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speedybure (< 20)

My Top Gold Stock For 2011

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January 09, 2011 – Comments (12) | RELATED TICKERS: ABX , GLD

Atna Resources is a bit more risky but not nearly to the degree that one would think given its market cap, which is more or less around 50m. They already are generating Operating Cash Flow while boasting a tremendous growth profile while reducing cash costs per ounce. The company is currently at an inflection point as the market places lower multiples on both smaller miners and those generating OCF from just one mine. This will likely end to some degree the second half of 2011 as they near commencement of their second mine and third mine. However, investors want to be the first to the party, not the last as holding out for the market to notice this company will eat away your returns. This could very well be a 5 bagger (stock price increases fivefold) or more as we proceed into the future.

Atna’s asset base is very diverse given the size of the company but don’t let that fool you because they do not plan on sitting on these assets because they have one of the strongest growth profiles (percentage wise) in the industry. They will go from producing just 28,000 ounces of gold in 2010 to over 100,000 ounces by 2013 and over 120,000 the year after that. In other words they grow production nearly 210% by 2014.

 There is a lot of upside potential in their assets, particularly in one mine (mentioned in the following paragraphs).This mine currently hold a 30 percent interest along with Barrick Gold. The partnership with Barrick will serve Atna well because they also have an option to acquire the remaining 70 percent, which could propel them to 150,000 by 2014.

 

Also, they have good long term growth potential in what will be their biggest mine (70,000 ounces of gold per annum and 96,000 ounces of silver). Before an overview of their operation, note they already looked into expansion projects on 2 mines. There must be something wrong if Atna is so cheap, right? Tell that to what many consider the best financier in the mining industry Eric Sprott, who along with Lloyd Miller has taken minority interests.

 Atna is a relatively high cost producer, currently around $750 an ounce. This look terrible at first sight but two things need to be taken into account. The cash costs will slowly decline to under $500 ounce before 2014. In addition, high cash costs actually gives an investor more leverage to the commodity price. In other words, each dollar gold or silver go up, the larger change in net margins.

The Core Mines

 

Briggs Mine

Briggs Mine is located in California will ramp up production in 2011 to 38,000 ounces, where it will incrementally increase until 2014, at which time production will jump to 52,000 ounces. The PEA process is currently taking place to assess exactly the potential of an expansion project. Atna has brought this mine online in a very smooth manner making it much easier to execute their objectives.

 

Pinson Gold Mine

Pinson Gold Mine is located In Nevada (mentioned above) Atna currently has a 30 percent interest in the project, but retain a preemptive right to obtain full control. 2.2 million ounces of resources have been identified, which is not small Pickens. Like the other mines, Pinson will go from construction to production within 12 months after development begins. If Atna can afford to acquire this mine, it will produce up to 100,000 ounces annually. At the very least, the 30 percent interest in the mine will increase free cash flow with Barrick in charge of operations.

 

Reward Mine

Reward Mine is located in Nevada. Along with Pinson, Reward will commence production in 2012, with an initial annual production of 25,000 to 35,000 ounces. An expansion of this mine is likely to be taken on at some point. There is $27 million in capital requirements remaining to complete construction.

 

Colombia Mine

Columbia Mine is located in Montana. Although it will be their biggest asset barring a Pinson acquisition, it is very affordable to develop ($74 million) with the cash flows than will be coming in 2011 to 2014. As previously mentioned, 70,000 ounces of gold and 96,000 ounces of silver will be the average annual rate. Assuming silver is $15 per ounce and gold is $1,300, the internal rate of return is projected to be approximately 46 percent.

Valuation

Cost per proven ounce in the ground: $123/oz (Industry Average - $370)

Gross Revenue Multiple - 2.08 (Industry Average 9.9x)

Price paid per each ounce of current year production - $1229 (Industry Average) - $7200

If Atna traded at Industry Averages (1.92, 2.97, 3.53) compared to the current market price .60 cents 

 

12 Comments – Post Your Own

#1) On January 09, 2011 at 4:56 PM, Starfirenv (< 20) wrote:

Thanks Speedy. I still love that shiney stuff.

