Compelling PM MicroCaps Series, Volume II: Caza Gold
March 28, 2011
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To kick-off this series in style, we're going hunting for gold south of the border with Caza Gold (Caza is Spanish fort 'the hunt'). Many of you have seen me refer to the company repeatedly since its IPO in late November, and now I aim to convey to you why this particular early-stage exploration company has attracted my attention to such a degree.
Caza trades on the Toronto Venture Exchange under the symbol CZY, and in the U.S. on the pink sheets as CZGDF.PK.
Often, when sifting through the overwhelming universe of microcap exploration companies in search of noteworthy standouts, the process involves something of a checklist that one must run through to ensure that a company meets one's own parameters for what constitutes sensible investments in the space. For example, we Fools routinely emphasize the quality of management within a range of important selection criteria for stocks, but among early-stage exploration companies, this can often present something of an unknown entity. In the case of Caza Gold, however, Fools who are familiar with Endeavour Silver and the first-rate, proven management team behind it are encouraged to transfer that same degree of confidence in management to Caza Gold.
I can't say enough positive things about the people behind this project. I had already owned Endeavour Silver shares for a few years, and developed considerable confidence in their management before I spoke with CEO Bradford Cooke last August. Through that conversation, however, and confirmed through all of my subsequent contacts with their staff, I have come to consider Endeavour's management one of the most impressive teams in the business. And of course it never hurts that, in addition to being skilled exploration geologists with considerable business acumen to boot, they happen also to be some of the friendliest and most pleasant folks I've had the pleasure of communicating with in this industry. Bradford Cooke serves as Chairman of Caza Gold. Caza CEO Greg Myers has considerable experience under his belt, having served as a regional manager for Phelps Dodge, and as a project development manager for BHP Billiton. Mr. Myers took considerable time walking me through his perspective of the mineral potential at Caza's various properties, and I found his own enthusiasm regarding the nature of these prospects very infectious. Caza director Tony Hankshaw is the CFO of Rio Alto Mining, a stock that has enjoyed a very nice run of its own.
Here's a partial transcript of my August 2010 interview with Bradford Cooke:
http://www.fool.com/investing/small-cap/2010/08/13/endeavour-to-pinpoint-one-major-growth-spurt.aspx
Before we leave the subject of Caza's quality management team, I have an exciting announcement to make. Caza's Manager of Investor Relations, Gregg Williams, has graciously agreed to participate in this discussion directly here on the CAPS blogs, to the extent that his time allows. He recently joined our ranks as a registered Fool, with the username caza2011, and I know that you will all join me in welcoming him warmly to our Foolish online community. He plans to login here at about 12:30pm EST tomorrow (Tuesday). I wish to thank Gregg in advance for his willingness to make himself available to existing and prospective shareholders in this unique way, and I consider his presence among us here entirely indicative of the caliber of Caza's management team as discussed above.
Has Caza's gold already been snared?
Skilled hunters don't wander aimlessly through the wilderness in hopes of a chance encounter. They rely upon detailed knowledge of their surroundings, a comprehensive understanding of their prey's behavioral traits, historical knowledge of past encounters, and a mastery of reconnaisance techniques to target their prey in a way that is most likely to result in success. In the brief time elapsed since the company's IPO, my review of the company's chosen hunting grounds leads me to attribute a high likelihood of success to their ongoing quest.
We'll begin with the Santiago property, which is located in the famed Batopilas district in Mexico, and only about 35km from Goldcorp's El Sauzal mine along the same regional fault. Rock-chip sampling has returned grades as high as 30.3 gpt. The target here is a high-grade underground vein structure that the company considers capable of hosting a deposit of 500,000-oz. or more. After sampling in December discovered a new extension of the primary vein structure 400m NW of the known Cliff Zone veins, discontinuous surface sampling to date implies potential for a strike length of >1km. A 2,000 meter drilling program has been undertaken, with assay results forthcoming. With Endeavour Silver's immense background working efficiently to unlock underground resources from high-grade vein structures, investors can anticipate that Caza will move swiftly toward production if exploration drilling continues to confirm the company's present interpretation of the deposit.
Caza's Moris property is the type of prospect that could easily justify an investment in these shares even if it were the company's sole property. You all know how significant a deposit I consider Gammon Gold's flagship Ocampo mine to be, and Caza Gold's Moris property extends to within just a few kilometers of Ocampo. Nestled into another corner of the property's boundaries is Hochschild's prolific Moris Mine, and Caza believes that one of the four target areas on the property may represent an extension of that mine's mineralized structure. The company believes that two of these targets alone -- Balleza and La Cienega -- form a 7km trens of veins and quartz stock work that may be capable of hosting more that 2 million ounces of gold in a bulk mineable deposit. As in the case of the 500,000-ounce target noted above for Santiago, these figures are early-stage guidelines for strategic planning that have yet to be confirmed through expansive exploration drilling. Unlike many of the optomistic assessments of mineral potential that I remind Fools to remain skeptical of under most circumstances, my degree of respect for Caza's management team leads me to take these informal assessments seriously. Caza has drawn intriguing geological comparisons between the Moris property and Minefinders' Dolores property.
