TGR: Oromin put out a feasibility study earlier this year. What were your thoughts when you started going through that?
PG: Oromin has the single largest set of deposits in a country where gold deposits and gold mining is growing—Senegal. If it were not for this horrific bear market, the share price would be a lot higher. There are concerns of its ability to finance given what’s happened to its share price, but I suspect it could combine with its neighbor Teranga Gold Corp. (TGZ:TSX; TGZ:ASX).
Teranga would likely be the surviving company. I don’t think Oromin management wants to stay on the production side of the business.
TGR: How would investors benefit from that deal?
PG: This is one of the true rarities where combining is better for both of the companies. Each may not like what I’m about to say, but what Teranga has mostly going for it is its mill. It hasn’t been very successful on the exploration side. Oromin, on the other hand, is in partnership with one or more other parties on a series of deposits that have about 5–10 million ounces. It would be fairly expensive to build its own mill and foolish when the company next door has one and can use all the ore it can get in the coming years. The outlook for each company is vastly improved if they combine.
TGR: Is there a potential merger that would benefit Sunridge Gold?
PG: It is insanely discounted, not only because it operates in Eritrea, but also because of what happened in the junior resource market. It would have a share price probably 5–10 times higher if it were operating just about anywhere else in the world.
The bottom line is that any day Sunridge will have an updated resource study that should make it evident to everybody how ridiculously undervalued it is. It is definitely a candidate to be taken out. Unfortunately, it will not get anywhere near the price it could have gotten a year or two ago.
TGR: Sunridge put out a prefeasibility study just about a year ago. That showed a net present value (NPV) of $555 million and an internal rate of return of 27%. Do you expect the feasibility study, which is due out within the next month, to have even better numbers than that?
PG: It’s very likely. That’s why this market is so frustrating. Something has to give. You just can’t keep adding value the way Sunridge has and discount the price. If nothing else happens, a bigger company will come along that is better financed and take Sunridge out. The ore in the ground doesn’t know that it has been discounted to the level it has, and it’s still being sold around the world for a nice price.
TGR: What about the jurisdiction risk?
PG: Everybody I talk to that works there says it’s perhaps one of the best places they ever worked in all of Africa. Unfortunately, Africa creates a lot of negative buzz in the media.
TGR: Geologix is a story that’s been around for a while. It has a project in Mexico. What’s the path to making money for investors with Geologix?
PG: It’s almost to the point where it’s giving the stock away for nothing. The market cap is probably not even 10% of the NPV of the project. It’s a fairly easy deposit to develop and should not have major hiccups. It’s probably on radar of multiple companies as a possible acquisition because it’s in a good jurisdiction and has a lot going for it.
Does the fact that the market has taken this one down to a dime cause a problem for the company? Sure, but the management seems to think it has an alternative to raising capital with a general equity financing and says to stay tuned. You’ve got to give Geologix the benefit of the doubt and give it the time to see what develops.
TGR: Does Geologix have any cash-rich neighbors in Mexico?
PG: I don’t know about the cash-rich neighbors, but there are significant mines and miners operating in the general area, the type of companies that are going to be the first to notice this asset is so cheaply priced.
TGR: Do the companies we’ve discussed have enough cash to wait this market out?
PG: They have enough cash for the very short term, but all these companies are always burning matches. Until they have assets that they’re selling and can take in more money than they’re spending, they always have to raise money. That’s another reason why they’re priced where they’re at.
TGR: What should investors expect during the remainder of this year and into 2014?
PG: The U.S. stock market is nearing the end of the single largest bear market rally in history. This is what I predicted in 2009 would occur. There won’t be a collapse as soon as it does top out because quantitative easing will create a cushion. With the economy rolling over again, I don’t foresee the end of quantitative easing.
There will probably be some more shenanigans by the Federal Reserve to give another kick to the can, but the time will come when the world realizes that we cannot afford to pay back what we owe, much less the interest. That’s when the financial markets will be hit hard. That’s when there will be a collapse of the bond market and a very sharp decline for general equities.
In the meantime, we will see $2,000/oz gold. The recent gold takedown was not driven by fundamentals. It was not fun living through it, but it was actually something that is going to fortify this secular bull market that’s been underway for 12 years and is going to mark the next leg of the bull run for gold.
TGR: What’s your advice to the average retail investor in this climate?
PG: It’s just too late to sell unless you just can’t tolerate the mental anguish another day. Companies are down 90% off their highs in some cases, but some are viable. A consolidation is coming. It will have to get smaller before it gets bigger. Eventually, gold will stop making news for going down and start making news by going up sharply. That’s something I still think we have in our future. That’s why I still have hope for the junior market.
TGR: Thanks, Peter, for your insights.
Financial Adviser and Market Analyst Peter Grandich started publishing The Grandich Letter—now a blog—without a high school diploma or even a day of formal training. His ability to interpret and forecast financial happenings—which once earned him the moniker “Wall Street Whiz Kid”—has led to hundreds of media interviews. He is regarded as one of the world’s foremost market strategists.
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DISCLOSURE:
1) Brian Sylvester conducted this interview for The Gold Report and provides services to The Gold Reportas an independent contractor. He or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Gold Report: Timmins Gold Corp., Oromin Explorations Ltd., Sunridge Gold Corp., Geologix Explorations Inc. and Teranga Gold Corp. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.
3) Peter Grandich: I or my family own shares of the following companies mentioned in this interview: Timmins Gold Corp., Oromin Explorations Ltd., Sunridge Gold Corp., Geologix Explorations Inc. I personally am or my family is paid by the following companies mentioned in this interview: Timmins Gold Corp., Oromin Explorations Ltd., Sunridge Gold Corp., Geologix Explorations Inc. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
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