How Wall Street May Be Buying Gold At A Discount
FN Media Group Present Oilprice.com Market Commentary
London – November 6, 2019 – Gold is soaring closer and closer to $1,500 per ounce right now, but imagine it was possible to get it for just $3 an ounce. That’s exactly what Wall Street is doing. It does this by targeting junior miners with major upside. Finding the undervalued global gold assets that will become the heart of the next gold boom. And if the research by Cantor Fitzgerald and GMP Research is anything to go by…one company is well positioned to ride the wave of the coming explosion in gold prices. Mentioned in today’s commentary includes: Seabridge Gold Inc. (NYSE:SA), Teck Resources (NYSE:TECK), Turquoise Hill Resources (NYSE:TRQ), Great Panther Mining (NYSE:GPR), Endeavour Silver Corp. (NYSE:EXK).
Euro Sun Mining (ESM – CPNFF), owner of the second largest gold mine in Europe. In fact, Canton Fitzgerald estimates that Euro Sun could be undervalued by as much as 500%, while GMP Research predicts a 671% gain.
That’s because we are running out of gold, and with geopolitical and economic fears soaring – the majors know that they need to find more. And that’s where junior miners like Euro Sun are set to win big.
It’s all happening in Romania. At a mine estimated to have over $13 billion in gold well within reach.
Euro Sun (ESM, CPNFF) now has 100% ownership of roughly 400 million tons of ore in three discreet bodies consisting of an estimated 7.1 million ounces of gold and a billion and a half pounds of copper working out to about 10.1 million ounces of gold equivalent.
So how does Wall Street find discount gold?
This is the math:
- Euro Sun has an estimated 10.1 million ounces in the ground at Rovina Valley.
- The price of gold right now is $1,490 an ounce.
- Euro Sun can extract this gold for under $800/ounce AISC (all-in sustaining costs).
- That means gold worth ~$7 billion AFTER all costs of extraction.
- Euro Sun is trading at only $0.32/share (CAD)
So, instead of paying around $1,500 an ounce for gold, Wall Street can get it for under $3.
A Wildly Undervalued Company
At a current gold price of $1,490 per ounce, Euro Sun (ESM, CPNFF) is sitting on an estimated $15 billion in gold and copper revenue. Yet, the company is currently valued at ~$26 million.
Rovina’s low AISC (All-in Sustaining Costs) of $752 an ounce leaves a healthy profit margin of $550 an ounce at current gold prices and a $60-$70 million free cash flow every year. This implies that Rovina and, consequently, Euro Sun Mining (ESM, CPNFF) should be valued much higher. In other words, right now, Euro Sun could be worth 140X its current value.
Again, Euro Sun is trading at only $0.32 right now, with a market cap of only ~$26 million (at the time of writing). Analysts know it’s worth more, perhaps far more. Cantor Fitzgerald’s short-term price target is $2.10. That would equal a massive 1,000% upside. GMP Research has given it a $3.00 price target, equivalent to a potential 1,500% increase.
And The Opportunity Is Getting Even Bigger
Wall Street is running for safe havens for two reasons:
- The Middle East is about to implode, with the brazen bombing of oil facilities belonging to the kind of oil, Saudi Arabia.
- In the middle of a never-ending trade war, smart money is already moving into hard assets because they see the equities bull run has gone on for far too long. It’s going to reverse, and gold is the key hard asset. That’s where everyone goes, first.
Recession is the anticipation amid a global economic slowdown that has seen a flattening of corporate profits. As billionaire investor Paul Tudor recently told Bloomberg, gold has everything going for it right now and could zoom to $1,700 per ounce in a matter of months. But the real money isn’t in buying the bullion itself. It’s in getting exposure to gold at a discount. A technique for buying ounces of gold at cents to the dollar.
One way to do this is to look for quality companies which are scaling rapidly behind the scenes.
Take Seabridge Gold Inc. (NYSE:SA), for instance. It is an ambitious young company that has taken the industry by storm. It has a unique strategy of acquiring promising properties while precious metals prices are low, expanding through exploration, and then putting them up for grabs as prices head upward again.
