Andean American Gold (AAG)
Oct. 8, 2010.... $1.00
Capex... $101 million
Portfolio @ 0.92 +0.08 / 8.7%
Over the course of looking at many companies with projects and different phases of development. I have come across some great companies that are cheap for their resources and outlook going forward, and Andean American Gold (AAG) is no exception.
This one looks like a great for one for the kids' college fund. One strategy to find great investment opportunities is to identify projects that are entering into the next phase from exploration to mine development. If you can identify an explorer that has a project that will be entering production in the near term (12 - 18 months), some good money can be made as historically those companies market caps perform well as they get revalued from and explorer to a developer as production nears.
Andean American Gold certainly falls into this category, AAG is working on developing the Invicta project in Peru. This is a near term project that is currently negotiating final financing and going into building a mine at Invicta and be in production within 12 months. The project has robust economics, an initial 5 year mine life, with annual free cash flow of $65M, and a NPV of $265M discounted at 8%. Considering that AAG is negotiating financing to construct the mine, have hired staff and made a public announcement that they are changing focus from exploration to development, the Invicta project looks like it will go ahead in Peru. At around a $100M market cap currently, based on the economics of the 5 year project, AAG.V is undervalued considerably and should trade closer to $2. AAG.V anticipates commissioning The Invicta Project in the 4th quarter of 2011. These econmics ingore the continuing soaring price of metals and at today's prices looks even better.
What bodes well for the AAG and its Invicta soon to be mine is that it is based on only the Proven and Probable category which is 7.8M tonnes at 2.14 g/t au, 18.76 g/t ag, 0.52% cu, 0.38% Pb, and 0.3% Zn. The total resource is indicates much more and drilling will continue while the mine is in production to upgrade inferred resource as well as include new recent high grade discoveries. Even with the lower grade inferred resource it averages $69 / ton rock which is still much higher than the projected $28/tonne operating cost. This all indicates that the Invicta Project will be in production for much longer than the initial 5 year mine plan. Especially with the new high grade discoveries on the property. AAG.V looks like a steal for the Invicta Project alone.
Total Resource at the Invicta Project is outlined below including 1M oz's of gold, 10M oz's silver, 200M lbs copper.
AAG.V also has a 60% interest in the Sinchao Property. This is a lottery ticket. The Sinchao Project in Peru is potentially going to be a monster. It has a very good profile and also ties into my investment theme of buying value. Sinchao Metals Corp (SMZ) owns the other 40% of this monster project. At $20M market cap is probably better upside to this massive low grade project.
Currently inferred resources are measured at 217M tonnes grading 0.47% Cu, 0.49 g/t Au, and 12.1 g/t Ag. That is 2.45B lbs of Copper, 3.73M oz's of Gold and 92M oz's of Silver. At current metal prices is $62 per ton. The Sinchao Project is another one of those low grade projects whose economics are starting to look very good.
Not only that but recent geological interpretations have indicated that the Sinchao property could have an additional resources of...
400 - 600M tonnes @ 0.3 - 0.5 g/t Au, 0.4% - 0.6% Cu, 6 - 8 g/t Ag
- 3.85M oz - 9.64M oz Gold
- 3.2B lb - 7.2B lbs Copper
- 77M oz - 154M oz Silver
400 - 600M tonnes @ 0.2 - 0.3 g/t Au, 0.1% - 0.3% Cu, 4 - 6 g/t Ag
- 2.57M oz - 5.78M oz Gold
- 800M lbs - 3.6B lbs Copper
- 51M oz - 115M oz Silver
Hydrothermal Breccia Zone
700M - 1B tonnes @ 0.2 - 0.4 g/t Au, 0.2% - 0.4% Cu, 10 - 12 g/t Ag
- 4.5M oz - 12.9M oz's Gold
- 2.8B lb - 8B lb Copper
- 225M oz - 386M oz Silver
The Sinchao project is a project that could an absolute monster and certainly has potential to become a major mine for years to come at current metals prices. As Gold, Silver, Copper all continue to extend their multiyear rallies, the Sinchao property cannot be ignored going forward.
So to recap... Andean American Gold looks to be a no brainer buy going forward. With plans to be in production next year and robust project economics, as well as a lottery ticket exposure to the absolutely mammoth potential and value of the Sinchao deposit, Andean American Gold is a solid buy going forward and will move up in valuation no matter what price gold goes over the short term b/c it is cheap and they are moving forward with their mine.
Another positive development of note is that an insider bought 20,000 shares for indirect ownership at .92 cents which speaks volumes of the confidence in AAG.V going forward.
If you want just a pure play on the giant Sinchao deposit, SMZ.V is the way to go at $20M market cap. Before the collapse, this was another company that was trading 300 - 400% higher and at .25 looks like a great investment. These low grade deposits are going to be eventual mines and as more of the market realizes that the world has seen the last of cheap anything and prices are not coming down anywhere near historic levels. Projects like Sinchao, Whistler, Pebble become very attractive feasible mines for years to come. The high grade stuff is nice, but it never lasts and mines that survive for decades, make oodles off the low grade ore.
Review AAG.V feasibility study...