Gold has had a tremendous year despite it being down from a recent all-time-high of $4,398/oz. YTD gold (“Au“) is +54%. I believe that Major & mid-tier producers remain undervalued, even though some, like AngloGold Ashanti, Gold Fields & Lundin Gold, have tripled from 52-week lows.
More undervalued are high-quality juniors with promising projects in strong jurisdictions. One thing’s certain — producers NEED TO MAKE ACQUISITIONS to justify soaring valuations.
A tsunami of M&A is coming, driving valuations higher across the board. We are at the beginning –> Torex Gold acquired Prime Mining, AngloGold took out Augusta, IAMGOLD announced two deals on the same day, for Northern Superior & Mines d’Or Orbec.
McEwen Inc. is grabbing Canadian Gold Corp., Chinese group Chengtun Mining is acquiring Loncor Gold. Mexico’s Fresnillo just announced a surprise (first move into Canada) takeover of Probe Gold. Australia’s Predictive Discovery & Robex Resources announced a merger of equals.
In the royalties/streaming realm, Royal Gold took out Sandstorm, and EMX Royalty is merging with Elemental Altus Royalties. Interestingly, giant stable coin firm Tether has been actively investing in royalty companies, will other crypto players follow Tether?
A junior that checks a lot of investment boxes, and in my view is a prime takeover target, is Fortune Bay Corp. (TSX-v: FOR) / (OTCQX: FTBYF), a company that’s especially undervalued. To be clear, management, led by CEO Dale Verran is in no hurry to sell.
The following article focuses on Fortune’s Au projects. The Company has a few uranium assets farmed out that are very low-cost, essentially free options, on a uranium discovery. In my view, those prospects might be worth ~C$10M. See NEW corp. presentation.
In the following table, note that the Company’s two 100%-owned Au projects are valued at a combined C$19/oz vs. C$99/oz for peer PEA & pre-PEA projects with grades under 1.5 g/t Au Eq.
Fortune Bay is valued at a 81% discount to those 18 juniors with similar grade/stage projects. Fortune actually has higher grades than average, and with a robust PEA is more advanced than 11 of the 18.
Notice that mid-tier producer Torex Gold acquired Prime Mining’s Mexican assets for C$190/oz. Prime had about the same # of ounces as Fortune Bay’s two projects, at slightly higher grade, but was pre-PEA.
How is Prime worth $190/oz, but Fortune just C$19/oz? This is a company with a strong mgmt. team/board and only 79M fully-diluted shares. Compare that to an average of 243M shares among the above peers (excluding two Australian names with over a billion shares each).
I like the mining investment rationale in Mexico & Saskatchewan better than Chile, Africa, and Brazil. Why is Fortune glaringly undervalued?
It might be that it has two projects instead of a single flagship, and the secondary Poma Rosa project in Mexico has an historical, non-NI 43-101 compliant, resource. And/ or investors might view northern Saskatchewan as too remote.
However, it’s not THAT remote… Several major uranium mines/projects are ~350 km to the SE. With Au at $4,035/oz, management could presumably spinout Poma Rosa into a publicly-listed vehicle to better capture its value, and accentuate the remaining crown jewel.
Each project has meat on the bone with > 1.2M Au Eq. ounces at > 1.2 g/t Au Eq. Poma Rosa’s resource is non-NI 43-101 complaint because it was first reported in 2006 by Linear Gold Corp., a predecessor company to Fortune Bay.
If Poma Rosa could be monetized for C$15/oz, the remaining Goldfields asset would be cashed up and valued at a still very attractive C$23/oz. This is merely a thought experiment, the board would be crazy to monetize Mexico so cheaply.
Goldfields is remote, but not THAT remote, $4,035 Au changes everything!
Fortune Bay’s Goldfields project is in the Tier-1 province of Saskatchewan, which ranks #1 in Canada & #7 globally for investment attractiveness in the latest annual Fraser Institute rankings.
Compared to an average of 11.0% of post-tax NPV(spot prices) for Snowline, Newcore, Dakota, and Tesoro –> Fortune Bay is valued at just 2.7% of NPV, or 1.4% of NPV if Poma Rosa were to be monetized.
This is absurdly low in the midst of a robust bull market. Fortune Bay is valued as if its projects are in the bottom third of the Fraser Institute Survey, (Saskatchewan is in Top 10%!).
Goldfields has established infrastructure including; roads, green low-cost hydroelectric power, mining & municipal services, a commercial airport, and barge/ice road access. It has a provincially-approved Environmental Impact Statement (“EIS“) from 2008 that remains valid.
The Company has restarted baseline studies, community engagement & routine permitting work to address the latest regulatory requirements and positive changes to the project’s scope.
In my opinion, the Top-3 risk factors are; 1) social license to operate, 2) infrastructure logistics, and 3) ongoing funding, but none are red flags, merely routine project development risks.
In a bull market, MANY projects will get funded, including (in my view) Goldfields. That leaves local community relations & infrastructure as the main risks. The higher the Au price, the better the backdrop for productive, collaborative community engagement.
Management states it has “well-developed community relationships,” as evidenced by its November 2022 Exploration Agreement providing consent up to and including a Definitive Feasibility Study, probably in 2H/27.
Goldfields could grow to 100,000 ounces/yr for 15+ years given it has several years of drilling ahead before production begins. It’s already slated to deliver 100k/yr in the initial years. Increasing output above 100k/yr would require additional permitting steps.
At 100k/yr, and assuming the Project’s AISC rises to US$1,500/oz from the PEA’s $1,330, at a price of $4,035 annual cash flow would be roughly C$355M/yr. Compare that to Fortune’s enterprise value {market cap + debt – cash} of ~C$55M.
There will be equity dilution between now and first production, but total cap-ex isn’t a billion dollars+, it’s a much more manageable C$301M.
Equity dilution could be mitigated if management brings in a strategic partner, or if say 75%-85% of cap-ex could be funded with a combination of debt, free-money gov’t grants, and partially pre-paid customer off-take agreements.
Royalty/streaming transactions could also be considered, but probably not before a PFS next year. If Saskatchewan invests additional capital into regional infrastructure, that would be a win-win-win-win for Fortune, local communities, the Province, and surrounding juniors.
Please take another look at the 18 peers above. Fortune Bay’s Goldfields project in Saskatchewan is not without its risks, but it stacks up quite nicely in key respects like # of ounces & grade, and is valued at a steep discount.
In a bull market, this is a strong project that should be of keen interest to dozens of much larger companies. Majors are going to buy mid-tiers & juniors, mid-tiers will acquire juniors. Fortune Bay should be high on the list of targets.
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At the time this article was posted, Fortune Bay was an advertiser on [ER] and Peter Epstein owned no shares in the company, but may acquire shares in the open market in the near future.
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