Giddy-Up, GoGold (GGD, TSX-V)! Reflecting Back On Our Original Investment Thesis

Why did I recommend GGD on December 18?
 
Let’s quickly reflect back on the investment thesis, bullet point style:
  • Leverage to Silver prices via GoGold’s Parral Tailings Project
  • After years of trial and error with a unique mining method called agglomerated heap leaching, the company pretty much figured out how to extract precious metals from the tailings (recovery rates increased from 40% to nearly 80%)
  • GoGold had/has a strong balance sheet consisting of $17 million worth of cash and securities, no debt
  • The company’s management team, led by CEO Brad Langille, had/has a history of generating wealth for shareholders
  • We expected a positive catalyst for GGD in the form of an accretive acquisition that would provide “exploration and drilling optionality” to go alongside GoGold’s production
Here’s how the stock’s done so far.
 
Langille Closes The Deal!
 
Right along, in my consistent coverage of GGD, I’ve been saying GoGold was deep into its due diligence process on at least 2 projects and hoped to close a deal during Q1.
Langille said he was shopping for something to buy during his last public presentation in Denver, but didn’t really offer any guidance aside from his experience making deals with private Mexican families.  Since then, through scuttlebutt and conversations with the company, I was able to gain some additional color to share with you, such as:
  • The project “to be named later” could host an open-pit deposit grading 2 g/t AuEq
  • Mr. Market would likely be very impressed with the terms of GoGold’s deal
Don’t you just love when a well laid out plan comes together, as expected?
Today we got the announcement!  GoGold signed an option agreement with private owners to acquire a large-scale exploration project (22,000 hectares), named Los Ricos, in Jalisco state, Mexico.
“Our team has been following this asset for over 8 years and began serious negotiations almost a year ago after the sale of Santa Gertrudis to Agnico Eagle for total proceeds of $95 million (U.S.).  With this new agreement in place, we can continue exploring this project and test our belief that a large-scale high grade system exists.  The Parral mine continues to improve and we are back in the exploration development business where we have excelled,” said Langille.  “As part of our due diligence process we have reviewed historical drilling and historical mining documents which will help us focus our exploration program on the halo that exists around the historical high-grade ore shoots.”
Los Ricos has 65 drill holes on the property and the majority of them intersected mineralization from near-surface.  Highlights to date include:
  • Nearly 22 m grading 5.3 g/t Gold equivalent
  • 20 m grading 5.9 g/t AuEq
  • and 16 m grading 16.2 g/t AuEq (all intercepts are true width)
Not too shabby, eh?
Not too shabby, indeed.
Langille’s team is already active on the ground, too!  During recent months GoGold completed several kilometres of trenching.  And by the sounds of it they’re drilling right now to verify and add to the internal resource estimate at Los Ricos.
Regarding “terms” of the option agreement, they look favorable.  No lump sum payment up front, although one could be required 60 months down the road. During the first year GoGold will only be $214,000 out of pocket, plus exploration expenditures to hopefully add tremendous value to Los Ricos.  Assuming they get into year 2 of the option agreement, monthly payments increase to $20,000 and then $30,000 during year 3.  This arrangement provides a long runway for GoGold to advance Los Ricos while keeping costs relatively low (given the upside potential of this project).
Here’s some additional information I dug up from a technical brief on Los Ricos (then called the Cinco Minas Mine Property) written by geologist Richard Munroe in 2006 (not NI-43-101 compliant):  
  • Between 1922 and 1928 Anaconda Mining extracted a reported 1.08 million tonnes of ore averaging 3.1 g/t Au and 476 g/t Ag – 5 historical mines and several more workings, adits and pit areas have been identified in the main fault zone area
  • The main zone system at Cinco Minas (an epithermal system) has an identified strike length of approximately 5 km with additional parallel to sub-parallel veins
  • Tumi Resources published an Indicated resource in 2004 that estimated 2.2 million tonnes of 172 g/t Silver and 1.2 g/t Gold (containing 12 million ounces Silver and 89,000 ounces Gold)
Take this information with a grain of salt, being it comes from a decade old technical report.  Also, just to be safe I’m waiting for GoGold to confirm its Los Ricos Project actually covers the same ground as Cinco Minas (they do refer to Cinco Minas in the news release).
Bottom Line:  Mr. Market is digging the potential of GoGold’s new project, Los Ricos!  GGD closed 6 cents higher today at 36 cents on heavy volume.   I’m expecting GGD to build on these gains in the weeks and months ahead with some minor pullbacks along the way.  Lots of “weak hands” will be getting out of their losing positions with stronger players taking their place.

 

daniel
(561) 596-5067

Asset Management & Equity Research