Mexus is now at the stage where it should break out of its trend and rise in anticipation of production. It can easily transform from a speculative junior explorer to a junior producer, and in the process, from a speculative theory to an investment undervalued by traditional metrics. It also appears we are timing this perfectly for a new upleg into a fresh gold bull market. Timing is everything with these companies and such entries are rare and should be exploited. I know it doesn’t really feel that way to long term holders who have been enduring a bear market mindset for years -- yet this is just one half of the coin. Mining is the most cyclical industry on earth and so taking advantage of these forces (for both buying and selling) is both logical and a low risk, very high reward strategy.
The way to make the greatest amount of money possible in the junior sector involves finding driven management sitting on an obvious top tier gold discovery in its early stages. One must ride the excitement of discovery and development from bear market lows and then hold the majority of your position until a new bull market and profitable production is well established, taking profits on obvious parabolic spikes on the way. Due to the industry's cyclicality it means that at bear bottoms you will receive nonsensically good deals of both speculative and non speculative miner/explorers. This manifests first in low PE companies like Claude and NSU, these are the kind of compelling value stocks that generate performance and interest for the sector. Then the royalties, seniors, and mid tiers move because they are the most leveraged to gold prices. These companies should be able to produce at any price, if they are in a bear for long enough (because of forced optimization - the opposite trend of a bull market, which is "production" at all cost).
The gold mining sector is currently nothing like it was 3 years ago. It is unrecognizable. The companies that were once bloated are now lean and mean, many are cash making machines. Every small increase in the price of gold will have profound impacts on margins and mining valuations as this trend makes replacement and development of production back into a priority. I would estimate every $100 increase in the price of gold nearly doubles the profits of the numerous marginal producers.
The Brexit was also so important event because it was a slap in the face to the status quo. It was a binary decision with a 50-50 chance according to the polls and yet nearly everybody assumed the coin would land on heads (myself included). The whole thing is quite remarkable and it is a signal that many will heed. The Brexit is not a black swan event (since it was one of two easily predictable outcomes) but it will cause many people to gradually shift into bullion as more currency risk is established and compounded in the coming months. I watch the gold price daily and the sentiment has clearly shifted for both the metals and the miners themselves. This is a perfect time to begin gold production.
As for Mexus specifically here is the back of a napkin:
Low scenario:
1000 t/day .9 gr 900 g first trickle from heap, ~29oz. Added with production from the existing mill at half capacity 40t @ 7gr works out to about ~9 oz, ~40 ounces a day for the early days, less than 14,000 oz annual. This will easily scale up but even this low run rate should be quite profitable. Even allowing for production costs of 50%, this is still nearly $1 million a month in net income, implying a value of 20-25 cents based on a low p/e of 10 for the combined venture. If you valued Mexus solely on this alone it would imply a value of around 10-12.5 cents when construction is complete and initial production begins. This considers no hype/potential and assumes the operation is locked at this rate for a startup period. I am also going by my read of the contract that net revenue is referenced anytime the word “revenue” is used below it’s first mention. If you believe it is a gross revenue split then all these numbers will be rosier.
Realistic Commercial Production Scenario:
10k/ day 80% ore 8k to leach at 1.75 gr/ 1.25 recovered 321.5 oz (note this about half of their current target according to KC’s recent convo)
300t/d mill at 80% 1 oz/t 240 oz/day
561.5 oz/day x 340 days = 190,740 ounces/ year. This should be a very simple mine in terms of processing and cost. This is easily doable and completely realistic.
-33% cost 187 oz leaves another 187 each gives us 63580 oz x $1330 is $84,561,400 x P/E of 10 is $1.69 a share with no arm bending and no gold bull. A full 20k run rate would increase production by about 50%, giving each slice about 100,000 pieces of golden pie, placing share price somewhere in the $2.50-$3 area for fair value. That isn’t pie in the sky, it is in the dirt.
Commercial Production Optimistic Scenario:
50k t/day 85% ore, 42.5kt/day to the leach at 2.5g (1.75 g/t rec) 2391 oz a day.
New 300/t/day mill at capacity, select high grade ore 45-60 g/t (full recovery) 450-600 oz.
At a 350 day operating cycle this is around a million ounces of annual gold production! If the JV produces this much gold this puts us around the Kinross level and will be a profound accomplishment and make mining history.
30% for costs leaves about 350k ounces each or $472,500,000 at $1350 gold P/E 20 is 9.45 billion bucks or $18.90 share. This is a lot of work but quite conceivable a couple years into a bull market. Is the Rancho rich enough to support such production? At least for a while. The signs are very encouraging for at least 2-3 million ounces of high grade at the minimum but we won’t know for certain until we turn the landscape into into Swiss cheese or it leaves in an armoured car... to hopefully be minted into dividend coins like GORO.
At $2000/oz and a P/E of 25 that is about 17.5 B / $35/share.
At $5000/ oz and a… no let’s just stop for the sake of sanity.
Needless to say Mexus price will fall somewhere between these scenarios. Mexus is unique in that it substantially outgrades its nearby, low cost peers and is in a position to rapidly begin production. The Mexus resource is super high grade, near surface, and highly scalable. We aren’t selling something that will go out of style. We can easily produce a valuable commodity at low cost and we can do it in style.
-TM
