If Leagold Mining (LMC.V) was an animal, it would have a giraffe’s neck, shark’s teeth, and a cheetah’s hind legs. LMC -straight up- reaches higher, bites harder, and runs faster than other companies in its peer group.
With a market cap of $85 million, Leagold casually put together a $438 million financing to purchase a producing Mexican gold mine from Goldcorp (GG-NYSE).
Why, you might ask, is Goldcorp selling the mine?
With a market cap of $16 billion, Goldcorp is not in the business of operating mature mines. It needs to birth another baby dragon, and rear it on raw meat until it grows up and breathes fire.
So how much gold is left in this Mexican mine? Is $438 million a fair price, or has Leagold overpaid?
The raw numbers from Goldcorp go a long way towards answering these questions. In 2016, the Los Filos Mine sold 235,000 ounces of gold at an All in Sustaining Cost of $878/ounce. If those ounces were sold at the current spot price of gold, that would generate a profit about $112 million.
Leagold’s management were part of the DNA of Endeavour Mining (EDV.V) – a leading West African gold producer and stock market darling.
Frank Giustra, the Non-Executive Chairman, is a mining legend who launched multiple natural resource companies, many with operations in Latin America. Mr. Giustra is CEO of Fiore Financial, a private firm managing a broad portfolio of equity investments. Giustra was also Chairman of Endeavour Financial from 2001 to 2007 and was a director of Endeavour Mining from 2013 to 2016.
Neil Woodyer, the CEO and Director, was a founder of Endeavour Financial, a mining merchant banking and advisory business. In 2009, Mr. Woodyer and Mr. Giustra devised Endeavour’s gold growth strategy, growing the company into one of the largest gold producers in West Africa through expansion, optimization projects and new mine construction.
To put it mildly, neither of these men is in the habit of making bad metal investments.
Unless you have a team of geologists on your payroll, it’s difficult to accurately calculate the value of a junior metal company. Airborne Bouguer Gravity Anomaly Maps – anyone?
“There are some simple truths in the resource game,” Frank Giustra confirmed to CEO.ca, “The first truth is that you pick a great management team and you wait.”
The presence of competent mining leaders de-risks the project. Giustra’s ability to pick strong teams makes his presence a de-risker in itself.
A recent press release does a good job of dumbing down the numbers.
”The divestiture of Los Filos is consistent with our strategy of focusing on our core camps,” stated David Garofalo, President and CEO of Goldcorp. “We will work closely with the team at site to ensure a smooth transition and look forward to working with Leagold to continue to add value at Los Filos.”
According to a December 2016 report the Bermejal open pit and underground mine at Los Filos contains a measured and indicated mineral resource at 422 million tonnes at 0.85 g/t, containing 11.5 Moz gold – with a value of about $15 billion at current spot prices.
But will Frank Giustra, Neil Woodyer and the Leagold team be able to extract this metal from the ground profitably?
The stock price of Endeavor Mining (their last company) has increased 400% in the last 2 years. If history repeats itself, this super-powered hybrid animal called Leagold, may carry its shareholders up the summit of a new mountain.
Orion Mine Finance announced this morning it was buying into Leagold to the tune of US$28 million at $2.75 per share, a $0.30 premium to the share price at the time of writing.
— Lukas Kane
FULL DISCLOSURE: Equity.Guru has no commercial relationship with any of the companies or people mentioned in this piece.