Gold Reserve Corporation (GLR on TSE)
This is a company I first researched 3 or 4 weeks ago. It was trading at around $9 at the time, I wasn't terribly impressed, and so I put my annual report in a pile with all the others. Boy, did I blow this one!
When I read the annual report, I was not impressed because of the low average grade of the gold deposit. The geologic resource is stated as 4.9million ounces of gold at a grade of 0.027 , and 1.8 million ounces of gold-equivalent copper, for a total resource of 6.7 million ounces.
However, two things have made me very bullish on this company. First, the news release which came out Thursday evening.
They have hit a significant intersection of very high grade ore (188m of 2.58 gm/tonne bottoming in 48m of 6.77 gm), which appears to be increasing at depth.
Secondly, I checked their annual report again and discovered a very informative graphical view of the Brisas concession, with the average grades of the various sections of the ore body broken down. From it, I can tell there are areas of varying grades, ie some areas are very high, some very low. I think that if the company raised its cutoff grade, it could still report a significant resource (perhaps 3 or 4 million ounces) at a higher grade. This is especially true in light of this most recent announcement.
To put the grade into perspective, Bema's recent find appears to be about 1 gram per tonne (or 0.03 ounces per tonne). Bre-X has about 3 grams per tonne (0.1 ounces per tonne). Arequipa's find was 4 to 6 grams per tonne.
Speaking of Arequipa, it is interesting to compare this deposit with AQP's Pierina deposit. Barrick bought AQP for $30 per share. AQP had about 35 million shares outstanding, giving a market cap of AQP of about $1.05 billion. Most experts peg AQP as having 7 to 10 million ounces of gold.
Therefore, ABX paid $100 to 150 per ounce of gold for the Pierina deposit. Now Pierina was a special situation. It was high grade, and right at the surface. This property will be very easy, and cheap, to mine.
Also, Pierina is in Peru. Venezuala has much more restrictive mining policies than Peru. Gold reserve even says , in their annual report, that they would like a less restrictive mining environment to put this mine into operation.
However, let us assume that GLR's deposit is worth only $60 per ounce, a very conservative figure - however one must factor in the 'Venezuala factor', and the lower grade. The company has 20 million shares outstanding. Let's also assume an 8 million ounce deposit. I again believe this to be conservative with the recent drilling result.
These assumptions would give a value of GLR of $24 per share. ($60 * 8,000,000/20,000,000) Again, I must emphasize that I believe my assumptions are very conservative.
Yes, GLR has moved a lot, however, I think there is still considerable room for it to move. They have the reserve. That is pretty much proven. They continue to drill, expanding the reserve, and hitting higher grades. This story will only get better. The biggest risk is the Venezuala factor. However, Placer Dome has been exerting tremendous pressure on the Venezualan gov't to correct "certain tax and fiscal issues". As well, Venezuala is sitting on the sidelines right now, while neighbours like Chile and Peru are receiving millions of dollars in mining investment. I am confident that the mining environment will improve dramatically in Venezuala. Another issue to consider is the proximity of this deposit of Placer Dome's. Placer could very well buy out this company, put the the properties together, and create one super huge mine. |
