Why Capstone Gold is my top choice for 2005:
I have been doing some back-of-the-envelope work with CSG to figure out what kind of production numbers we can expect starting in 2005. The company published estimates for the current resource of nearly 6 million tons, averaging 91.25 g/t Ag, .5 g/t Au, 2.6% copper, 1.38% Zn, and .86% Pb. The plan is to upgrade the production capacity at the mill to a throughput of 2,000 tpd. With the recent closing of the PP offering, they are now fully financed to move ahead with this plan.
Using the closing prices this week for the above metals, we get a gross metal value of the ore as follow:
3.19 oz Au @ $6.75 = $21.55
0.5 g/t Ag @ $441.40 /oz = $7.72
52 lbs Cu @ $1.4315 /lb = $74.44
27.6 lbs Zn @ $.5384 /lb = $14.86
17.2 lbs Pb @ $.435 /lb = $7.48
Net average gross metal value: $126.05
Assuming weighted average recovery rate of 85%: $107.14 USD
At full capacity the company will be generating revenues of $214,285.00 USD per day. If we allow a very conservative $60 /ton for excavation and processing costs, the Cozamin Mine will yield cash flow of $114,000 USD per day, or $40 million per year. CSG will have earned their 90% interest in the mine by early 2005 so their share of the cash flow will be $43 million CDN.
Now that should be impressive for any investor, looking at a stock trading for only 86 cents today. Fully diluted, including the shares and warrants outstanding from the recently completed PP, the share structure totals 59.3 million shares. So when the mill is up to full production, shareholders can expect to see about 73 cents per share in cash flow generated from operations, or to put it more bluntly, anual cash flow will be higher than the current market cap for the company.
But the story gets even better. The above resource estimates do not include all of the exploration work that is ongoing to the present, including several intercepts of well above average copper. It is very likely that when the current round is completed and the resource total is updated, the grades overall for the project will increase, and the tonnage will increase to 10 million tons. At 2,000 tpd, that works out to about 15 years feedstock for the mill! And even that does not include the untested anomaly below the 350m level.
Also, CSG controls 4 other late stage former producing properties. Fully cashed up after the PP they will be in position to begin developing at least one other property in 2005.
Management of the company is experienced and they know how to market the story. When the ducks are all lined up I expect to see a promotional campaign that will highlight the potential CSG offers. The company is currently flying well below the radar, but this should be seen as an opportunity to load up before the rush of retail investors that is sure to follow when the advisors and analysts start promoting the outlook.
Cheers!
COACH247
AI
