RSG Admin
09-08-2009, 02:20 PM
By: Boris Sobolev, Resource Stock Guide
September 7, 2009
The following are excerpts from RSG Newsletter (http://resourcestockguide.com/home_page.php?drc=0&hpc=29&nid=82&t=2) dated September 5, 2009.
White House Holding USD Back, Pushing Gold Higher
New Additions to the RSG Database
Apollo Gold Corp.(AGT) - $0.42
White House Holding USD Back, Pushing Gold Higher
At the end of August, the White House Office of Management and Budget released its first revision to President Obama’s budget for the next 10 years. As we have expected, planned debt growth for the next decade has been revised upwards.
This year, the Budget deficit will reach 11.2% of the GDP, up from 3.4% in 2008. Growth in government debt (i.e. cumulative budgetary deficits) for the next decade is now projected to be $2 trillion larger than previously expected, up to $9.05 trillion cumulative increase. As a result, the Obama Administration expects that in 2019 the debt to GDP ratio will reach 77% up from 41% in 2008. But this is only the first revision – many more will follow. The 100% debt to GDP ratio will be breached sooner than expected in the next decade.
http://resourcestockguide.com/files/newsletters/newsletter082/04.gif
In this rather unfortunate but likely scenario, the debt servicing part of the GDP will become ominously bloated even in the unlikely event that interest rates remain low. So what should be done about this debt trap and what is the government going to do? Somehow improve GDP growth, raise taxes, lower spending or perpetuate this reckless behavior by debt monetization? You decide.
But let us not blame the US alone for this policy of fiscal lack of restraint. Europe and Japan are not in much better shape.
We believe that easy money policy facilitated by a perceived threat of deflation will continue to be the standard for most developed countries for many years to come. This is why gold is finally rallying in all major world currencies.
New Additions to the RSG Database
Romarco Minerals, Inc. (R.V) - CA$1.11
Romarco Minerals is a noteworthy development stage company which owns 100% of the Haile Gold Mine in South Carolina. The mine is currently in the bankable feasibility stage. Haile currently has 1.50 million ounces of gold in reserves (proven and probable) with 3.26 million total gold resource (including inferred). Grades are good at 2.2 grams per tonne and the resource is open for further expansion.
The February 2009 feasibility study outlined:
Production of average 128,000 ounces of gold per annum
Production of 289,000 ounces of silver per annum
Low Cash costs of $262 per ounce
Total production costs of $450 per ounce (capital, bonding, taxes, DDA)
1.3 million ounces of gold in mineral reserves (has been revised upwards since)
Capital Costs of $153 million
Internal Rate of Return (IRR) at gold price of $950 of 37%
The Company now intends to update its reserve estimate and mine plan this fall after completing a significant portion of the 2009 drilling program.
The stock is 85% owned by institutional investors, which leaves only around 26 million in shares as public float. Hence the stock can move dramatically. Over the past 12 months, Romarco has appreciated around 10-fold.
http://resourcestockguide.com/files/newsletters/newsletter082/15.gif
Romarco Minerals in not cheap by any means. Investors like further upside offered by the Company and its potential to become an acquisition target but unless the Company can substantially increase its mineable reserve, the valuations are currently out of line. We would be interested in taking a position only upon a significant pullback to at least $0.70 to $0.90 depending on further developments.
Enterprise Value - $270 million
Cash - $14.5M
Total Resource – 3.3 Moz gold
EVPU - $83.1 per ounce
In Situ Value - $3.2 billion
Adjusted Speculative Potential (ASP) – 229%
Guyana Goldfields, Inc. (GUY.TO) – CA$4.60
Guyana Goldfields is focused primarily on the exploration and development of gold deposits in northern Guyana in South America.
The Company expects to begin production at its Aurora Gold deposit in 2012. The project contains an indicated resource of 24.1 million tonnes at 4.1 g/t for 3.2 million ounces and an inferred resource of 12.9 million tonnes at 3.3 g/t for 1.4 million ounces. The size and potential of the project should be of interest to some mid-tier producers.
The August 2009 preliminary economic assessment outlined the following results at gold price of US$950 per ounce:
Pre-tax IRR of 27%, NPV of US$678 million at a discount rate of 7% per year, and a payback of 3.9 years
Pre-production capital expenditures ~ US$300M
Operating Cash Costs of US$364 per oz
Total gold produced - 4.0 million ounces
Average annual gold production - 250,000 ounces (based on 16 full years of production)
Guyana Goldfields intends to finalize its Definitive Feasibility Study, Hydroelectric Feasibility Study and receive permits to build and operate mine as soon as Q1 2010.
http://resourcestockguide.com/files/newsletters/newsletter082/16.gif
The stock is fairly priced at current levels. We are not buyers at this time but will keep Guyana on our radar screen.
