My Top Gold Stock For 2011
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 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 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.
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.
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