Gold Canyon Resources (gcu.v)
* Shares out: ~184m
* Share price: C$ 0.17
* Mcap: C$ 31 Million
* Cash position: Between C$ 1.5-2 Million
* Website: www.goldcanyon.ca
* Latest Presentation (pdf)
* Springpole Gold Project – Useful Facts & Links
First off, let us quote ourselves from an earlier newsletter:
“We would like to find a “special circumstance” in the company for it to stand out in comparison to the rest. We are mostly focused on identifying small junior companies as we think they will be subjects to a coming wave of M&A activity during this year. For a large producer, there are plenty of companies/projects out there to gobble up on the cheap.”
In Gold Canyon, we think we have identified more than one special circumstance to motivate us to buy a position. Not only that, we have also made this holding larger than the other holdings we have in our “High risk – High reward, a portfolio within the portfolio” (link).
Before we start talking about Gold Canyon’s core asset which makes this an obvious take-over target, here’s the first “special circumstance”. Two funds, Pinetree and Sprott (no secret here, everybody knows), have since December been forced to liquidate holdings and Gold Canyon was severely hit by this and we see that as a clear over-reaction. This would be our first special circumstance.
When the stock was trading at 11 cents, we were buyers at 10c and unfortunately we didn’t get any shares down there. But we like this stock even at today’s price (16.5-17c) and it’s at these levels we have built a position for ourselves. It was quite obvious that a bounce would come when the large selling was over with and we suspect that GCU at today’s levels is just “breathing a bit” before the next run up.
We don’t prefer to value a company for their ounces in the ground, but when something gets too cheap, it’s easy to point out. Gold Canyon has 4.4 Million ounces in Indicated resources and another 0.7 Moz in Inferred. With today’s Mcap of ~31 Mcad, 5.1 Million ounces in the ground are valued at US$5/oz. In our mind, that’s too cheap and we consider this to be our second special circumstance.
The Springpole Gold Project
Before we invested in Gold Canyon, we consulted one of the geologists in our network and had him look over the Springpole Gold Project, we got very good feedback. The deposit is an open pit, bulk tonnage with good grades at surface (~2gpt) and simple metallurgy. It’s located in Northwest Ontario, Canada, around 70 miles from the Town of Red Lake.
Since the Preliminary Economic Assessment (PEA) was done in 2013 a lot has changed in terms of costs for the mining industry. Not only has material and machinery become cheaper, the same is also true for labor and energy. So even at $1,200 gold (the PEA was done @ $1,300) we think there’s reason to believe that the economics are even better today despite a lower gold price. This has strengthen our view that this is a very robust project and we would go as far as saying that this is exactly what a large mid-tier or even a major is looking for.
To paraphrase Mr. Hennigh from the interview (see below) we did on Tuesday, “There’s a strong likelihood that both the capex and the operating cash cost would come down significantly and it would make an even stronger case today despite the lower gold price”. One should keep in mind that the $438 Million capex for a 20,000 tpd operation is not shabby in the first place. If that number is lower today, as many indications suggests, it’s easy to see why this project is ripe to be taken over. According to the PEA, cash cost was estimated to be US$636/equivalent ounce gold (eq.oz Au) with all-in cost of US$860/eq.oz Au.
What is even more favorable now compared to when the PEA was published, is the relation between USD/CAD. The Canadian dollar has come down a good 20% against the US dollar which will do wonders for the cash cost. Put in a different way, gold is trading at $1,500 Canadian today.
With what has been drilled to date and what we know today, the Springpole project is in our view of very high quality but interestingly enough, the majority part of the mineralization is still untouched as only a small north-western section of the project has ever been drilled (and still Gold Canyon has shown >5 Million ounces). The rest of the project offers significant opportunities to expand the currently known resources and to discover new areas of mineralization. In terms of exploration upside and resource growth, we assume the potential is definitely there to actually double the size of the deposit.
There is always risk involved, as with all investments. The companies we chose to invest in and write about should be considered nothing but high risk. The biggest risk we see in the near term (0-9 months, we don’t intend to hold it any longer than that) is Gold Canyon’s financial situation. The company has enough money to muddle along, perhaps even through the fall, but the low cash position is to us the largest risk with this investment. GCU doesn’t have the kind of cash to aggressively take the Springpole project forward and there are also no guarantees that they will be able to raise more cash when needed.
Gecko Podcast interviewing Mr. Quinton Hennigh
On Tuesday of this week, we talked to Quinton Hennigh, technical advisor and a Director on the Gold Canyon Board. Quinton has a background as an exploration geologist with Newmont Mining Corp., Newcrest Mining, and Homestake Mining.
In the interview we learned some of the history of Gold Canyon. Did you know that the company is one of the oldest listed companies on the Venture exchange with over 30 years of listing? We didn’t. Another interesting detail is the fact that Gold Canyon has never done a share rollback, the share structure as we see today is the original one since day one.
We’ll make this short. Gold Canyon is all about risk vs. reward. The special circumstances mentioned above makes it very clear why we see a lot of value and upside at 17 cents with very limited downside. As we have stated before, we feel strongly that 2015 is the year when large producers and well financed companies should go out and acquire high quality projects. Gold Canyon has a very high quality project and if our assumptions/guesses are anywhere near the truth, GCU’s flagship property could be a world class mine in the making.
There aren’t many 5-10 Million ounce gold projects located in one of the best and safest jurisdictions in the world. And of the ones that actually exist, how many are up for grabs?
Team Gecko Research
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