Enterprise Value - $256 million
Cash - $23M
Total Resource – 5.4 Moz gold
EVPU - $47.4 per ounce
In Situ Value - $5.4 billion
Adjusted Speculative Potential (ASP) – 317%
Apollo Gold Corp.(AGT) - $0.42
Apollo’s stock faced some selling pressure in August as the Company announced that lower than expected July production has triggered a ‘review event’ with the bank. Some analysts have gone as far as to erroneously claim that Apollo was in technical default on its $70 million debt. This is simply untrue.
A review event is a way for the bank to force the borrower to provide information on any substantial negative developments. Upon a review event, the bank could decide to start to play a greater role in management’s decision process or look at rescheduling debt repayments.
Apollo’s mining grades were lower than expected in July which caused production for the month to be 61% of the projected amount. Apollo is not in breach of any debt covenants. What has the market worried is that the Company will be unable to make its scheduled debt payment of $9.3 million this month. We also believe that it will be difficult for Apollo to make that payment, but it can be expected that in the next couple of weeks, the Company will announce a deal with the bank where the payment will be reduced or deferred.
Apollo’s lender holds around 88 million shares and warrants of the stock. All of the warrants are now in the money (if they were to be exercised, Apollo would receive over $20 million in cash and lenders would own around 30% of the Company), so the lender has a direct interest in keeping the shares at a high level. Its interests are closely aligned to the interests of Apollo’s shareholders.
The bigger problem for Apollo’s management is to learn how to control the grade. A number of improvements to mining processes are now being made which should improve Q3 operations substantially. Already, the first half of August looked much better than July. The good news is that the mill is operating very well - between 1,800 and 2,000 tonnes per day. Once grades are better controlled, production should rise to 100,000 to 120,000 ounces annual rate. We think this could happen by Q4 of this year.
40% of Apollo’s production for the next three and a half years is hedged at $876/oz. As production increases, more gold will be sold at the spot price, increasing cash flow even further. In addition, projected capital expenditures are expected to be only $2 million to $4 million over the next 12 months. By the year end, Apollo should have plenty of cash being generated from operations. As grade issues are resolved over the next couple of months, the stock should move higher. We have confidence in Apollo’s management. They are trustworthy people who have been very open and forthcoming to investors and analysts.
http://resourcestockguide.com/files/newsletters/newsletter082/17.gif
We have previously stated that Apollo’s shares can be accumulated in the upper $0.30s. There were plenty of opportunities to buy Apollo between $0.37 and $0.39 over the past two weeks and we did so, on a number of occasions. The stock is very cheap and we have to be patient as the first few months of production are always difficult. We are confident that patience will be richly rewarded.
The Company should provide the latest production update on September 14 for the Denver Gold Forum. This could give a much needed catalyst for the stock.
September 7, 2009
The following are excerpts from RSG Newsletter (http://resourcestockguide.com/home_page.php?drc=0&hpc=29&nid=82&t=2) dated September 5, 2009.
White House Holding USD Back, Pushing Gold Higher
New Additions to the RSG Database
Apollo Gold Corp.(AGT) - $0.42
White House Holding USD Back, Pushing Gold Higher
At the end of August, the White House Office of Management and Budget released its first revision to President Obama’s budget for the next 10 years. As we have expected, planned debt growth for the next decade has been revised upwards.
This year, the Budget deficit will reach 11.2% of the GDP, up from 3.4% in 2008. Growth in government debt (i.e. cumulative budgetary deficits) for the next decade is now projected to be $2 trillion larger than previously expected, up to $9.05 trillion cumulative increase. As a result, the Obama Administration expects that in 2019 the debt to GDP ratio will reach 77% up from 41% in 2008. But this is only the first revision – many more will follow. The 100% debt to GDP ratio will be breached sooner than expected in the next decade.
http://resourcestockguide.com/files/newsletters/newsletter082/04.gif
In this rather unfortunate but likely scenario, the debt servicing part of the GDP will become ominously bloated even in the unlikely event that interest rates remain low. So what should be done about this debt trap and what is the government going to do? Somehow improve GDP growth, raise taxes, lower spending or perpetuate this reckless behavior by debt monetization? You decide.
But let us not blame the US alone for this policy of fiscal lack of restraint. Europe and Japan are not in much better shape.
We believe that easy money policy facilitated by a perceived threat of deflation will continue to be the standard for most developed countries for many years to come. This is why gold is finally rallying in all major world currencies.
New Additions to the RSG Database
Romarco Minerals, Inc. (R.V) - CA$1.11
Romarco Minerals is a noteworthy development stage company which owns 100% of the Haile Gold Mine in South Carolina. The mine is currently in the bankable feasibility stage. Haile currently has 1.50 million ounces of gold in reserves (proven and probable) with 3.26 million total gold resource (including inferred). Grades are good at 2.2 grams per tonne and the resource is open for further expansion.
The February 2009 feasibility study outlined:
Production of average 128,000 ounces of gold per annum
Production of 289,000 ounces of silver per annum
Low Cash costs of $262 per ounce
Total production costs of $450 per ounce (capital, bonding, taxes, DDA)
1.3 million ounces of gold in mineral reserves (has been revised upwards since)
Capital Costs of $153 million
Internal Rate of Return (IRR) at gold price of $950 of 37%
The Company now intends to update its reserve estimate and mine plan this fall after completing a significant portion of the 2009 drilling program.
