. This time it was though and we have just seen GCU breaking out on good volume. The stock gained 11% on Friday alone with more than 700,000 shares traded. Readers who bought on our Feb 25th investment idea are now enjoying a 47% gain.

GCU_Apr17_2015
Under normal circumstances we would be taking profits and start to trade a stock like GCU, but we won’t. Here are some reasons why:

1) M&A activity is strong and if we see other juniors taken out, that will increase the interest for GCU even more
2) Rumors of a possible take-over are still intense (consider that Gold Canyon’s Springpole deposit is one of the largest undeveloped gold resources in Canada in the hands of a junior)
3) We find the stock greatly undervalued
4) GCU can be thinly traded from time to time and to get back in could turn out to be a difficult task
5) The chart looks like a dream from a technical perspective

Golden_Cross_in_GCU_coming
The chart above is self-explanatory but we’ll say a few words for those that are not so familiar looking at charts. A (positive) Golden Cross is when a shorter term moving average (MA50) is crossing the longer term moving average (MA200) to the upside. As you can see in the chart above, that is about to happen soon and is considered to be a very bullish sign as it confirms a new trend. There is a saying, “Let the trend be your friend”, and we feel this is very true for Gold Canyon. We can see that the stock has created an almost perfect V-shaped bottom and with a new up-trend being confirmed soon, we are holding on to our shares.

Even if “Golden crosses” aren’t 100% predictable to determine future price moves, it’s loved by many and seen as very bullish. The same is true for the “negative” golden cross as we point out in red which happened around Oct 1st, 2014.

(Technical Analysis is the forecasting of future financial price movements based on an examination of past price movements. Like weather forecasting, technical analysis does not result in absolute predictions about the future. Instead, technical analysis can help investors anticipate what is “likely” to happen to prices over time.)

 

Previous articles on Gold Canyon:
* Gold Canyon – Just How Cheap Is It?
(http://blog.geckoresearch.com/content/8364, Apr 7, 2015)
* Gold Canyon is Heating up – Institutional Buying is Evident
(
http://blog.geckoresearch.com/content/7964, March 6, 2015)
* Ripe for a Take-over – Gold Canyon Resources
(
http://blog.geckoresearch.com/content/7814, February 26, 2015)

Team Gecko Research
www.geckoresearch.com

If you like our work, feel free to share this link with your friends for our free newsletter: www.geckoresearch.com/signup

We are not investment advisors and what we write is our own view only. Please read our disclaimer

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BLOG: Is Gold Canyon getting ready for a breakout?

Gecko Research, April 10, 2015

Normally, a flag formation is a short term chart pattern which in our experience have been proved to be quite reliable. After a leg up, which we had, the stock trades in a sideways pattern (the flag) until the price moves above the upper trendline, which is when the trend continues up.

Making a technical analysis on a small and thinly traded stock like GCU is always more risky and less predictable, but nevertheless, it will be interesting to observe the near-term in GCU.

gcu_apr10_2015

 

Gold Canyon – Just how cheap is it?

Gecko Research, Apr 7, 2015

The Importance of a Good Management

Since the bear market for gold started in 2011, we have seen valuations in the gold companies come down significantly. Not only that, we have also witnessed a lot of value completely vanish in the companies themselves, and in many cases, never to return again. The way we see it, the cause of the destruction of value within the companies, is due to two major reasons besides the obvious, the price of gold. The first one is the poor quality of management. The second reason is that the companies’ flagship property never had enough quality to make it in the first place.

Is it really that simple? Of course we are simplifying a bit, but this is the way we see things. We are also of the opinion that just as a bad management can destroy a decent or even good project, a great management can make a so-so property work enough to eventually become a mine.

It makes sense to remind ourselves of what a venture company is supposed to do. They are supposed to be ventures, where a team develops a project using its competencies and then passes on the baton to someone else who has different set of competencies to keep moving it forward. A generative company is not necessarily good at exploring and exploration is a totally different business than being a miner. Therefore, projects might change hands many times before getting into production.

