Another Value Comparison

Occasionally I've posted on this blog an example of how much Century is undervalued compared to its peers. There was a news release that I read on Kitco this week that caught my attention. It was the announcement that Brazil's Vale (the world's second largest miner) had agreed to an option to purchase 60% of Intrepid Mines Indonesia's gold-copper project.

This is a low grade deposit with gold grades of 0.5 grams/tonne and has 2.57 million of inferred ounces. Vale is paying for the cost of the feasibility study to determine if the project is well, feasible.

If so, Vale will be paying US$ 40 million for 60% of 2.57 million inferred ounces for a property in Indonesia that has no infrastructure. At a grade of 0.5 g/t, you have to process over 60 tonnes of material to recover 1 ounce of gold. It will be years before any gold is mined from that deposit.

Century has 2.4 million ounces of Measured and Indicated Resources, including 1.1 million ounces of Proven and Probable Reserves plus 3.1 million inferred resources for a total of 5.5 million ounces gold at Lamaque.

Century's market cap is less than Can$ 30 million. The mine infrastructure at Lamaque alone is worth multiples of that number.

So if you had US$40 million to spend on an acquisition, which is the better value?

60% of 2.57 million of inferred ounces of low-grade gold in Indonesia, with its relatively high political risk, OR

100% of an operating mine in Quebec, Canada that has 5.5 million ounces of mostly 43-101 certified gold with a fully operational plant that can start producing gold within a few months.

And BTW, you also get a profitable and operating gold mine in Peru plus a bunch of exploration properties in Peru, Canada and Alaska for free.

Tough choice, no?

Yet we have owners of the company (existing shareholders) selling their company for the equivalent of Can$30 million. That's like owning a mansion in an affluent neighbourhood and selling it for $100,000 where on the other side of town in less desirable neighbourhoods, lessor houses are selling for $200,000.

It's one of the problems of owning shares in a low-cap company without significant institutional ownership. Many retailers have no clue what their shares are really worth. They buy stocks that are going up -often on little more than hype - and then sell when others are selling because someone must know something they don't.

With or without financing, the company's value is waaay more than its current market cap and companies like Vale won't let someone else pick it up for less than Can$30 million even if they have to assume existing debt. Vale was the company that bought Canada's Inco in 2006.

With financing, which I expect will be completed sometime this month, this company will not be a penny stock in a year or two.

Risk-reward situations like this one are hard to find.