The stock is 85% owned by institutional investors, which leaves only around 26 million in shares as public float. Hence the stock can move dramatically. Over the past 12 months, Romarco has appreciated around 10-fold.
http://resourcestockguide.com/files/newsletters/newsletter082/15.gif
Romarco Minerals in not cheap by any means. Investors like further upside offered by the Company and its potential to become an acquisition target but unless the Company can substantially increase its mineable reserve, the valuations are currently out of line. We would be interested in taking a position only upon a significant pullback to at least $0.70 to $0.90 depending on further developments.
Enterprise Value - $270 million
Cash - $14.5M
Total Resource – 3.3 Moz gold
EVPU - $83.1 per ounce
In Situ Value - $3.2 billion
Adjusted Speculative Potential (ASP) – 229%
Guyana Goldfields, Inc. (GUY.TO) – CA$4.60
Guyana Goldfields is focused primarily on the exploration and development of gold deposits in northern Guyana in South America.
The Company expects to begin production at its Aurora Gold deposit in 2012. The project contains an indicated resource of 24.1 million tonnes at 4.1 g/t for 3.2 million ounces and an inferred resource of 12.9 million tonnes at 3.3 g/t for 1.4 million ounces. The size and potential of the project should be of interest to some mid-tier producers.
The August 2009 preliminary economic assessment outlined the following results at gold price of US$950 per ounce:
Pre-tax IRR of 27%, NPV of US$678 million at a discount rate of 7% per year, and a payback of 3.9 years
Pre-production capital expenditures ~ US$300M
Operating Cash Costs of US$364 per oz
Total gold produced - 4.0 million ounces
Average annual gold production - 250,000 ounces (based on 16 full years of production)
Guyana Goldfields intends to finalize its Definitive Feasibility Study, Hydroelectric Feasibility Study and receive permits to build and operate mine as soon as Q1 2010.
http://resourcestockguide.com/files/newsletters/newsletter082/16.gif
The stock is fairly priced at current levels. We are not buyers at this time but will keep Guyana on our radar screen.
Enterprise Value - $256 million
Cash - $23M
Total Resource – 5.4 Moz gold
EVPU - $47.4 per ounce
In Situ Value - $5.4 billion
Adjusted Speculative Potential (ASP) – 317%
Apollo Gold Corp.(AGT) - $0.42
Apollo’s stock faced some selling pressure in August as the Company announced that lower than expected July production has triggered a ‘review event’ with the bank. Some analysts have gone as far as to erroneously claim that Apollo was in technical default on its $70 million debt. This is simply untrue.
A review event is a way for the bank to force the borrower to provide information on any substantial negative developments. Upon a review event, the bank could decide to start to play a greater role in management’s decision process or look at rescheduling debt repayments.
Apollo’s mining grades were lower than expected in July which caused production for the month to be 61% of the projected amount. Apollo is not in breach of any debt covenants. What has the market worried is that the Company will be unable to make its scheduled debt payment of $9.3 million this month. We also believe that it will be difficult for Apollo to make that payment, but it can be expected that in the next couple of weeks, the Company will announce a deal with the bank where the payment will be reduced or deferred.
Apollo’s lender holds around 88 million shares and warrants of the stock. All of the warrants are now in the money (if they were to be exercised, Apollo would receive over $20 million in cash and lenders would own around 30% of the Company), so the lender has a direct interest in keeping the shares at a high level. Its interests are closely aligned to the interests of Apollo’s shareholders.
The bigger problem for Apollo’s management is to learn how to control the grade. A number of improvements to mining processes are now being made which should improve Q3 operations substantially. Already, the first half of August looked much better than July. The good news is that the mill is operating very well - between 1,800 and 2,000 tonnes per day. Once grades are better controlled, production should rise to 100,000 to 120,000 ounces annual rate. We think this could happen by Q4 of this year.
40% of Apollo’s production for the next three and a half years is hedged at $876/oz. As production increases, more gold will be sold at the spot price, increasing cash flow even further. In addition, projected capital expenditures are expected to be only $2 million to $4 million over the next 12 months. By the year end, Apollo should have plenty of cash being generated from operations. As grade issues are resolved over the next couple of months, the stock should move higher. We have confidence in Apollo’s management. They are trustworthy people who have been very open and forthcoming to investors and analysts.
http://resourcestockguide.com/files/newsletters/newsletter082/17.gif
We have previously stated that Apollo’s shares can be accumulated in the upper $0.30s. There were plenty of opportunities to buy Apollo between $0.37 and $0.39 over the past two weeks and we did so, on a number of occasions. The stock is very cheap and we have to be patient as the first few months of production are always difficult. We are confident that patience will be richly rewarded.
The Company should provide the latest production update on September 14 for the Denver Gold Forum. This could give a much needed catalyst for the stock.