Nov 06, 2019 (Financial News Media via COMTEX) -- FN Media Group Present Oilprice.com Market Commentary
London - November 6, 2019 – Gold is soaring closer and closer to $1,500 per ounce right now, but imagine it was possible to get it for just $3 an ounce. That's exactly what Wall Street is doing. It does this by targeting junior miners with major upside. Finding the undervalued global gold assets that will become the heart of the next gold boom. And if the research by Cantor Fitzgerald and GMP Research is anything to go by...one company is well positioned to ride the wave of the coming explosion in gold prices. Mentioned in today's commentary includes: Seabridge Gold Inc. /zigman2/quotes/207154993/composite SA +0.93% , Teck Resources /zigman2/quotes/208435438/composite TECK +0.48% , Turquoise Hill Resources /zigman2/quotes/208953645/composite TRQ +8.25% , Great Panther Mining /zigman2/quotes/208654521/delayed CA:GPR +5.36% , Endeavour Silver Corp. /zigman2/quotes/202649204/composite EXK +0.90% .
Euro Sun Mining ( ESM – CPNFF ), owner of the second largest gold mine in Europe. In fact, Canton Fitzgerald estimates that Euro Sun could be undervalued by as much as 500%, while GMP Research predicts a 671% gain.
That's because we are running out of gold, and with geopolitical and economic fears soaring - the majors know that they need to find more. And that's where junior miners like Euro Sun are set to win big.
It's all happening in Romania. At a mine estimated to have over $13 billion in gold well within reach.
Euro Sun ( ESM , CPNFF ) now has 100% ownership of roughly 400 million tons of ore in three discreet bodies consisting of an estimated 7.1 million ounces of gold and a billion and a half pounds of copper working out to about 10.1 million ounces of gold equivalent.
So how does Wall Street find discount gold?
This is the math:
Euro Sun has an estimated 10.1 million ounces in the ground at Rovina Valley.
The price of gold right now is $1,490 an ounce.
Euro Sun can extract this gold for under $800/ounce AISC (all-in sustaining costs).
That means gold worth ~$7 billion AFTER all costs of extraction.
Euro Sun is trading at only $0.32/share (CAD)
So, instead of paying around $1,500 an ounce for gold, Wall Street can get it for under $3.
A Wildly Undervalued Company
At a current gold price of $1,490 per ounce, Euro Sun (ESM, CPNFF) is sitting on an estimated $15 billion in gold and copper revenue. Yet, the company is currently valued at ~$26 million.
Rovina's low AISC (All-in Sustaining Costs) of $752 an ounce leaves a healthy profit margin of $550 an ounce at current gold prices and a $60-$70 million free cash flow every year. This implies that Rovina and, consequently, Euro Sun Mining ( ESM , CPNFF ) should be valued much higher. In other words, right now, Euro Sun could be worth 140X its current value.
Again, Euro Sun is trading at only $0.32 right now, with a market cap of only ~$26 million (at the time of writing). Analysts know it's worth more, perhaps far more. Cantor Fitzgerald's short-term price target is $2.10. That would equal a massive 1,000% upside. GMP Research has given it a $3.00 price target, equivalent to a potential 1,500% increase.
And The Opportunity Is Getting Even Bigger
Wall Street is running for safe havens for two reasons:
The Middle East is about to implode, with the brazen bombing of oil facilities belonging to the kind of oil, Saudi Arabia.
In the middle of a never-ending trade war, smart money is already moving into hard assets because they see the equities bull run has gone on for far too long. It's going to reverse, and gold is the key hard asset. That's where everyone goes, first.
Recession is the anticipation amid a global economic slowdown that has seen a flattening of corporate profits. As billionaire investor Paul Tudor recently told Bloomberg, gold has everything going for it right now and could zoom to $1,700 per ounce in a matter of months. But the real money isn't in buying the bullion itself. It's in getting exposure to gold at a discount. A technique for buying ounces of gold at cents to the dollar.
One way to do this is to look for quality companies which are scaling rapidly behind the scenes.
Take Seabridge Gold Inc. /zigman2/quotes/207154993/composite SA +0.93% , for instance. It is an ambitious young company that has taken the industry by storm. It has a unique strategy of acquiring promising properties while precious metals prices are low, expanding through exploration, and then putting them up for grabs as prices head upward again.
Or Great Panther Mining /zigman2/quotes/208654521/delayed CA:GPR +5.36% . Great Panther is active in Brazil and Mexico where it explores for silver, gold, lead, and zinc ores. According to a recent statement in the press, the focus in the near-term will be on the integration of the Brazilian operations, the continued optimization of the Tucano gold mine, and advancing an exploration program to unlock the significant exploration potential of Tucano.” Now the company has managed to bump production and add to its reserves, the near-term catalyst needs to come from higher gold and silver prices.
Another sleeper set to enjoy a rally in precious metals is Endeavour Silver Corp. (NYSE:EXK). It operates three silver-gold mines in Mexico, but it's also got three attractive development projects. Production has dropped and all-in sustaining costs have risen, leading to a negative cash flow. But the company has significantly reduced its debt, so its future is anything but bleak. Near term catalysts should be expected from the El Cubo and Terronera projects in Mexico, but real share price gains can't be expected until gold and silver prices break out.
Gold mining is a tough business and getting progressively harder with the easy-hanging fruit in open pit mines now mostly gone. For every ounce a Barrick pulls out of the ground – they typically have 11-12 ounces in undeveloped projects. A large operator might have 60-80 million ounces of gold in proven reserves.
Wall Street can generate phenomenal returns by owning shares in A+ level companies, with A+ level deposits that aren't yet in production. Instead of paying $1,450 per ounce from a gold broker. Wall Street can pay $100... $50, $25...even $3 per ounce. When gold inevitably skyrockets - Wall Street is likely to benefit from extraordinary leverage.