Description

Bearings. This is a micro-cap suitable for those willing to suffer through illiquidity. I wrote up Kirkland Lake Gold in April 2017. Since then, it’s up nearly 500% (makes up for some of my less lucrative recommendations, ahem…Nemaska). At the time, Kirkland Lake Gold had already returned over 10x since it was first written up on the VIC back in December 2011 as Crocodile Gold by john771. To be fair, and not taking anything away from john771’s idea, it was not possible to foresee the subsequent recapitalization by the stellar team at Newmarket Gold in 2015 followed by a series of M&A that ultimately resulted in merging the legacy assets in Crocodile, together with additional assets from Newmarket into Kirkland Lake, and turning Newmarket’s $150mm mtk cap into the $12B mkt cap Kirkland Lake today. But that’s what happened.

Why am I telling you all this?

Investment Thesis: The same team of veteran gold executives/geologists/engineers that recapitalized Crocodile Gold into Newmarket Gold in July 2015 and sold it to Kirkland Gold in late 2016 for 10x, spent the past three years traveling the world looking for undervalued gold mining properties and finally executed on one last month. The team believes this transaction is their next fat pitch.

Company Description: Calibre Mining Corp (ticker TSXV:CXB) is raising CAD$ 105mm (in exchange for 51% of the common equity) to acquire El Limon and La Libertad Gold Mines from B2Gold for a total consideration of USD$100mm. Total upfront consideration of US$90 million: (i) US$40 million in cash, (ii) US$10 million in a convertible debenture, and (iii) 88 million shares of Calibre at C$0.60/share, representing US$40 million (for a proforma interest of ~31%). Deferred consideration of US$10 million payable 12 months after close.

Timing: Stock will begin trading publicly starting 10/22/19

Valuation: After close, CXB is guiding to 150-160k oz in annual production and will be trading at an EV of around USD$ 125mm. The company is guiding to AISC/oz of 1,100/oz. At today’s gold price around $1,500/oz, that means if you can buy the shares at the same $0.60/sh, the company is valued at 2x free cash flow. Chances are, the stock will re-rate immediately once it begins trading freely on 10/22, but even if it doubles, it will still be trading at 4x free cash flow.

VP: The management team. In these situations, you can do all the diligence in the world but at the end of the day it all comes down to how well the management team did their diligence and how well they execute. Unless you were walking the assets with them and seeing the visible gold in the walls of underdeveloped mines (as happened with Newmarket/Crocodile) or a trained geologist with years of gold mining experience, you are taking someone’s word for it. From experience with this team, they have consistently under promised and over delivered. In their previous ventures, they beat guidance every quarter before they sold the last assets for over 10x what they paid for them in less than two years time. Junior gold miners trade in the 4-8x cash flow basis. Given this management team's credibility, they deserve to trade near the high end of this range. If they execute the way they did on Newmarket, they will likely quickly recycle free cash flow into low hanging fruit projects adjacent to their current production that will prove highly cash flow accretive.

Legal Disclaimer: This research report expresses my research opinions, which I have based upon certain facts, all of which are based upon publicly available information. Any investment involves substantial risks, including complete loss of capital. Any forecasts or estimates are for illustrative purpose only and should not be taken as limitations of the maximum possible loss or gain. Any information contained in this report may include forward-looking statements, expectations, and projections. You should assume these types of statements, expectations, and projections may turn out to be incorrect. This is not investment advice nor should it be construed as such. You should do your own research and due diligence before making any investment decision with respect to securities covered herein. The author and/or his employer may have a position in this stock and may trade this stock. This analysis is intended only for VIC members and must not be distributed further.

Catalyst

Publicly floating shares on 10/22 

First quarterly earnings report

Sell-side initiation reports

Adjacent drilling results