|
|
|
|
January 31, 2012 Dear Friend,
On January 17th and 18th Charles Tumazos
went to Nevada to visit Tahoe Resources in their Reno, NV offices
and Atna Resources at the historic Pinson gold mine east of
Winnemucca almost next door to NEM Twin Creeks mine and autoclaves.
Both the Tahoe Resources team, the Atna Resources team and the
Pinson mine are historic American explorationists and old friends.
We met Kevin McArthur around 1997 as manager of Glamis Gold's mines
in near Death Valley in Southern California, and we later hosted him
at our conferences as CEO of Glamis Gold, Goldcorp and Tahoe
Resources. We made very handsome profits in Glamis Gold shares
bought in 1999 or so in the darker days of the gold market. We lost
a large sum owing at one point 1.5% of Canyon Resources, a
predecessor of Atna Resources, when Montana environmentalists and
anti-cyanide referendums blocked development of the 10+ mm oz
McDonald gold deposit. However, we had great respect for Canyon
Resources founders and their successors as explorationists. Finally,
John Livermore both was the Newmont Mining geologist in 1962 who
drilled a jasperoid silicification outcrop in 1962 at Carlin to
herald the modern era of Nevada gold mining, and also founded the "Cordex
Syndicates" that found and developed the Pinson, Dee and Marigold
mines in northern Nevada. So Charles went out to see some high class
Nevada old-timers, send my respects and get a current update on
their present endeavors.
We initiated research coverage of Tahoe Resources with an Overweight or "Buy" Recommendation with a price target of $29 based on the development of its Escobal primary silver mine and surrounding exploration in Guatemala, which we estimate will begin production in 2014 and average close to 20 mm oz until 2031. Tahoe Resources has a $3.1 billion market value, 367 mm oz of silver resources grading 13 oz per ton and its $450 mm IPO in 2010 funded development of a permitted 3,500 mtpd underground mine due to operate in 2014. We estimate it will pay a $1.50 per share dividend and build up $1.4 billion in cash balances under relatively conservative assumptions of $25 silver and other harsh metrics, where the company might promise you a $2.00 dividend. We compare it to the current 4.2% dividend yield of Plum Creek Timber, and believe in 2016 it will be worth $36 per share but we apply a 20% or $7 discount in the near term owing to completion risks. We estimate a $17 NPV at $25 silver and a 7.5% discount rate, a $33 NPV at $30 silver and a 5% discount rate and a $38 NPV at the current 5% Guatemalan income tax rate and excluding exploration expense. When the charts are bullish, we are sure silver bulls will overpay above our metrics because there is no better silver mine available for public investments. Atna Resources reports 5 mm oz of measured, indicated and inferred gold resources at four historic U.S. locations in California, Nevada and Montana. Because its Pinson technical report from June 2007 excludes 68 km of Barrick Gold drilling and the Reward technical report from March 2008 also needs updating, we estimate the reported resources will increase by 1 mm oz of gold sometime in 2013 after Atna updates the studies. Atna’s first priority is to produce gold at Pinson, and completing 43-101 studies will come later. We estimate gold output will rise four- to fivefold by 2014 to 160,000 oz as the Pinson and Reward mines begin operation. If the Columbia project in Montana operates as a gravity mill with no cyanide, output could reach 230,000 in 2017 from the four mines. Atna’s roughly 132 mm diluted shares and $28.8 mm debt position, an under $170 mm enterprise value, are very small in relation to its gold resources and production goals. The Pinson mine is very high grade and NOT capital-intensive, suggesting very high future returns. The Briggs and Reward deposits are lower grade, medium-sized deposits valuable above $1,000 gold prices. The Columbia deposit offers very high returns at grades near 1.5 g/t owing to the simple metallurgy of gravity separation without cyanide in a simple 19th century process. Faithfully,
John C. Tumazos, CFA
|
Copyright © 2008 John Tumazos Very Independent Research,
LLC
|
