Minera Alamos, MAI.V, the company I spoke about in an earlier blog post here https://economicalpha.blog/2019/06/26/a-few-mining-names-i-am-watching-as-gold-breaks-1400/, has been working quite nicely. Two projects are coming on line within the next 24 months, which is perfect timing as gold seems to be holding $1,500 and remains quite supportive. Santana will be the first, coming on line in 2020. Construction should begin here in the next few months. All permits have been received. Project financing announcement is next catalyst. Exploration drilling has begun as well. New targets have been identified. I believe the resource upside at Santana is not priced in.
La Fortuna is the next project. That one comes on line in 2021. The project will be financed from cash flows from Santana as well as some form of debt/royalty. The IRR on the project is 93% at $1250 gold with conservative assumptions at NAV7.5%. With gold above $1500 and stubbornly holding, NPV I imagine is north of $100M given sensitivity. Bottom line here is this project works well at $1250 and only gets better at current spot. Also, exploration success here isn’t priced, so there is another lever.
Re-rating is going on at the moment as Minera enters the “sweet spot” from explorer to developer/producer within 12 months. Market is of course forward looking and is starting to price in the cash flows that will be coming here in short order. I have EBITDA in 2021 once both projects are up and fully running at $55M US annually. Current fully diluted market cap is about $61M US. Even if there is a modest equity component to financing bucket, that still leaves plenty of room for the equity.
Minera will be working on mine life extensions. The dirt is prospective with ample targets on both properties and so Minera should be in a position to replace what they deplete once the cash flows start coming in to extend the life of mines with exploration ramp up. We should see exploration updates over the coming months at Santana.
I continue to like the risk / reward here. I will look to continue to add on weakness. Minera is agnostic to gold because at $1250 both properties are economical. Downside is protected by management execution and they have skin in the game. Valuation also minimizes downside risk as paying a little over 1x EBITDA/MCAP based on 2021 projections and EV/EBITDA is well below peers. Another risk mitigating item is the fact that the projects have been for the most part de-risked. What’s left here is execution. Given they have done this low capex model before, I’m comfortable with that operational risk.
Here’s the chart. Up and to the right with modest corrections in between. Very healthy price action. Current mood: buying dips.