Addicted to Profits
Meadow Bay Resources a Undervalued Play !
The European debt crisis has been frustrating to most investors. It has caused the prices of many assets to drop. However, the good news is that Crisis brings opportunities. This report deals with one such opportunity. If you like what you read in it, I have a special offer for readers of this report. I am giving a final last time offer to readers of this report to purchase Addicted to Profits.
Opportunities are arising in the gold market gold. Despite gold prices nearly doubling in the past 5 years, we have seen gold stocks struggle. Many projects, that majors have invested in and put on line, have gone over budget. This has resulted in mediocre gold sector performance that has frustrated investors. Mainstream investors are consumed and obsessed with social media IPOs, such as Face book and Linkedin. However, you must be patient – gold and gold stocks will still turn around. Gold is still in a major bull market. The United States will not escape the debt crisis that the Europeans are now experiencing. It is just a matter of time before gold soars above $2000 an ounce and those gold stocks soar in price and catch up to the metal.
The recent weakness in gold stock prices has given us a great opportunity. Please examine the two charts below which compare the price of gold stocks to the price of gold itself. The first chart compares the Amex Gold Bugs Index to the price of gold. What it shows is that this ratio is now almost 4 to 1 meaning it takes 4 shares of the HUI index to purchase 1 ounce of gold. The historically average of the past 10 years has been about 2 to 1. This means that gold stocks are half of their historical valuation when compared to the price of gold. This means gold stocks are extremely cheap. The second chart shows the value of the CDNX Canadian Venture Exchange. Right now the CDNX, which is an index of small cap gold companies, is trading under the price of gold. This is the first time it has done so since the financial crisis.
These charts also reveal another important fact. You can see that, after the stocks were this cheap back in 2008-2009, the following year produced gains that were more than 100 percent on average. In 2008-2009, if you purchased well run companies that were building resources and/or about to go into production, you did far, far better. For example, we had stocks on our list, such as Fortuna Silver and Avion Resources, climb 500 and 2000 percent , respectively, in price after the low.
So therefore, when the market is depressed like this, the investor must not succumb to personal depression. Times like this are, actually, exciting times when serious money can be made. It is at periods like this that you must move away from the all pervasive gloom and do your research. Logic and history tell you that there must be companies that are properly positioned to prosper from the next move upwards in the markets. I think I have found one in Meadow Bay Resources.
Meadow Bay and the Atlanta mine.
Meadow Bay resources began to really expand back in 2011 with the announcement that it had acquired shares and assets of Desert Hawk and the Atlanta mine in March 2011.
Terms of the deal were as follows:
• Meadow closed financing of $11.25 million concurrent with acquisition at C$1.00 per share (no warrants).
• Paid $6 million to underlying owner of Atlanta mine on closing for 100% ownership (3% NSR royalty is capped at 4,000 ounces Au).
By closing this financing Meadow Bay gave itself proper financial support to go through with its drilling plan to develop the Atlanta mine.
Meadow Bay has staked over 370 claims within the Atlanta District and in the adjacent Limestone Hills.
• At Present, Meadow Bay controls the entire
Atlanta District with over 10,000 acres.. The Atlanta district is located in Nevada, USA which is a low risk mining district which has an extensive history of production and large producing mines.
• Meadow Bay has a proven management team capable of enhancing shareholder value as well as executing their development goals. Management includes Robert Dinning and Bill Reed who both serve on the board of Paramount Gold and Silver, a company with a market cap north of $300 million.
• Meadow Bay has adequate reserves in its treasury to execute its 2011 business plan which focused on exploration at the Atlanta mine with a goal of increasing the company’s resource (> 1 million ounces gold).
Recently, the company announced results of the 2011 drilling program. The initial objective of the 2011 drilling program was to confirm the results of drilling done during previous exploration campaigns in the 1990s. Seven holes were drilled into the known mineralized zones which confirmed the previous drilling results. A current mineral resource estimate was then calculated based on the previous exploration holes and the 2011 confirmation drilling. The mineral resource estimate, prepared under the guidance of Dr. Matt Ball, P. Geo. and with an effective date of March 30, 2012, is summarized on the next page.
Main Zone – 0.5 g/t Au cut-off
Tonnes Au g/t Ag g/t Au ounce Ag ounces eAu ounces*
Indicated 5,798,017 1.62 8.42 302,797 1,569,689 332,413
Inferred 3,928,317 1.06 19.04 133,662 2,404,717 179,034
East-West Zones – 0.5 g/t Au cut-off
Tonnes Au g/t Ag g/t Au ouncesAg ounces eAu ounces*
Indicated 1,461,294 1.5553 4.5157 73,072 212,154 77,074
Inferred 753,674 1.3404 7.8446 32,479 190,083 36,065
Aggregate of Main and East-West Zones – 0.5 g/t Au cut-off
Tonnes Au g/t Ag g/t Au ounce Ag ounces eAu ounces*
Indicated 7,259,311 1.61 7.63 375,869 1,781,843 409,487
Inferred 4,681,991 1.10 17.24 166,141 2,594,800 215,099
• - eAu determined at an Ag:Au ratio of 53:1
The Company also recently released a 43-101 report that they expect to finalize the resource in the fall.