Or Great Panther Mining (NYSE:GPR). Great Panther is active in Brazil and Mexico where it explores for silver, gold, lead, and zinc ores. According to a recent statement in the press, the focus in the near-term will be on the integration of the Brazilian operations, the continued optimization of the Tucano gold mine, and advancing an exploration program to unlock the significant exploration potential of Tucano.” Now the company has managed to bump production and add to its reserves, the near-term catalyst needs to come from higher gold and silver prices.
Another sleeper set to enjoy a rally in precious metals is Endeavour Silver Corp. (NYSE:EXK). It operates three silver-gold mines in Mexico, but it’s also got three attractive development projects. Production has dropped and all-in sustaining costs have risen, leading to a negative cash flow. But the company has significantly reduced its debt, so its future is anything but bleak. Near term catalysts should be expected from the El Cubo and Terronera projects in Mexico, but real share price gains can’t be expected until gold and silver prices break out.
Gold mining is a tough business and getting progressively harder with the easy-hanging fruit in open pit mines now mostly gone. For every ounce a Barrick pulls out of the ground – they typically have 11-12 ounces in undeveloped projects. A large operator might have 60-80 million ounces of gold in proven reserves.
Wall Street can generate phenomenal returns by owning shares in A+ level companies, with A+ level deposits that aren’t yet in production. Instead of paying $1,450 per ounce from a gold broker. Wall Street can pay $100… $50, $25…even $3 per ounce. When gold inevitably skyrockets – Wall Street is likely to benefit from extraordinary leverage.
Though discount gold is always welcomed, Wall Street will often hedge their bets with diversified plays. Miners with exposure to a lot of different resources, including gold.
And Teck Resources (NYSE:TECK) could be one of the best-diversified miners out there, with a broad portfolio of Copper, Zinc, Energy, Gold, Silver and Molybdenum assets. Its free cash flow and a lower volatility outlook for base metals in combination with a potential trade war breakthrough could send the stock higher later this year.
Turquoise Hill Resources (NYSE:TRQ) is another strong resource play. The company mines a diversified set of metals/minerals including Coal, Gold, Copper, Molybdenum, Silver, Rhenium, Uranium, Lead and Zinc. One of the fortes of Turquoise hill is its good relationship with mining giant Rio Tinto.
$15B In Gold Ready to Get Out of the Ground—Now
Euro Sun isn’t just hugely undervalued; it’s also been completely authorized. Last November, Euro Sun defied the market by getting the approval and endorsement to go ahead with the Rovina Valley project after no one was allowed to touch it for over a decade. This April, they got the green light to begin mining activities.
Now they’re advancing it to construction. When Euro Sun did get the permit, the market was caught sleeping. It had already priced in the lucrative Rovina Valley as a definitive no-go. Gold is currently trading just under $1,500. If it bumps any higher–and plenty of bulls think it will–that undervaluation undergoes an even wider gap.
5 Reasons to Keep A Close Eye on Euro Sun (ESM, CPNFF)
#1 The best discount gold story in years
#2 Undervalued by 600-900% at $0.32/share with price targets of $2.10-$3.00/share
#3 $17M market-cap company sitting on $15 billion in potential gold and copper revenue
#4 A team led by legendary Canadian billionaire and mining financier Stan Bharti who has raised over $3 billion in capital for junior resource companies and their shareholders
#5 Fully permitted and de-risked, Rovina Valley is the second-largest gold mine in all of Europe
Discount gold like this simply won’t last. Euro Sun has defied the market once, but the market will wake up to it soon.
There’s an art to thriving in a market downturn—and it’s all about gold.
Gold stocks have been beaten down for far too long, and now they are just like a high-tension spring – ready to explode at the slightest nudge. Gold has everything going for it right now, with geopolitical and macroeconomic trends aligning in its favor.
Even if gold doesn’t continue soaring towards to $2,000 an ounce, the upside on Euro Sun (ESM, CPNFF) is all the same because it’s sitting on an estimated over 10 million ounces of gold and copper that can be extracted at under $800 an ounce. Any way one looks at it, this is gold for under $3 an ounce, but there’s no way that can last.
By. Ian Marsh
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