Many people who are aware of Yukon-Nevada Gold Corporation know that I have written about this company extensively. You can read my report, The Drama is About to End, for background information. Yesterday, the company announced pivotal news that I have been looking forward to for more than half a year: the winterization of the mill has been completed and gold production has been restarted at Jerritt Canyon. The stock was up 20 percent on the news and nearly 4 million shares traded compared to the average daily trading volume of less than 1 million.
The forecasted annual production rate is 108,000 ounces of gold for February 2012 and 150,000 ounces of gold for March 2012. With a gold production rate of 150,000 ounces of gold, the company should cash flow in the neighborhood of $150 million per year. Even after the run up in price, the market cap is still only slightly more than $300 million. Considering that the company is planning on expanding production to 300,000 ounces of gold in a couple of years, I would not be surprised if Yukon-Nevada becomes a four-bagger before 2012 is over. Throughout the year, there are several catalysts likely to drive the stock price higher. For example, a new 43-101 is expected to be released showing additional resources. Also, the management is seeking a listing on AMEX.
Disclosure: The author owns shares of Yukon-Nevada Gold Corporation.
You make a strong case and highlight the positives. I am also an investor (20,000 shares at average price of $.31) and an optimist. But I confess I am concerned about MSHA’s (Mine Safety and Health Admininstration) putting Yukon-Nevada on their Watch List. Is my concern warranted? Or am I just being a worrywart?
Jeff
I am not worried about this at all.
excellent news. at this point, risk-reward seems pretty compelling.
guess we’re not out of the woods until we see production plus profitability – but i must say that i’m actually feeling good about this stock for the first time in a while. some of baldock’s predictions are coming true.
I own a bunch of this stock as well and agree with your upside representation, but have to briefly comment on the valuation methodology – you need to either adjust for the gold forward facility in your market cap or in your cash flow statement.
My calcs get me to roughly 33% pre-tax 2012 FCF yield to equity (3x vs 2x as you represent) at 1700 gold, ~130k production (which may prove low), 35k production already sold, 800 average costs of production, and 10-20 in G&A&Drilling expenses. Questions remain about the cash working capital requirements and the longer term gold price, but given the falling cash costs and the rising production, you’re way more than compensated for those risks.
Anyhow, thanks for keeping your eager public up-to-date on this one.
A timely announcement given my comment yesterday. On 11/30/11, Baldock stated:
“We have a condition, subsequent in a Deutsche loan, or gold facility. And that requires us to raise a bit more working capital. About 60 million in total, if we have to. So got to be pulling that down in one or two $20 million lumps to get by.”
Seems like one lump is done. Any idea if there will be another lump or not?
This will all depend on gold production. I would like to believe that because they are now producing again with refurbished plant, they will not need another more money.
I was hoping that they didn’t raise additional $20 million but at the same time it is not surprising. They were supposed to be done by September. So they went from September to February with huge expenditures and almost no revenues. Something has to give.
The gold sale is not the issue. It is the warrants issued along with it. The terms are worse than the terms GS and GE gave to Buffett in the depths of the financial crisis. It is surprising that they had to raise money on such poor terms. It would have been better to do a straight equity offering for $20mm. Now they have sold $20mm in gold at a potentially big discount and have locked in the $20mm in dilution regardless.
I don’t agree with the characterization that the ‘terms were poor.’ The terms are roughly the same as the first DB funding round where:
DB bought 33.5m shares and 33.5m warrants at .55 for 14.4 million. That’s 67 million shares for a consideration of ~33 million. Net consideration per share is 0.48. YNG’s share price closed 5/31/11 at 0.49.
DB bought 173k gold at 120 million + postpayment between 850 and 1950. At 1700 gold this is an effective sales price 1540 per oz. Gold closed 8/15/11 at 1765.
In the second round:
DB locked in 40m shares for 0.44. Yes, that’s 10% cheaper than before, YNG’s share price closed yesterday at 0.44
DB bought 18k gold at 20m + postpaymetnt between 850 and 1750. At 1700 gold this is an effective sales price of 1556 per oz. Gold closed yesterday at 1745.
They lost some ground on the max of the cap and the share raise price. But I’d reason that’s more due to market movements than anything else.
I guess the point is that these transactions look more or less the same to me. To characterize one as great and the other as poor isn’t consistent.
So I talked with the management about why they had to issue warrants and I was told that in the previous DB deal the company was required to maintain a certain level of cash. Because they were late with the construction project, they went below this level. As a result Yukon was in a weaker negotiating position and gave DB additional warrants to do the deal.
@JR86, I am replying to my post because I am unable to reply to yours for some reason.
I am under the impression that the stock offering at .55 that DB participated in was part of a larger equity offering at the time and was independent of the forward sale agreement. The forward sale agreement was separate and did not include any warrants.
@ Mariusz, Did you find out how their cash levels look today vs where they need to be given the gold facility requirements? Maybe less important than why they did it is whether they might have to do it again.
@ johnson, You’re right that they’re two independent events but really they’re part of one larger picture, which is DB recapping YNG.
He did not give me these kinds of specifics.
Great news. I agree on the potential here but think we should be more realistic about cash flow. I doubt all in cash costs are going to be close to $700 this year. SSX mining won’t be in-house until Q3 at the earliest. Also, the DB gold sale will be a drag on cash flows until that is paid off. I think $100mm in operating cash flow is more realistic.
Do you know if they have any NOL assets to apply against earnings? What is their tax rate?
I think they have about $110 million in NOL.
Tax rate is 32%
As of 9/30/11 the balance sheet doesn’t show any deferred tax asset. Where are you getting the $110 million from? Thanks.
It is based on my conversation with the IR. However, he wasn’t reading it from anything but talking from memory. So this number might not be 100 percent accurate but it is a starting point for you.
Thanks. I am trying to figure out why they don’t have anything on the balance sheet as of 9/30/11. They had losses for the last couple of years before that. Any idea?
You are going to have to figure it out yourself because I don’t have time to look into it now. Call the management and maybe they can help you.
Hi Mariusz, Thoughts on MMYs quarterly filing today?
Great results again. Plant expansion planned to be completed by May 2012. I am looking forward to it. With this we will see even more production and cash flow. At this point no one cares but one day the stock will have to adjust. I had extra money to invest and I put it all on Monument last week.
Hey Mariusz, I’m curious if you speak with Chris Ecclestone much on YNG? Does he still have a positive outlook on the stock? I’m curious given his own frustration with the stock, from his initial call in July 2010, if he still maintains a positive view.
I spoke with him probably several weeks ago. He is frustrated with them the same way other investors are frustrated. But at the end of the day, he will tell you that if they finally get these things done, Yukon will be a huge winner.
Looks like the train hasn’t quite left the station yet…i
It depends on which station you are talking about? $0.23 or $0.38
Well it was at the $.44 station when you wrote this post.
We’ll need more positive news for the stock price to move up again. For now people are in the wait and see mode. Based on my conversation with the management, they are still trying to get to the run rate of 150,000 ounces of gold by March but who knows if it will happen on time. I expect them to be late because they are always late. Some investors will get impatient again and sell. I might buy more shares then.