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#2) On January 09, 2011 at 11:37 PM, checklist34 (99.81) wrote:

first and foremost, I am not, nor hardly, the biggest expert here on PM's

second, I am a previously stated passive skeptic who has never been long PMs, except IAG from oct 08 to apr 09 in the only managed accounts I have ever had.  

But I read your post on this, and your favorite silver stock, and a recent comment from TMFSinch...  all plugging penny stocks.  Stocks with minimal data on yahoo finance and all of that.  I will stop well short of suggesting that this may be a sign of a PM bubble, when people are looking for bargains on the pink sheets - because, you see, I would not nearly be willing to bet AGAINST an even bigger PM bubble as it could certainly happen - but is that a tad bit bubblelicious?

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#3) On January 09, 2011 at 11:56 PM, speedybure (< 20) wrote:

Checklist - 

I've heard people saying gold and silver are in bubbles for years but have you ever heard the masses call a bubble while they were inside one? I actually would argue the fact that so many people and "so called" financial experts are saying this to be evidence we are not in one.

Sinch and I have a lot of the same tastes among the miners and you have to understand companies in say Australia, Honk Kong and Canada among others are filled with penny stocks simply because they finance cap-ex/growth etc via equity. Personally, I don't buy companies on the pink sheets and to put it correctly, Pink sheets offers anything but bargains as it just a market maker with very thin volumes, causing spreads to be very wide. They are on the pink sheets because they are canadian stocks without a U.S listing.

Central banks around the world have been engaging in very aggressive currency debasement, thus gold and silver being the chosen stores of values for thousands of years will therefore rise. Silver, in particular, has two enormous components: 1) being the monetary aspect 2) being the fact we have been consuming between 40-60% more than annual mine production for over a decade.

You may think I;m a nutjob but I think these metals are going drastically higher. my 12-18 month targets for gold is 1750-1900 and 45-50 for silver. If you are looking for exposure but hesistant to pull the trigger, consider either Silver Wheaton ( which is a royalty company who purchases silver for $4 ounce, growing production from 17m oz in 2009 - 40m+ by 2013. As for gold, look into royal gold or franco-nevada. 

You wanna talk bubbleicious? Lets talk the Long Bond, haha 

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#4) On January 10, 2011 at 12:33 AM, checklist34 (99.81) wrote:

I don't think the PM crowd are nutjobs, and I do accept the underlying logic is sound (currency debasement et al). 

However, ... when does the PM crowd sit down to consider value?  As in, if gold has historically traded for about $1 adjusted for deflation, and its now trading for perhaps $3, we have an interesting situation then where we have to have the dollar drop by 67%+ or gold to eventually, someday, make its way back to $1.  

Thats my logic:  someday, maybe in 10 years, maybe in 20, it'll be $1.  And starting from $3 or whatever it is today, that doesn't work out to be a good return from now until then.  

I do acknolwedge and accept your comment about bubbles and that there are voices, like mine, calling gold a bubble.  Many also call stocks today (and ever since may 2009) a bubble.  

What about teh housing bubble?  Were many people calling it a bubble then?  I think so, from reading some old articles that pop up here and there, I DON'T think I have seen too many articles 3-4-5 years old calling for 40% drops in prices, but the use of the word bubble was certainly not unheard of, I don't think.  

What about the tech bubble?  Certainly alot of people were calling it as such then, although I didn't follow the news much.  I did, to my cousin, who was obsessively into tech stocks.  Buffet made comments along those lines, I'm sure others did, but, as I said, I didn't really follow it.  

Also, these days, people are chronic bubble callers, and I can't remember anything that hasn't been called a bubble at some point.  Stocks, bonds, PMs, commodities, all of it.  ITs all a bubble, to somebody, lately. 

I wouldn't buy a long bond either.  

Anyway, thats my thought:  yes, you are right about central banks, etc.  And its true that AMZN and NFLX have good growth.  But at what point do you stop to consider valuation?

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#5) On January 10, 2011 at 1:16 AM, speedybure (< 20) wrote:

Of course valuation is considered. Buying silver is just like buying oil or any other industrial commodity in addition to being an inflation hedge. Consider there are approximately 800m-1B ounces of silver currently above ground and we are running a deficit (mine production - consumption) making this very compelling. Here is an article I wrote for financial sense in case your interested.

