Adrian Day: Huge Value Gap Presents Buying Opportunity

Au Report

Source: Adrian Day for Streetwise Reports 08/05/2020

Money manager Adrian Day discusses developments at four disparate companies affected to varying degrees by the economic consequences of COVID-19, with two buys among them.

Vista Gold Corp. (VGZ:NYSE.MKT; VGZ:TSX, US$1.15) continues to raise non-dilutive funds by monetizing non-core assets as it focuses on and advances the Mt. Todd gold project in the Northern Territories, Australia. The company is in a financially strong position and appears poised for negotiations that make it “reasonable to think that by early next year we will have an agreement with a partner,” according to CEO Fred Earnest. Indeed, the company had a marketing trip to Asia planned for late February, but it was cancelled due to COVID-19-related travel restrictions throughout the region.

Now, with a higher gold price, the largest undeveloped gold property in Australia and one of the largest in the world, in a safe jurisdiction, must be attractive to many senior mining companies. Vista is not necessarily looking to sell the project outright but looking for any kind of partnership to maximize value for shareholders, including a financial partner to enable Vista to build the mine. (Vista has made clear it does not intend going it alone to raise the capital and build the mine.) The company is awaiting its final permit—the mine operating permit—with no apparent major obstacle, and it now expects to receive that in coming months.

Vista raises cash from various transactions
At today’s gold and Australian dollar prices, the mine has a NAV (net asset value) of over $2 billion, with a potential 20-year mine life. The stock, even after its recent run, has a market cap of less than $120 million, so there is an enormous gap, sufficient for an incoming partner to pay a hefty premium for a stake and still make money.

Currently with $6.3 million working capital, the cash has been bolstered recently by two recent payments: $2.4 million to cancel a portion of royalties on the Awak Mas project in Indonesia; and $1.5 million from an option payment on Guadalupe de los Reyes project in Mexico. At a run rate of about $6 million a year, this is sufficient for the next 12months.

In addition, over the next 12 moths, Vista is due to receive a final $2.1 million from Prime Mining Corp. (PRYM:TSX.V)on the de los Reyes project, and another $2.5 million to cancel remaining royalties on Awak Mas; in that latter payment is not made, Vista may then sell the royalty to a third party. Vista also owns very liquid shares in Midas Gold Corp. (MAX:TSX), valued at almost $5 million, and a used mill, potentially worth $8 million to $10 million. So, even without a sale on the mill, Vista is reasonably certain to have cash for the next two years of expenses. An “at-the-market” (ATM)program can top up cash as needed.

Exploration upside remains
Vista is also continuing exploration at …read more

Source:: The Gold Report