The 43-101 compliant resource is based on historic exploration holes drilled by Kinross in the late 1990s and confirmation drilling done by Meadow Bay through 2011.
The estimate considers two zones at the project: the Main and East-West zones. Together the zones have a combined indicated resource of 7.2 million tonnes grading 1.61 grams gold and 7.63 grams silver for 409,487 gold equivalent ounces and inferred resources of 4.7 million tonnes grading 1.1 grams gold and 17.24 grams silver for 215,099 gold equivalent oz.
The calculation is an intermediate step between Kinross’s historic estimate and a more comprehensive estimate that Meadow Bay is currently working towards.
The Company is Already Exceeding Expectations
When Meadow Bay started, management just figured it was going to increase and develop that resource to over 1 M oz. perhaps 2 M oz. Its’ initial drilling program discovered a gold porphyry that is separate from the Atlanta mine fault zone. Now it appears that the new porphyry itself could be bigger than the old Atlanta mine fault zone. Meadow Bay Gold is going to have a resource estimate out in the next few months and management is openly talking about 2 M oz gold. I’m expecting slightly more than 2 M oz. With only about 40–42M shares out, at the current stock price, the market cap is not much more than $30M. There is a lot of significant upside potential in Meadow Bay based on the numbers.
After making a climb back in 2011, Meadow Bay has been hit by the recent sell off in gold stocks. It has fallen back with the market and seems to be putting in another short-term bottom here, making an excellent risk-reward opportunity at around $0.80. Keep in mind, Meadow Bay is in a great jurisdiction and is working around a past producing mine. Those two considerations are very encouraging in addition to the present value.
A recent report by Dalhman Resource put the Net Asset Value of Meadow Bay at $2.58 a share with $1600 gold and $30 silver. This does not take into account the company expanding reserves significantly. Dalhman initiated coverage with an over $4.00 price target.
The report stated the following
Dahlman & Rose (Initiating Coverage; March 21, 2012):
“Based on our modeling of the company‘s Atlanta asset, shares appear
to be trading at a discount to the peer group and its fundamental/
intrinsic value, from which our price target is derived. We value the
Atlanta asset at $4.38/sh, yielding at 37% IRR – with an undiscounted
payback under 2 years. Based on this valuation, Meadow Bay is trading
at ~0.23x P/NAV. We believe that our valuation is conservative, both on
our operating assumptions and on the exploration upside. We would
not be surprised to see significant resource growth over the next 2 years,
justifying a larger throughput and higher NAV… Metal prices are 2
major elements impacting our valuation. By our model at flat forward
curves, the Atlanta project appears robust over $1,100/oz gold and
$20/oz silver prices. This assumes that all other modeling assumptions,
such as operating and capital costs, hold to those we have modeled.
Our sensitivity analysis indicates that for every $100/oz move in gold
price, our NAV calculation is affected by $0.60/share. Every $5/oz move
in silver price moves our NAV by $0.34/share.“
This information is considered accurate, but cannot be proven as soon. Investors make decisions at their
The Company is looking to produce 90,000 ounces of gold and gold equivalent by 2016.
I think that Meadow Bay is a well positioned, well managed, and well financed company in a stable mining jurisdiction. Meadow Bay is in a perfect position to do significant amounts of drilling and then build this resource. In addition, as the company is well managed and does not have overhead supply, it is in a position to outperform the gold market and gold stocks. It should be a leader when the upturn in the gold market does arrive.
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As we have pointed out gold stocks are trading near 2008 financial crisis lows in terms of valuation. When the market turned after the 2008 crisis most of the stocks rallied hundreds of percent in the years that followed. However, if you would have picked out strong companies and the like you could have made thousands of percent. We think that after gold stocks bottom in the coming month Meadow Bay could be such a winner.
We have this and other opportunities in our letter Addicted to Profits which specializes in profiting from undervalued companies. Right now we have a special offer for those who are reading this report. Last year we raised our prices from $349.00 to $449.00 a year. We are offering anyone who has read this report the old price of $349.00 a year!
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Copyright © 2012 Addicted to Profits. Reproduction in whole or in part without permission is prohibited. All rights reserved. David Skarica and/or his family own shares in Meadow Bay resources. No part of this publication may be reproduced, stored in a special system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without prior permission of the publisher. David Skarica and or his family own positions in Meadow Bay Resources.
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David Skarica and his family own shares in the company and he is a paid consultant to the company.