This post continues the series on Open Pit Gold miners begun here, continuing here, here, here and here now profiling another open pit gold miner that I consider undervalued and have moved a decent fraction of my portfolio into.
CGA Mining is currently commissioning its Masbate open pit gold mine. Here's what I like about CGA mining:
- At 200K oz/year (with plans for moving up to 250K oz/year), CGA's Masbate project is as big or bigger than any individual mine discussed so far. With 7.75 million oz of Measured, Indicated and Inferred oz, it also has more gold than any other mine. It also has significant exploration upside. Altogether this makes CGA, in my opinion, more of a takeover target for a major than any of the other miners discussed so far.
- The Masbate project is not in Mexico, its on a island in the Phillipines. I'm trying to reduce my Mexican miner exposure.
- CGA Mining has been executing its plan and has not slipped its schedule. The overall attitude I see management having is one of building a money making business. The first gold pour is expect in March 2009 which is where it has been planned since at least last summer.
- CGA Mining has a strong balance sheet with almost as much cash as debt and with a good credit facility. I expect it will need no further financing to make it to the point where it is cash flow positive. One minor downside is that CGA mining does have gold sold forward (hedges) of about a year's production.
- CGA Mining has at least 83% institutional ownership (click here). I found (and lost) a reference that says it has 93% institutional ownership. Leave a comment if you can provide a link. I believe that the high institutional ownership will keep CGA management from being too greedy with options and other examples of "taking something off the top" and from trying to build an empire. I think the institutional management will be more amenable to a takeover offer should it come.
CGA mining compares favorably to all stocks except on on a price per M&I&I oz in the ground basis. CGA mining compares well with Alamos Gold (AGI.TO) and Western Goldfields (WGW) on a price to operating cash flow and price to annual oz basis. Furthermore CGA Mining has production growth plans (to 250K oz) while Western Goldfields does not. If you consider that 50K of Minefinder's 175K oz is actually "gold equivalent" silver then CGA Mining is significantly bigger (and with better growth potential) than Minefinders.
CGA Mining has a pretty bullish looking chart (see above).Here's some bullish qualities:
- Broke out above that downward trendline beginning May 2008.
- Broke out above its 50 day and more recently 200 day moving averages.
- Has crossed over the first and second fibonacci numbers.
The bearish qualities I see include:
- The gap from $C1.10 to $C1.20 remains to be filled.
- The price has been finding strong resistance at the 50% fibonacci number and the trendline starting from March 2008.
Overall I consider the chart reasonably bullish. One could enter now using the 200 day moving average as a stop ($C1.30) or wait for it to clear $C1.55 (last fibonacci number) which would target the previous high of $C2.14.
I bought some CGA Mining because it seems like an undervalued, big, available takeover target that is run by quality management. And of course, where can you find a commodity stock with a sub-4.0 price to operating cash flow ratio guidance at lower than current commodity prices?
Finally, everyone should do their own due-diligence and make their own investment decisions. All of the above material comes from my own amateurish reading of the company websites and related financial documents and does constitute a buy recommendation. As you know, I am a software engineer, not a financial advisor.