I am doing my project reviews today to narrow down my top-5 list for 2007, and BGL will definately be on it. Here are some of the facts about the company that keep me excited for the new year:
The Cinco Minas project is an advanced stage project but the market has not valued the story as a development play. The market cap for the company is still below $50 million. This is far below the peer group of companies that are emerging producers in Mexico. But I do not just have expectations that BGL will close the gap to the average for the group. I think BGL will be a market leader.
Management has held onto their stock despite the fact that the shares trade several times higher than their issue price. However, what is even more remarkable is that the management cashed in options and warrants early to continue to fund the company, yet almost none of that cheap paper has hit the market. This is the biggest endorsement I can think of for a junior miner. Many companies are quick to point out that management owns a high percentage of the stock, but one should look further to see at what price that stock was acquired, and in many cases junior mining companies grant lavish stock options and allow insiders to buy large blocks of seed capital for a penny per share or less before going public. To have a company like BGL where insiders are so confident about the future potential that they have not taken money off the table, and have continued to put cash on the line, is extremely bullish.
The senior personnel that are working with the company are all in demand and have been offerred jobs elsewhere, but chose to work with BGL. For example, the project manager Mr. Ismael Manriquez Olmos, was once a senior manager with Penoles at the largets primary silver mine in the world. To have someone like this agree to work with BGL is a huge endorsement of the potential for the project, and it is also a benefit going forward since he will contribute experience and expertise to ensure that growth in the scale of operations occurs efficiently.
There is a body of data on the project from decades of past production by former operators, that will give the company a head start with detailled knowledge of metallurgy for the various different kinds of ore that will be processed. The plan is to run a 3-stage operation: 1) a small mill (60 tpd) to allow for processing high grade ore and training staff, that is nearly complete. 2) a medium size mill (200 tpd) to run sulphide ores from underground development. 3) a large crushing circuit (several thousand tpd) to feed a heap leach process for the millions of tonnes of lower grade oxide material that has been identified in various near surface deposits. Each of the above stages will allow the company to generate positive cash flow immediately upon commencement, and will ensure that the company can expand the scope of operations with a minimum of growing pains.
Cash flow from operations will be used to fund an aggressive drilling program to prove up new resources. We already have data from past production that demonstrates extremely high grade ore shoots from the vein system on the property. Since the previous operators only completed development work to maintain their operations, almost no systematic exploration has been completed on the project, and it is therefore very likely that additional high value discoveries remain to be defined as a coherent program is initiated.
The company has already developed a decline ramp access to the main workings of the largest past producing mine on the property, and encountered ore grade material as they advanced the ramp. Water is being pumped out of the flooded lower workings of the mine. This work serves as a 'bridgehead' for the next phase of development. Road construction has been ongoing through the latter half of 2006, and the foundation for the permanent mill has been built, along with the construction of the first phase of processing infrastructure. So we will begin 2007 with almost a 'turn key' operation in place that the market has not discounted into the current share price.
The stock is so tightly held that any increase in trading activity is going to generate a rapid increase in share value. BGL has a strategy to under promise and over deliver, so there is not a lot of hype and sizzle in the market. As they announce the progress on the development, the commencement of production, and any exploration success they may achieve in 2007, this will have the effect of increasing the attractiveness of the company and encouraging additional buying. Almost no analyst coverage is focused on the company. Once the have earned the respect of the analsyts that positive coverage that results will further promote the story.
The Cinco Minas is only one of the two large, late stage projects the company controls with their JV partner. As development accellerates at Cinco Minas, the company will be able to turn their attention to fund the exploration and development of Grand Cabrera, another exceptional past-producing prospect located in close proximity and on the same vein system. So the company has growth prospects in the pipeline to keep it busy for a decade or more.
I think some people will look at the share price performance of BGL during the last year and think they have missed the boat. But it is the market value comparison with the peer group of companies that has me so bullish even now. I think BGL will earn a market cap of between $100-150 million, to put it in the range of other emerging producers like GPR, GGC, and EDR. That means that even with the closing of the current PP, considering a fully diluted capital structure of 45 million or so shares, the company will rise to about $3 a share just to achieve par value in the group. And as I stated earlier, I think BGL will be a market leader, based on the development potential to support an operation of several thousand tonnes per day, and the exploration potential of their large property holdings that could yield several significant new high grade discoveries. The excellent management team that is advancing the company at a sustainable pace will continue to generate more respect in the market as they achieve this success.
2007 is going to be a breakthrough year for BGL, in my humble opinion...
cheers!
COACH247
PS: Voluntary personal disclosure - I own shares of BGL, and the company is a corporate sponsor for the 2007 stock picking contest for Smartinvestment.ca forum members. I do not have a promotional relationship with the company, and have not been offerred any form of compensation. My commentary is entirely based on my own opinions and I was not asked to present it
