Maximizing upside is a top priority as an investor, but protecting our downside is equally or even more important.
I remind my readers of this periodically but it’s important to emphasize that when you lose 50% on an investment, such as dropping from $100 to $50, just to return to $100 once again, it will require a 100% move (which is not easy).
This is why in June of 2019, I covered Barrick Gold at $13 per share, which is up 130% from my profile price. It was a time where miners had still largely lagged the move we were starting to see in gold, and as a value investor, it provided the greatest amount of safety since it was the second-largest gold producer in the world.
In a bull market, momentum starts to pick up and a series of fortunate events start to take place, such as thicker margins, greater attention, and the attraction of capital.
Buffett shocked the world by entering the gold space and dumping half a billion dollars into Barrick in 2020, sending shares of Barrick up 12% on its first day of trading after the news.
After Buffett’s move into Barrick, the world has started to discover Barrick’s intrinsic value, but luckily, we were already locked and loaded for this move.
My goal for my readers is to find opportunities that have yet to experience price discovery while also stripping as much risk as possible, and that’s exactly what I feel I have for everyone today.
Immediate Alert: Gran Colombia Gold (TSX: GCM & OTCQX: TPRFF)
This is a mid-tier producing gold company that has a deck that even the most conservative investors looking for the greatest upside should consider.
- Gran Colombia is the largest underground gold and silver producer, with several mines in Colombia.
- It has one of the top 5 highest-grade underground mines in the world.
- It produces 200,000 ounces of gold per year (at $2,000 gold, that’s revenue of USD$400M).
- It has a built-in gold fund that holds a CAD$100M stake in Caldas Gold and an additional CAD$40M stake in Gold X Mining.
- This mid-tier gold company pays a dividend.
The most fundamental earnings growth we’ve seen across any sector in 2020 is what we’ve seen in precious metals – there’s no doubt about it.
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In 2019, gold was trading for $1,300 per ounce. At $2,000, we’re talking about a $700 move per ounce.
For gold producers, this margin goes straight to the bottom line. Gran Colombia’s all-in sustaining cost to produce an ounce of gold is $1,000, so GCM was making $300 per ounce produced at $1,300 gold. At $2,000, this margin increase is essentially pure profit.
With the $700/ounce increase, we’re talking about a 133% increase in the company’s margins just with the rising price we’ve seen in gold.
As I pointed out in the 5 bullets, at a production rate of 200,000 ounces per year, that’s a BOTTOM-LINE INCREASE that comes to USD$140M per year. Total revenues at current numbers would be USD$400M.
Mind you, Gran Colombia is ONLY a CAD$360M company.
As you can see, the numbers are very attractive, which is why the managed money is starting to perk up to the opportunities in the resource space, ESPECIALLY producing gold companies with sizeable liquidity and significant margins of safety compared to smaller early-stage ventures.
But it doesn’t stop there…
Similar to Buffett’s move into Barrick that has resulted in triple-digit returns for my readers, I believe companies like Gran Colombia will start to absorb the capital inflow from managed money that realizes the value that is there.
Gran Colombia is a mid-tier company that’s already in the GDXJ ETF.
We know Ray Dalio and Warren Buffett are increasing their exposure to the metals and I believe money managers are going to BEGIN to start following suit. From things like liquidity to market cap and its established presence in the market, this can make Gran Colombia a go-to for the momentum of capital that is rising up to enter the gold space.
For my readers, the good news is that I feel we are early.
This is where things get really exciting and why I feel an investment in Gran Colombia is so strategic with the safety and predictability of a mid-tier producing mine, but with the speculative upside potential of a junior!
Along with everything else Gran Colombia owns and operates, because of its strategic ownership in Caldas Gold of CAD$100M and Gold X Mining of CAD$40M, it has interests of CAD$140M out of a market cap of a company that is only worth CAD$360M, which is substantial. The Company also has $88M of cash as of its last reported financials.
This essentially means that the remaining valuation of CAD$180M is what is pricing in the 200,000 ounces per year that the company is producing, which is virtually nothing, providing a value opportunity the market has failed to price.
At profit margins of $200M ($1,000/AISC * 200,000 ounces of yearly production), we’re looking at a valuation that isn’t even equal to one year of earnings after subtracting the company’s interest in Caldas and Gold X Mining.
I will have more updates for my readers on this, but for now, here is a true opportunity to expose yourself to the upside we see in gold, along with the possibility to capture equity in what I feel is a truly undervalued profit-generating business.
Consider shares of Gran Colombia Gold (TSX: GCM & OTCQX: TPRFF).
Central banks have been net buyers of gold since 2010. There has been a generational change in our monetary system that will need to play out that will involve a revaluation of gold.
Chief Editor, CrushTheStreet.com
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