Euro Sun Mining Inc. (TSE:ESM) formerly called Carpathian Gold is a gold-focused junior late-stage development company with one mine in development in Romania. Their Rovina Valley Gold project is the second largest gold deposit in Europe holding gold equivalent measured and indicated resources of about 11 million ounces including 7.2 million ounces of gold and 1.4 billion pounds of copper. Rovina is only 17km from Eldorado Gold’s rapidly developing Certej gold project. As of February 7th, 2017 they have no debt and ~$8M cash. They have 50M shares outstanding and trade on the Toronto Stock Exchange and the over-the-counter markets.
Why Am I Invested in Euro Sun Mining (TSE:ESM)?
I came across Euro Sun Mining (TSE:ESM) in December 2013 when the stock was trading in the 9-10 cents range (CA$1.63 to CA$1.81 post-consolidation, the shares were consolidated 18.164 to 1 basis on Monday, September 12, 2016, to meet the listing requirements of Toronto Stock Exchange). The company looked very attractive as it was about to pour its first dore gold bar at the RDM (Riacho dos Machados) gold project, Brazil and was planning to start commercial production in early 2015. However, due to the delays in the completion of the construction at the RDM project caused by the floods in 2013, the Carpathian Gold’s stock price kept sinking and reached the lowest value of half a cent (9 cents post consolidation, see the chart below) in the last quarter of 2015. I was able to buy some shares at half a cent and enough shares in one to one-and-a-half cents range which averaged down my cost from 7.5 cents to 3 cents. I had a strong belief that as soon as the debt issue settles down, the company will be in better shape. Now that the company is in very good shape, I wish that I had bought a lot more at the ridiculously low price of 1 cent a share in late 2015.
Euro Sun Mining is the Most Undervalued Junior Mining Stock
The main reason I bought Euro Sun Mining’s stock that I and others believe it is the most undervalued junior mining stock with the best reward to risk potential. Euro Sun’s enterprise value per measured and indicated (M&I) gold ounce of $US2.70 at a price of just 0.108x net asset value (NPV) is far below eleven other juniors, as per Scott Moore’s presentation on September 8, 2016, with large deposits ranging from over 2 million up to 15 million ounces gold:
|Company Name||Share Price
|Gold Road Resources||$0.49||85%||$424||$397||4,513||$88||0.86x|
|Belo Sun Mining||$0.71||84%||$332||$318||4,934||$64||0.60x|
|Sabina Gold & Silver||$1.02||70%||$224||$191||5,330||$36||0.71x|
|Average (excluding. High/low)||$1.05||88%||$278||$249||5,142||$53||0.64x|
|Euro Sun Mining||$0.06||71%||$50||$41||10,880||$4||0.16x|
Source: Haywood Securities Inc., Company Filings, Capital IQ
As at: September 8, 2016
Under-Valuation of Euro Sun’s Rovina Valley Deposits
Euro Sun Mining’s deposits are undervalued based on a low end of the range of values paid for undeveloped deposits over the last several years. The lower end average of prices paid per ounce for in-situ deposits over the last several years is $24.145 US$/gold equivalent ounce. That places an estimated value of $275,500,000.00 in total on Rovina’s 11.42 million gold equivalent ounces (See the details here). This means that Euro Sun’s enterprise value of US$30.94 million (see the latest valuation here) is just 11.2 % of a conservative value of US$275.5 million (US$5.51/share).
Euro Sun’s Rovina project’s 11 million gold ounce deposit is the second largest in Europe and one of the largest in the world. Even after Euro Sun currently reconfiguring the project to focus on just half of those ounces and higher grades in two open pits, that require smaller capital outlay and operating capital, Euro Sun by far and away is still the most undervalued of those junior mining companies.
Euro Sun Mining (TSE:ESM) is Debt Free
In 2015, Euro Sun Mining accumulated a huge US$266.0 million debt due to the delays in the construction of MRDM’s Riacho dos Machados gold project in Minas Gerais, Brazil. On November 20th, 2015 Carpathian Gold announced restructuring agreement with Brio, a subsidiary of Yamana Gold, and Macquarie. Following the Restructuring on April 29, 2016, Euro Sun Mining continued to own its Romanian assets in Rovina Valley, but transferred 100% ownership of MRDM’s Riacho dos Machados MRDM gold project in Minas Gerais, Brazil to Yamana Gold and was also released from any liabilities in respect of, MRDM or the Project. This transaction included the US$1.0 million private placement from Yamana and the subsequent elimination of all outstanding debt instruments in Carpathian owed to Macquarie Bank relating to the Riacho dos Machados project.
Euro Sun Mining has Cash in Hand
As soon as Euro Sun Mining (TSE:ESM) became debt free in April 2016, bigger players got interested in the company. On May 9th, 2016 Carpathian announced a Private Placement with Forbes & Manhattan for CDN$10 million at a price of CA$1.27 (CA$0.07 pre-consolidation), a 250% premium to the share price at that time. Following the announcement, Euro Sun Mining’s share price and daily trading volume started to increase rapidly until the share price reached CA$1.18 (6.5 cents pre-consolidation) on May 19th, 2016 with the closing of the private placement.
Experienced Management Team – Bigger Players like Forbes
Forbes and Manhattan have a track record of buying and turning around undervalued properties. They invested $10,000,000.00 to take control of Euro Sun Mining’s board and management. Their aim is to “advance the Rovina project utilizing Forbes’s in house engineering, geological and metallurgical experts,” as they say in this news release. On May 19th, 2016 Carpathian announced significant changes to its board of directors and management team, with the resignation of two former directors and the appointment of Mr. G. Scott Moore, MBA, as President and CEO and Mr. Paul Bozoki, MBA, as CFO, as well as the appointment of Stan Bharti, P.Eng., Peter Tagliamonte, P.Eng., and Matthew Simpson, P.Eng. to the board of directors.