GoGold Resources (MKTS:GLGDF.PK) has been a stellar performer, though it has been flying under the radar. The stock trades very thinly on the pink sheet market so that the stock can go several days without trading. In fact, before today, the last trade took place on February 12.
This observation turns a lot of investors away. Investors always want to know that they can quickly get out of an investment if they need to. While I share this concern, I think it has created an opportunity in shares of GoGold Resources.
The stock has already performed incredibly well relative to its peers. Since the stock began trading on the pink sheet market in April 2011, the shares are up 47 percent versus the Market Vectors Junior Gold Miner ETF (NYSEARCA:GDXJ), which is down an incredible 75 percent. In short, GoGold Resources’ shares have been able to climb meaningfully during the bear market in gold and silver mining companies. If the shares can climb in such a rough market environment, then imagine what they can do once the precious metals mining sector turns around.
What accounts for this stellar performance? GoGold Resources has been rapidly bringing its Parral Tailings silver and gold mine in Mexico into production. The mine has minimal initial capital costs of just $35 million, which the company was able to borrow in the third-quarter of last year. Production is rapidly approaching, and this should give the company about $10 million in annual cash-flow, which isn’t bad for a company with a $185 million valuation.
But what is really compelling about GoGold Resources is the company’s exploration potential. The company owns an enormous property in Mexico called San Diego. While it hasn’t released any formal resource reports, there are at least 3 – 5 zones on this property that can yield sizable mines that may be able to produce gold, copper, and silver. Management has already done extensive exploration throughout the property, and while nothing is conclusive yet, there is a strong possibility that this can be one of the larger producing regions in Mexico.
Furthermore, the company recently made a bid to acquire Animas Resources (MKTS:ANIMF.PK). Animas owns two properties in Mexico, most notably the Santa Gertrudis property. Prior to bidding for Animas, GoGold bought the Santa Gertrudis mine. This was followed by a takeover bid for Animas by Marlin Gold (MKTS:MLNGF.PK). GoGold Resources responded by outbidding Marlin Gold, and it looks as though this deal will go through.
The Santa Gertrudis property contains several zones with small yet proven gold resources. It used to produce about 50,000 ounces annually in the aggregate, although the mines stopped producing when the price of gold got too low. Animas has been sitting on it for years and has done nothing with it. GoGold Resources was able to acquire it inexpensively, and it plans on studying it and releasing its conclusions in the middle of this year. Ultimately, there is a strong possibility that the company will be able to bring the project into production quickly and inexpensively.
GoGold Resources is overvalued based solely on its projected future cash-flow. However, as we have seen, the company has incredible exploration potential. It has a real possibility of being one of the largest precious metals mining companies in Mexico. With this in mind, I think it is an excellent speculation stock that has incredible upside as well as downside protection from the cash-flow coming from its Parral Tailings project.
As I mentioned, the stock is extremely illiquid. Therefore, investors might want to consider buying the stock on the Toronto Stock Exchange (TSE:GGD) if they have the means to do so.