What is a $108 million project worth?
May 6, 2014
Three years ago, in early May of 2011, the price of gold was about $1500. Silver had topped at just under $50 a few days earlier. Mining companies were in a mood to do deals.
Agnico-Eagle and Evolving Gold announced a joint venture on Evolving Gold’s (EVG-T) Rattlesnake project in Wyoming on May 9th. The deal required Agnico-Eagle (AEM-T) to spend $41 million in exploration over a 7-year period, payments of $12 million to EVG and the purchase of $23 million of Evolving shares to earn 70%. And EVG was carried to feasibility. Both companies agreed it was a good deal. If you total up what AEM was going to spend, they valued 70% of Rattlesnake at $76 million. That makes 100% of Rattlesnake worth $108 million. That ought to be worth something today. But what?
In their 2011 program at Rattlesnake, AEM drilled 24 core holes for a total of 8,193 meters, initiated a surface exploration program and completed a district wide magnetic and radiometric survey. One drill hole, RSC-160 intersected a blistering 282.9 meters of 1.08 g/t gold. That ought to be worth something. But what?
Overall in 4 seasons of drilling some 80,000 meters of drilling had been completed in 228 holes. Results released in January of 2012 confirmed indications of a big system at Rattlesnake. Hole RSC-170 showed 102.1 meters of .69 g/t gold, hole RSC-171 graded 62.5 meters of 1.84 g/t gold. So far everyone was happy with the JV. Rattlesnake was fully funded by AEM and EVG was being carried.
But all was not right in the marketplace. Agnico-Eagle hit a high of $72 after announcement of the JV with EVG in 2011 and had plunged to $32 a share by April of 2012 as a relentless correction took place in the price of gold after reaching a high of $1920 in September of 2011.
The project had actually advanced a lot under the one-year program funded by Agnico-Eagle. Their surface exploration program took some 1279 soil samples and 368 rock chip samples. AEM’s test program had found 8 new and untested gold and arsenic anomalies. But Agnico-Eagle was having cash flow problems in other parts of their empire.
In a press release dated June 6, 2012, EVG announced the termination of the JV with Agnico-Eagle on Rattlesnake. In April of 2012 AEM had approached EVG and requested certain exploration timelines be extended as they were going through a cash shortage in their total exploration budget. In May of 2012, AEM requested further changes to the JV in the way of exploration reduction and cash payments to EVG. Evolving Gold refused and took the project back. The price of gold was $1635 and the market reacted to the news by doubling the price of shares of EVG from $.20 to just under $.40.
In the first year of the JV it is estimated that AEM spent between $5 and $8 million on the project. So presumably, the $108 million dollar project should have increased in value to some degree.
With the wisdom of hindsight, perhaps EVG acted in haste to repent at leisure. In February of 2013 EVG announced they would spin off the Rattlesnake project into a new vehicle. They anticipated keeping half of Rattlesnake and funding between $3 million and $5 million to advance the project in a placement. After all, it was worth $108 million just two years before. The planned divesture came to nothing.
By August of 2013, EVG was doing placements at $.05 for $300,000 just to keep the doors open. Rattlesnake was still worth something but the market wasn’t about to give the company any credit.
By March of 2014, EVG was in the same position as AEM had been in two years before. A ruthless resource share correction had taken the value of the stock from $1.94 in mid-2009 to a new low of $.01. On March 17, 2014 Evolving Gold announced a deal with NV Gold (NVX-V) where NV Gold could buy 100% of the Rattlesnake project for $3.5 million in staged payments over a two-year period and the issuance of 3 million warrants on NV Gold good for three years at a price of $.10 and the issuance of 1 million shares with the final cash payment.
So the real question has to be; what is the value of the project at Rattlesnake now? I went to see it in October of 2008; the last time resource shares were getting creamed. I happen to like it a lot.
Agnico-Eagle is a great company with excellent management and a respected technical staff. They would have completed a lot of due diligence before committing to a $76 million dollar gold project. They wanted to continue with the project albeit with more favorable terms to them. They did the deal at $1500 gold but that doesn’t mean it has no value at $1300 gold. They would have known a correction was very possible and taken that into account.
I think the project is still worth $100 million in any reasonable market. Gold went up for a dozen years, it’s perfectly reasonable that there be a correction, it’s no big deal and not a product of manipulation. It comes under the “stuff happens” rule.
NV Gold has good management. Quinton Hennigh is on the board of directors and he certainly is an expert on this type of system. They will have no problem getting this project back on track. I don’t see them having the same financial issues as Evolving Gold did. Doing some sort of deal with Agnico-Eagle is always a good fallback position.
With the shares the company issued to do the deal, NV Gold has a market cap of just over $9 million. I think they are an easy triple or more as soon as the market starts to get it. The stock has climbed from $.05 when the deal was announced to $.205 with less than $100,000 worth of new buying. The stock is primed and ready to move a lot higher on not much buying at all.
In 2009 EVG was valued over $150 million and most of that value came from Rattlesnake. I see NVX worth $1 a share in any reasonable market.
I like the company, I like the management, I hate the name, perhaps WY Gold would be more appropriate. I participated in the PP in a fairly big way for me. I think there is a mine in Rattlesnake. Alkaline systems come in clusters. The project got bigger under AEM and is about to get a lot bigger under NVX.
NV Gold is an advertiser, I own shares and I am biased. Do your own due diligence.
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