October 19, 2022 - 10:08pm EST by
2022 2023
Price: 0.08 EPS 0 0
Shares Out. (in M): 132 P/E 0 0
Market Cap (in $M): 7 P/FCF 0 0
Net Debt (in $M): -2 EBIT 0 0
TEV (in $M): 5 TEV/EBIT 0 0

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Angold Resources is a gold explorer which owns land with historic gold resources and is drilling to expand those. At this stage, the investment entails risk, no doubt, and any position should be sized accordingly. However, I believe the optionality is massive while the downside is capped due to historic resources and an absurd market value. In fact, I believe Angold may be the most mispriced gold explorer in the market nowadays. In any case, we will find out soon: Angold has finished a drilling campaign and results should be out in no more than three weeks, maybe less.

Let’s unpack Angold: Angold owns four assets and has the option to acquire a fifth one. Out of these four assets, two are interesting: Iron Butte (Nevada) and Dorado (Chile).

The Iron Butte project is in the Battle Mountain district of Nevada (one of the best mining jurisdictions I can think of) and they have historic resources of 600,000 ounces at .62 grams per ton. Most of the historic drilling was done under 250m and so what Angold has been doing is drilling further to try to expand those resources in width and depth in areas where they encountered mineralization at surface. The end game is to update the resources, expand land packages and move the project into a mining operation. They believe they can prove at least 1 million ounces. While we don’t have the drill results yet, we have a couple of data points to hope results will be good: 1.) they used X-ray Fluorescence (XRF) to analyze the chemistry of the samples they pulled out, and they believe that, on top of gold, there is silver in a 10 to 1 silver to gold ratio and 2.) on Aug 16, the company confirmed it had encountered a Carlyn-style epithermal alteration which correlated with the intersections they projected during the surface mapping (it’s share price raised 30% on the news).

So how much is Iron Butte worth? I don’t have the faintest idea. But 0.6 million ounces of gold for USD 7 million sounds cheap to me. The best comparable companies I could find are NevGold Corp (NAU) and Millennial Precious Metals Corp. (MPM). NAU owns 0.2 million ounces of gold in Nevada at .7 grams per ton and its market cap is USD 15 million. The CEO of NAU happens to be a Director at Angold. MPM is valued at USD 30 million and they have 1.2 million ounces (inferred) at .4 grams per ton.

Angold, in fact, was valued at USD 40 million 18 months ago (USD 7 million now).

Which brings us to a key question: what went wrong and why is it so cheap now? First, Angold was listed through a reverse takeover and many of the original shareholders dumped their shares. Then summer of 2021 came, which was terrible for gold stocks. In Autumn 2021 they were about to start working in Nevada and their Chief Geologist decided to change the exploration plan, do new geophysics and improve the geological mapping, and Angold ran out of cash. When they were ready to drill, winter came, and they couldn’t drill. When they wanted to continue in 2022 markets plummeted and they had to raise cash on fairly dilutive terms. The drill campaign was also messy, they had to fire the first contractor, and re-do the first drill. The share price actually doubled in June this year on expectations that the drill results would be released soon and halved afterwards when the company announced delays. Furthermore, there isn’t any institutional shareholder, the CEO with 4 million shares is the largest individual shareholder. Therefore, I think the price action is exclusively due to a tired/frustrated shareholder base.

So the thesis, in a nutshell, is the following: if these guys manage to deliver decent drill results, expand a bit the historical resources and confirm the grade, I believe this should lift the spirits sufficiently enough so that the company trades in line with peers. If MPM is worth USD 30 million with 1.2 million ounces, and Angold can prove they have 1 million in Iron Butte, plus the .4 million of historic resources they have in Chile, why shouldn’t it trade at a similar valuation and get back to .4 per share, where it was 18 months ago? That would be good for a 5x return.

Of course, as they advance this could become a multi-million stock. By way of example, Orla Mining (ORLA) acquired in August this year Gold Standard Ventures (1.6 million ounces at 0.7), which had just completed its feasibility study for almost CAD 200 million. Needless to say that there is a lot of upside beyond Iron Butte with the other three assets. The asset in Chile alone could in time prove to be as valuable as Iron Butte.  

What can go wrong from here?

There are two risks I would be afraid of. One is that the drilling campaign is a total disaster, and they are not able to expand resources, as the project could be too small to be economically viable. However, there are examples of companies that have been able to advance with projects of less than one million ounces. One of such examples is Minera Alamos (MAI), which currently has a market cap of USD 145. Minera Alamos is interesting because it followed a model that I think Angold is trying to replicate, whereby they develop small projects following a staggered approach in which one developed mine funds the development of the next mine, minimizing dilution. Interestingly, the President of MAI, Doug Ramshaw, happens to be an advisor to Angold. The second risk I fear is that they do expand resources, but the grade is so low that mining is not viable even for heap leaching. I would be surprised because historical data points towards a reasonable grade and all surrounding projects have grades between .4 and .9 grams per ton. But this is a risk. However, at USD 7 million, how much lower can the stock go? 

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.


Drill results to be announced in the next two / three weeks. 

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