Columbus Gold comes to a fork in the road
Yogi Berra may or may not have said, "When you come to a fork in the road, take it." If he didn't say it, he probably should have. Columbus Gold Corp. (CGT:TSX; CBGDF:OTCQX) is coming to a fork in the road. The road to the left leads to gold and riches for their shareholders. To the right the road takes shareholders to gold and riches.
I explained the basics of the five million ounce Paul Isnard gold project located in French Guiana back in early November of 2014. Little has changed except the share price has gone from $0.35 then to $0.87 now, they have added a lot of gold, moved their plan B Nevada project to just a smidgen under one million ounces of gold in a 43-101 and historic resource and have new neighbors in French Guiana named Barrick and Newmont. Other than that, it's just your ordinary boring "Great Management" story.
Columbus now expects the feasibility study to be completed by March of this year. At completion, their Russian partner, Nordgold will control 55.01% of the property. One shareholder, Alexey Mordashov owns 90% of Nordgold. When the feasibility study completes, Nordgold and Columbus come to a fork in the road.
Nordgold operates nine gold mines today located in Russia, Africa and Kazakhstan. Mordashov takes 90% of the dividends from the nine gold mines. Nothing suggests he needs another gold mine. Since he gets 90% of the profit from the mines, maybe he might be more interested in getting 90% of the 55.1% interest Nordgold holds in Paul Isnard should someone else want a low cost, high profit, high grade, open pit gold mine in a friendly location.
We have been taught since toddlerhood that adults are smart so naturally we tend to believe big companies do wise things. Actually big companies are just as dumb as we are. They want to buy assets at tops and sell assets at the bottom of the market. Just because Newmont and Barrick are multibillion-dollar market cap companies doesn't mean management isn't as dumb as a rock.
Back a year or so ago, both companies were shedding projects as fast as they could find a real businessman who understood both mining and value. Investors do exactly the same. If the Naz goes up 19 days in a row as it did in March of 2000, they know it's finally safe for them to invest.
You don't have to know anything about the Naz or the Dow or the S&P or even gold or silver to profit in investing. All you need to understand is human behavior. I explain all of this in Nobody Knows Anything. Investing at a profit is simple. Figure out what the mob is doing and do the opposite. Buy cheap, sell dear. It's that simple.
Let's go over some numbers. Paul Isnard has a resource of about five million ounces of gold. Their PEAcalls for production of over 250,000 ounces a year at an all-in sustaining cost of $711. It will be an open pit and high grade for an open pit. That sort of gold in that location with a feasibility study complete is worth between $100 and $300 USD an ounce. That makes the entire project worth between $500 million and $1.5 billion. CGT's 45% should be worth $225 million to $675 million. US, not Canadian Pesos. That is, if you don't have multiple companies getting into a bidding war.
If any readers remember back to Robert Friedland's sale of Voisey's Bay in 1996, he understood something basic about auctions that most people don't. For example, if you put a diamond ring on EBay with an opening price of $5,000 and no reserve and have one bidder who is willing to bid $10,000 for the ring, what price does the ring sell for?
Right. It sells for $5,000 because even though the bidder might be willing to pay $10,000 for the same thing, there are no other bidders. Now if you have a second bidder willing to bid $9,900, what does the ring sell for and who gets it? Right, it goes to the high bidder at $10,000. What Robert Friedland understood and only EBay bidders understand is that you have to have at least two bidders to get the highest price.
Nordgold might want another gold mine. In that case, they could offer Robert Giustra of Columbus Gold $100 USD an ounce for his 2.25 million ounces. Right now Columbus Gold has a total market cap of about $125 million Canadian or $93 million in real money, the USD. If Nordgold bought the Paul Isnard deposit for $100 USD an ounce, or $299 million CAD, shareholders would be up 140% from here. And that ignores the Eastside gold project of Columbus in Nevada.
But Alexey Mordashov of Nordgold might be more amenable to a deal with a third party. Instead of clipping coupons or signing dividend checks, he might want a simple buyout. If Newmont and Barrick started bidding on Paul Isnard, you might be talking $300 an ounce USD or even higher.
If Nordgold takes out the 45% of Columbus Gold, it leads to gold and riches for the shareholders. If a third party takes out both Nordgold and Columbus instead, it leads to riches and gold to Columbus Gold shareholders.
And in the worst case, there is always the million-ounce deposit in Nevada at Eastside to fall back on.
Columbus has what you might think of as a golden future. The stock was cheap when I wrote about it in 2014 and is higher in price but lower relative to where it's going to go in the future. Columbus Gold just announced a $5 million bought deal to bring in some funds for more drilling in French Guiana. While over 60% of the Columbus Gold shares are in the hands of institutions, this deal will only increase that institutional ownership even more.
And just a couple of days ago, CGT announced the intent to complete an all share purchase of a gold deposit next to their Eastside property. The acquisition will add 221,000 ounces of gold to the existing 721,000-ounce gold equivalent 43-101 resource at Eastside.
I liked the Columbus Gold story in 2014. I like it a lot more now. They are approaching an interesting fork in the road. Which way will they turn?
Columbus Gold is in the process of becoming an advertiser so I am naturally biased. Do your own due diligence.
CGT-T $0.87 (Jan 20, 2017)
CBGDF-OTCBB 143.0 million shares
Columbus Gold website
Bob and Barb Moriarty brought 321gold.com to the Internet almost 16 years ago. They later added321energy.com to cover oil, natural gas, gasoline, coal, solar, wind and nuclear energy. Both sites feature articles, editorial opinions, pricing figures and updates on current events affecting both sectors. Previously, Moriarty was a Marine F-4B and O-1 pilot with more than 832 missions in Vietnam. He holds 14 international aviation records.
1) Bob Moriarty: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: None. Columbus Gold is in the process of becoming an advertiser on 321 Gold. I determined which companies would be included in this article based on my research and understanding of the sector.
2) The following companies mentioned in the article are sponsors of Streetwise Reports: Columbus Gold Corp. Streetwise Reports does not accept stock in exchange for its services. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
3) Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview/article until after it publishes.
Source: Bob Moriarty for The Gold Report (1/23/17)