Managements, being human beings, are afraid of losing their jobs. They stay on despite having outlived their use since they are comfortable with a regular salary and life-style. What we do know is that the management of Gold Canyon is not like this, we have found that they really work in the shareholders’ best interest. They will move on when the time comes and handover the project to those who can take it further. We think that time has come.

As a reminder to our readers, management of Gold Canyon has no management contracts with change of control payouts (aka golden parachute payments), a rarity in a business where this is how it should be.

Some Reflections on the Price of GCU

* At the peak almost to the day four years ago, GCU hit its all-time-high around $4.25
* End of July 2014, (~8 months ago) GCU hit 42 cents
* December 9th, 2014, GCU made a low at 9 cents
* Six weeks ago on Feb 26th, we added GCU to our portfolio at 17 cents

When we are writing this article, the price of Gold Canyon is C$0.21 which gives the company a market capitalization of $33 Million. How can one determine if that is cheap or perhaps even expensive? In all honesty, to compare to the >4 dollar share price in 2011 does not make much sense today, but we feel the same when comparing to the low set in December as well and we see a lot of upside in Gold Canyon. Let us point to why.

Making Our Point – How Deficits and Book Value Can Add a Lot of Value

Most investors use a company’s book value and deficit at the end of their analysis work, to assess tax liabilities. Mostly, this is how it should be. Book value and deficit mostly make no sense if a project is uneconomical or is too far from production. But there is an interesting twist that must be considered.

Book value and deficit have values by themselves, independent of the projects. For example, assume what would happen if a profit-making company acquires another company with $100 million in deficit and book value combined and no project of value. If the corporate tax is 35%, such an acquiring company would save $35 million in its tax liabilities. So, it makes sense to look at the balance sheet of companies to see if they have value from a mere tax perspective.

Gold Canyon (GCU) has $74 million of asset value, most of which comes from their Canadian project, Springpole. They also have an accumulated deficit of $42 million. While not all of this deficit can be used for tax purposes, given complex tax regulations, and some might have expired, to us it is clear that between $74 million and $116 million is available to be written off for tax purposes for an acquiring company. As we wrote earlier, our thesis to own Gold Canyon in the first place is for GCU being an obvious take-over target.

At the current share price of $0.21, Gold Canyon’s market capitalization is $33 Million. In our opinion, and in a very interesting way, just the balance sheet of Gold Canyon is worth close to its current market capitalization for a profit-making acquiring company. Of course, as we wrote earlier, Springpole is one of the better and rare big Canadian gold projects available.

A Fair Value

Although, GCU has gone up quite a bit since our first recommendation (when the share price was $0.17), given tax benefits Gold Canyon’s balance sheet offers to an acquiring company, you might still be getting the project for almost no value. We cannot stress enough how strongly we feel that someone should take Gold Canyon out, someone with good mining skills to put Springpole into production. No one can dispute the fact that the current management of Gold Canyon has put the company on a silver platter for the right mining company to take the Springpole project to production.

How much are GCU shares worth then? Well, the numbers we are working on internally is no use to publish here, we would be called fools for sure, that is how high our valuation is on GCU. We recognize that the market is what it is right now, but we do not see why the Springpole project would not be worth ~$200 Million to an acquiring company. Add another $30-40 Million or so in built up deficit and book value combined and a fair price for GCU would arrive at ~$1.25/share. We are not naïve enough to think that will happen in today’s environment but anything less than half of that would seriously disappoint us. And remember, if Gold Canyon would get a “Probe-Mines-valuation” (Goldcorp to buy Probe Mines for $526 million) a bid could be reaching our internal numbers.
That answers our initial question pretty well we think, “Gold Canyon – Just how cheap is it?”.

Previous articles on Gold Canyon:
* Gold Canyon is Heating up – Institutional Buying is Evident
(
http://blog.geckoresearch.com/content/7964, March 6, 2015)
* Ripe for a Take-over – Gold Canyon Resources
(
http://blog.geckoresearch.com/content/7814, February 26, 2015)

Team Gecko Research
www.geckoresearch.com

If you like our work, feel free to share this link with your friends for our free newsletter: www.geckoresearch.com/signup

We are not investment advisors and what we write is our own view only. Please read our disclaimer

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