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#6) On January 10, 2011 at 3:00 PM, G8BigBoom (68.49) wrote:

       Overall I do not think we have added more than 3% to our total money supply. Is that what you mean by currency debasement? Even though most debt has dates when it needs to be paid back. Am I correct on this?

      The Monetary aspect of gold is great but no better I would argue  than what we have now. PLENTY-O-MARKETS crumbled under mighty gold and I believe even ours had some troubles. I believe it is good leaders and common sense regulations that keep a market happy. Is this wrong? Finally I think it is something like 60% of gold is industrial and only 30%-40% investment or currency. Do you not think these companies would love to stop using gold and use something cheaper? Is that so far distant we should not worry?

Either way I think you have a great argument and wouldn't won't to debate in person. I think you would win. Either way I am curious on your thoughts and why so much safety thoughts in gold lately? 

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#7) On January 10, 2011 at 3:19 PM, speedybure (< 20) wrote:

Unfortunately, all the monetary aggregates used by the Fed either include things that either aren't money or leave out things thats are. I use the Austrian Money Supply/TMS formulated by Murray Rothbard which is defined as all money that is readily available for use in exchange. In the year 2000 it was approx 2.6T and has exploded past 7T as of the end of November. Many things have yet to work their way into these numbers including debt monetization (direct injection of money) amongst other things. We have amassed two kinds of debt, that from the sale of treasuries and that needed to fund such things as entitlement programs, stimulus, defense, that loaned out via fractional reserve banking, etc.

No markets have crumbled under the gold standard as it is impossible to inflate under a 100% gold standard (all the gold would flow out). The market doesn''t need leaders as it is a self organizing system. The more government policies, the more inefficient markets become. Gold has been considered a store of value for thousands of years because it has the most ideal characteristics, so this is unlikely to change. The following is an article you might enjoy http://financialsense.com/contributors/chris-marchese/the-road-to-ruin 

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#8) On January 10, 2011 at 4:48 PM, ajm101 (33.93) wrote:

"No markets have crumbled under the gold standard as it is impossible to inflate under a 100% gold standard (all the gold would flow out)."

Wasn't the US under the gold standard until 1933, or 4 years into the Great Depression?

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#9) On January 10, 2011 at 5:09 PM, speedybure (< 20) wrote:

It was initially a 40% gold standard until 1913 at which time it was reduced to a 20% gold standard and then cut in half once again in 1933.

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#10) On January 10, 2011 at 7:08 PM, rfaramir (30.54) wrote:

"However, ... when does the PM crowd sit down to consider value?"

Value in what terms? Dollar value? The same dollar that used to be tied to gold because it was by law redeemable in it, but now can not only be printed, but *electronically* printed at zero cost! We are no longer in an age where sovereigns shaved ethics by clipping coin edges and minting more with the shavings, they have complete power to debase to zero.

Value relative to other commodities? That's of interest and useful. I'd weigh the prospects of gold versus silver and versus oil and natural gas. When you think one is 'greedy' reallocate into another that seems more 'fearful'. And be sure to take some physical delivery, especially of silver (and not oil! LOL!), to do a free market takedown of the shorting speculators.

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#11) On January 28, 2011 at 2:04 AM, silvermind (< 20) wrote:

Speedybure,

Great post (recc'd)!  Thanks for the info.  So what do you calculate as the PPR and the M&I on all these mines?  Looks like their 30% of Pinson alone is worth $500M net assuming today's price (about $1,320 with a future cost of about $550/OZ to mine it).  Not bad for a market cap of $50M+-!

Big question - how much % does Eric Sprott own?  When did he buy it?  What is your reference source on this fact?

 Thanks again!

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#12) On April 01, 2011 at 5:04 AM, mhy729 (44.37) wrote:

speedybure

Any updated thoughts on Atna Resources?  And thanks for your posts here and on SA...I have yet to get in on your picks, but I've got them on my watchlist.  Best wishes on your fund!

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