Gran Colombia Gold Corp (TSE:GCM) is a Canada-based gold and silver exploration and development company. The Company is engaged in the acquisition, exploration, development, and operation of gold properties in Colombia. Gran Colombia is an underground gold and silver producer in Colombia with three underground mines, over two processing plants in operation and five properties in Colombia on 100,000 acres. It holds interest in underground gold and silver mining operation in Colombia, the Segovia Operations, and also holds interest in the Marmato Project. It has approximately a total of 15 million ounces of gold reserves and resources out of which 12 million ounces are in the measured and indicated category. The company has 277 million shares outstanding and trades on the Toronto Stock Exchange and the over-the-counter markets.
Gran Colombia Gold Corp’s Valuation
On January 10th, 2017 Gran Colombia Gold Corp. (TSE:GCM) announced that it has surpassed its initial production guidance and established a new annual record. The company produced a total of 14,797 ounces of gold in December 2016 which was its best monthly total to date. The total gold production for the fourth quarter was 40,858 ounces, 36% higher over the fourth quarter of 2015. The annual production for 2016’s was 149,687 ounces of gold, up 28% over 2015. The Company expects to release its fourth quarter and full year 2016 financial results at the end of March 2017.
Gran Colombia Gold Corp is producing gold at an all-in sustaining costs of around $825 to $850 per ounce. The low-cost mining operation will result in huge cash flow with increasing gold price. For the first nine months of 2016 the company’s net income amounted to $19.0 million, or $0.12 per share, keeping the same earning as Q3 2016 the total earning/share is going to be $0.15 per share. At 10 times EPS, the share should at least reach $1.5 (close to the book value at $1.44 per share) and 20 times its current price of $0.07 USD.
Another standard measure of a company’s value is its EV/EBITDA ratio obtained by dividing enterprise value by earnings before interest, taxes, depreciation and amortization. A high EV/EBITDA means the company is potentially overvalued, and vice versa. Gran Colombia Gold Corp’s total adjusted EBITDA for the first nine months of 2016 was $49.6 million. Assuming the EBITDA for Q4 2016 is going to stay at the same level as Q3 2016, the company is trading at only two-three times its EBITDA, which is really cheap.
Gran Colombia Gold Corp’s stock has fallen 99% since 2010 when it was trading $62.25 (see below, $2.48 pre consolidation). The main reason this stock, like several other gold mining stocks, has become so cheap is that the market still believes in the false premise that the labor market is strong and that the US economy is still in recovery. The second reason, which I think is weak, could be that the company currently has $82M debt which is due in 2018 and 2020. This debt, however, is convertible using 635 million shares. With sustained mining operations, the company will be able to buy back part of the debt with the excess cash. As of November 15, 2016 debt conversions and repurchases under the Normal Course Issuer Bids (“NCIBs”), launched on July 21, 2016, have reduced the aggregate principal amount of Gran Colombia’s senior debt by approximately 18%.
Gran Colombia Gold Corp’s enterprise value per gold ounce is US$11.4, which means that the company’s gold in the ground is ridiculously cheaper compared to other gold producers. This stock has a great upside potential and can be a possible 100 bagger at these valuations if gold reaches $2500 an ounce. That’s the reason Frank Giustra, the owner of Radcliffe Corporation, owns 9.93% of the company.
Gran Colombia Gold Corp’s Assets
It’s not just its valuation that is attractive, Gran Colombia Gold Corp has good assets too. Its first asset is its Segovia mine, which contains a measure and indicated (M&I) resource estimate of 428,000 ounces of gold, containing grades of 25.3 grams per tonne (G/T) for 77,000 ounces of those reserves, and the rest of the reserves are reported to be at 16.8 G/T, with an expected life up to the year 2022. Segovia is producing 100,000 ounce (12 gram per ton). They want to expand Segovia to 170,000 oz. This will cost $84 million and it is almost all financed.
Its next mine is the Marmato mine which is monster 12million ounce (1 gram per ton) open pit project that is heading towards production around 2020. Production will be around 250,000 to 300,000 ounce per year, but it will have a large capex. Marmato also has 90 million ounces of silver (80 M&I), but they are only planning to produce about 1.5 million ounces per year. They should have a pre-feasibility study out in 2017. They want to use cash flow from Segovia to fund the capex of Marmato. They are barely hanging on. Marmato is a question mark because of local resistance.
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