Wednesday, September 17, 2008

Dramatic Reversal in the Price of Gold

As I write this gold is up to $862.20 - up an astounding $84.50 for the day so far.

What does mean for CMM? Well so far, not much it seems. The last trade was 20,000 shares sold at 3 cents for proceeds of $600 less commissions.

However this rebound in gold prices above $800 is very important for CMM's fortunes. The most recent technical report for Lamaque filed at Sedar showed an NPV @5% of $197 million based on 1.1 million ounces of reserves. This is based on a gold price of $800.

As gold prices increase beyond $800 and resources get converted into reserves, the NPV increases dramatically. Yet at a share price of 3 cents, CMM's market cap is a pathetic $5 million.

The chances of securing the Fortis financing is also greatly enhanced IMO with a gold price above $800.

The present gold price is now over $400 above the most recently reported cash costs at San Juan. A modest investment of $1 to $2 million would increase production there to 25,000 - 35,000 opy. At 25,000 opy and a differential between cash costs and the POG of $400, results in $10 million per year in cash flow which is 2 times our current market cap.

We are trading at these levels for many reasons including the Wega dumping, and management blunders , but mostly because of our precarious financial condition that is exacerbated by the current financial climate. Whether or not the company is successful in obtaining financing, the liquidation value of the company far exceeds its current market cap.

Should we become successful in obtaining the needed financing, there is no reason why the share price cannot return to its high for 2008 and it will still be grossly undervalued compared to many other companies.

I think what is needed most for the junior gold mining sector is for a change in sentiment and for some of the money that is leaving the financial services sector to find its way into gold and gold shares. The large and mid-caps will be the first beneficiaries of this move, but obscenly under-valued juniors like Century should also benefit and will have the most dramatic moves.

1 comment:

Carib said...

Speaking of perception this is from an interesting article posted on Kitco:

It sure has been a brutal year for the junior sector so far. The horror show has decimated most juniors and many are trading at levels not seen since the beginning of this bull market in 2001. Does it mean the death of the juniors? Although most people would tend to believe that would be the case indeed one has to remember that we were there before in 2001/2002. Juniors were trading at penny levels coming down from multiple dollar levels the years before. In 2003 however many juniors caught tail wind and appreciated by 1000% or more in just a year. It's all about perception.

Let me give an example here:

Company XYZ, a junior exploration company that I’ve been following for years traded at 5 cents back in February 2002. Its market cap had evaporated by more than 98% over the years before. You may guess what sentiment was at that time. Well, I can tell you, it wasn’t good. But then suddenly out of the blue its share price jumped by 100% in a single day to 10 cents and within 18 months the stock appreciated to a high of $1.60. The company didn’t show off any drilling results during that period and nothing spectacular had happened. So what did cause the run (along with the entire junior sector) then? The answer is simple. Perception changed. You simply can’t value a junior without proven resources, it’s all about perception and expectations. Perception can change overnight and once it does change things can go very fast. Now fast forward to today, needless to say that sentiment has rocked bottom again but the same applies today as it did in 2002. Once perception changes, things can go up fast again.


http://www.kitco.com/ind/Hommelberg/sep172008.html