Ian Wyatt’s Global Commodity Investing recommends investments leveraged to commodities of all types, including precious metals. Last week, Editor Ian Wyatt recommended subscribers take advantage of low gold prices and cheap gold mining stocks and add gold exposure to their portfolios. Gold is certainly less popular now than it has been for years... which could be a good sign. One of Wyatt’s recommendations, a high-risk, high-potential junior gold miner trading under $5, is profiled below.
“International Tower Hill Mines Ltd. (THM) is an exploration-stage company with interests in Alaska and Nevada. With a market capitalization of $385 million, it offers the promise of ... great returns in the long run, but [with commensurate risk].
“THM’s flagship project is the 100%-owned Livengood gold deposit 70 miles from Fairbanks, Alaska. Livengood contains more than 20 million ounces of measured and indicated gold. And the mineralization remains open at depth and laterally, so we expect additional exploratory drilling will yield an even larger resource base.
“The project is still in the prefeasibility stage so it’s years away from its first gold pour. But getting there should be easier for THM than for many of its peers at a similar stage of development.
“In terms of permitting, for instance, the project is located in an area where mining has long been conducted, there are no wildlife issues, and it’s not sited on native lands. Also from an environmental standpoint, the mine will feature a large-scale mill operation, rather than a heap leach to separate the gold from ore.
“In addition, the project should readily get the State of Alaska’s blessing, as the State Metal Health Trust is the property’s lessor and will be a major beneficiary of Livengood’s future development. In terms of capital expenditures required to develop the mine, much of the needed infrastructure is situated nearby and the topography of the project is favorable.
“Management estimates the capital cost of putting the surface mine into production at $1.61 billion. At present, the company has $93 million in cash on the books and no debt. While it will have to tap the markets to raise funds to pay for the project’s development, the economics of Livengood are so attractive it should have no problem gathering the needed capital.
“Livengood is expected to yield 664,000 ounces of gold per year at a cash cost of $557 an ounce during the first five years of its expected 23-year life of operation. Total costs per ounce are anticipated to be in the area of $650 an ounce, so the economics of the project are quite favorable. Construction is expected to commence in 2016, with production to follow in 2018.
“Needless to say, this is a sizeable gold project with target production well above most exploration stage companies. Combine this with a significant retreat in THM’s share price and we have a very attractive risk-reward scenario.
“The stock is currently trading at less than $25 per ounce of measured and indicated gold. And as THM moves through the development process, the market should assign a much higher per-ounce valuation to the shares.
“There is potential for THM’s share price to increase fivefold in the coming years based on comparable valuations from other companies, even if gold prices remain relatively flat.
“THM is also an attractive takeover candidate, although management has expressed a strong desire to remain independent. One company that certainly has its eye on this prize is AngloGold Ashanti (AU). The world’s third-largest gold producer owns 11% of the outstanding shares.
Action To Take
“Buy International Tower Hill Mines (AMEX:THM) below $4.75.”
- Ian Wyatt, Global Commodity Investing, March 15, 2012