Taylor Dart’s New Seeking Alpha Article – LeaGold Mining: A Mid-Tier Producer Flying Under The Radar
SetYourStop.com contributor Taylor Dart knocks it out of the ballpark again with his new Seeking Alpha article titled – LeaGold Mining: A Mid-Tier Producer Flying Under The Radar
To say it’s been a stock pickers market in the mining sector would be a massive understatement. Of the 250 companies I follow, only 60 of them are up double digits for the year despite the price of gold (NYSEARCA:GLD) being up 10% for the year. More than half of those 250 companies are showing a negative return for the year, and 60 of them are down more than 10%. When trying to sift through the rubble what I’m looking for are companies that are bucking the trend, and doing so with strong fundamentals. One of the companies I’ve skimmed over many times but didn’t do enough digging was LeaGold Mining (TSXV:LMC), and I’m glad I took the time recently.
LeaGold currently has 151 million shares outstanding and a share price of $1.96 US giving it a market capitalization of $296 million. Adding in the company’s $150 M in debt and subtracting the current cash position of $76 million, we’re left with an enterprise value of $369 million. This is an absolutely ridiculous valuation for a company that is a 200,000 plus ounce producer and is cash-flow positive. Based on the company’s 2017 production and my conservative estimate for $48 million in after-tax earnings, the company is currently trading for 7.7x current earnings. This is using a gold price of $1,250/oz (below spot), and assuming there is no expansion case at Bermejal Underground. The table below shows my fair value for the company under different gold price scenarios.
Based on the company’s current share price, we are trading at a valuation that I would expect if gold was trading at $1,130/oz. Given that we’re trading 10% higher than that level, it makes little sense to see this type of discount on LeaGold’s shares. This table also gives absolutely zero credit to Bermejal Underground which I expect to see go into production by late 2019. The capex at Bermejal Underground is a modest $47 M which could easily be funded by LeaGold’s current cash position. Below I have included a table of what LeaGold could look like in 2019 if their expansion case goes as planned:
Regardless of these conservative estimates, there is significant upside potential if this expansion plan comes to fruition. Using a gold price of $1,200/oz, my fair value for the stock is $5.86 if Bermejal Underground delivers by the above metrics. This assumption is speculative in nature as we still need to bring this mine online. Having said that I believe there’s a decent chance this does occur, therefore it’s worth pointing out this expansion case.
1. LeaGold Mining purchased Goldcorp’s Los Filos Mine in Guerrero, Mexico and has made the project its flagship asset.
2. The company expects to produce 220,000 ounces of gold this year at all-in sustaining cash costs between $850-$950/oz.
3. Based on LeaGold’s current valuation, the company is trading for 7.7x after-tax earnings, and 4x 2019 earnings if their expansion case goes as planned.