In the carnage of the last three years, a lot of juniors have been left for dead with most commenters murmuring eulogies over the corpses. As a result, there are hundreds of still breathing companies selling literally for pennies that actually have a nice potential with a higher price for gold. Two of our advertisers have tiny market caps but still show signs of life.
I first wrote about Star Gold (SRGZ-OTCBB) in late September of last year. Their share price has been cut in half but they still have a plan that works. Located at an old mine in the Walker Lane Trend, they intend to put a small drilled off deposit into production via an open pit, heap leach. With a tiny $7 million market cap, they lack much downside.
Star Gold plans on permitting this year and next and being in production by the end of 2015. They require about $25 million in capex to produce 20,000 ounces per year. They released a scoping study a couple of weeks ago. Their plan is to get into production and drill off new reserves with the profits from the mining operation.
With $1350 gold the Scoping Study shows an IRR of 29% with 2800 tonnes mined per day and an 86% recovery of gold and 15% for silver. Combined operating costs for gold and silver would be around $760 per ounce of gold.
If you believe gold and silver prices are going up, you want to be buying the most heavily leveraged gold project you can find. While 29% IRR is hardly robust, that’s at $1350 gold. At $1500 gold the IRR rockets higher to about 40% and that’s worth doing. The plan from Star Gold management is to get the mine permitted and to ramp up both tonnage and ounces with higher prices for gold. That’s a reasonable plan.
The second junior I’m watching right now is Asher Resources (CAN-V) now drilling at their Lavington project in BC. I wrote about Asher back in late October of 2013. The shares were $.30 and the company had about $2 million in cash. The shares are now $.08 after a couple of disappointing holes in their King project in the Walker Lane trend in Nevada. They now have a market cap of $1.8 million and $1.6 million cash in the bank. There is nearly no downside.
Some of the money they raised last year was flow-through and they are required to spend it in Canada. They have just announced a tiny 1000-meter drill program at the Lavington gold project. Nice results would bounce the shares higher. Look for results in 6-8 weeks.
I own shares in both Star Gold and Asher and have not been inclined to sell. Those juniors that survive the correction will surprise everyone with how well they do. Both companies are advertisers so naturally, I am biased. Do your own due diligence.
Star Gold Corporation