Have I mentioned that Caza's present market cap is just over $20 million?
Although Caza set out to hunt for gold with an emphasis on Mexico in order to capitalize on management's extensive regional expertise, I believe the company's move to acquire the Los Andes project in Nicaragua epitomizes the opportunistic nature that any skillful hunter must also possess. Here again, because Caza has only just recently acquired the property and initiated surface mapping and sampling, we can not yet ascribe a high degree of scientific certainty to the exact extent or characteristics of the deposit, but as I understand the strong initial geological indicators of the site's mineral potential, it must be stated that Los Andes shows very exciting potential to develop into a world-class gold mine as exploration work proceeds over time. Caza is targeting a multi-million-ounce deposit at Los Andes, and recently staked 11 new properties along the same gold belt that display similar geological characteristics.
According to their website: "The Los Andes high sulfidation gold system is exposed on surface as an extensive alteration zone of hydrothermal vuggy quartz, pervasive silification, and alunite associated with highly anomalous gold, silver, and trace elements. The alteration zone covers a 45 square kilometer area and measures 12 kilometers long by up to 6 kilometers wide. It is similar in size, nature, intensity, and trace element geochemistry to world class gold deposits such as Yanacocha and Pierina in Peru." As we saw above with the Moris Mine, Caza's Los Andes property also enjoys a strategic location flanked by existing mines. Los Andes sits between the locations of B2Gold's producing mines on the Central Nicaragua Gold Belt.
"High sulfidation gold systems are important sources of precious metals throughout the world and are some of the largest gold producers. The geologic setting, geochemical signature, and alteration patterns are well documented. The extremely large alteration zones versus the much smaller footprint of the economic mineralization are a challenge during exploration presenting the classic "needle in a haystack". A well thought out and systematic exploration plan is required. Many of the world class deposits have been well studied and the understanding of alteration and geochemical patterns will add greatly to exploration efforts at Los Andes."
In other words, while the company is clearly excited about the potential to pinpoint a significant, economic gold deposit within this property, they also acknowledge that considerable exploration effort may be required to advance the property toward that ultimate goal of production. I would not be at all surprised to find some of the gold industry's big dogs eventually approaching Caza with respect to facilitating an optimal scale of exploration resources brought to bear on the site.
Conclusion:
Provided the risks common to all microcap precious metal exploration companies are well understood, and the speculative nature of the wager is properly grasped, I consider Caza Gold among the more superbly positioned stocks in the space based upon the exciting initial indicators of potential mineral wealth buried beneath its properties. Along with my own very considerable confidence in the character and the expertise of the company's management, the perceived potential for two of the company's three project areas to host multi-million-ounce deposits renders this explorer particularly exciting. The location of all three properties within the vincinity of proven gold-bearing ore structures, and along the axes of significant geological trends in common among those mines, I believe that Caza sits upon a high probability of success for confirming the existence of gold in economic deposits.
While the Santiago and Moris properties offer entirely sufficient avenues for potential exploration success to render the stock a strong speculative play in its present price range, the added prospect that a truly world-class gold deposit could be identified through exploration at Los Andes gives the stock's potentioal payout the sort of high-octane boost that I'm looking for among my selections in the microcap space. If just one of these three properties were to make good on just half the currently targeted mineral potential of that site, I believe we would find a sufficient catalyst for meaningful share price appreciation. If all three were to hit in a solid gold trifecta, those returns could quickly turn legendary.
I consider this particular junior explorer a solid choice for a high-octane speculative play, and anywhere beneath $0.80 per share strikes me as an attractive price range for share accumulation. Long-term target prices are very highly dependent upon how targeted resources ultimately compare with confirmed success in exploration efforts over time. I will hazard a guess and suggest that $2.50 may be a reasonable target price during the next few years, while best-case scenarios like a world-class gold deposit at Los Andes could conceivably carry a double-digit share price into the picture. As with any early-stage exploration company, there are more guesses than guarantees involved; but, particularly for a company with no officially established resources on the books, the strength of Caza's prospects yield an uncommonly compelling risk/reward ratio for a play of its type.
I welcome your thoughts on this company, and invite you to share with your fellow readers below your own process of due diligennce on the stock. As mentioned above, Caza's investment relations manager has indicated he will join us in the converation below as his time allows, and I know you will thoroughly enjoy and appreciate his presence among us here.
For more information, please spend some time expoloring Caza's website at cazagold.com. A careful inspection of the company's presentation, accessible from the home page, is recommended.
Disclosure: I own shares of Caza Gold, Endeavour Silver, Gammon Gold, Goldcorp, and Minefinders.
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