Bullfrog Gold’s Near 99% Discounted Gold Price Remains a Remarkable Anomaly
Gold crossed a price threshold this week, which market commentators have stated would be the entry point for a new bull market.
Heading into the fall, there’s reasonable expectation that the bulls will come charging for the gold miners as well.
And rightfully so, as the market for miners presents investors with some of the steepest discounts on ounces of gold available—some going for nearly a 99% discount.
It’s to be expected that as gold breaks out, miners remain historically undervalued.
Much of that lag can come from an overestimation of cost per ounce to mine the gold, and an underestimation of the profit per ounce.
But it’s normal, and not a new concept for miners to be undervalued during a flip from bear to bull in the gold sector.
In a stable jurisdiction, such as Nevada, we find a case study of crucially underrated, undervalued, underground ounces of gold, currently valued at 1.25% of the current price of gold.
IN REVIEW: BULLFROG GOLD
The case of Bullfrog Gold Corp. (OTC:BFGC) is an intriguing one to say the least, as it has one of the lowest per-ounce valuations in recent memory.
At the current price of $1,333/oz of gold, Bullfrog is being valued at $16.75/oz, given its curret market cap of $10.45 million, and its 43-101 resource estimate contained a total of 624,000 oz gold.
That’s 624,000 ounces of gold, at a price tag of $16.75/oz… or even simpler, at a discount of nearly 99% the above-ground price.
HOW DID THIS HAPPEN?
The company’s flagship property, known as the Bullfrog Gold Project, is located 120 miles to the NW of Las Vegas, Nevada, that includes an ex-Barrick pit that recovered 220,000 ounces, and the northern third of the Bullfrog deposit.
Among the company’s peers in the region, Bullfrog remains as the single steepest discount on gold-in-the-ground valuations out there.
Take for instance Northern Vertex Mining (TSX.V:NEE)(OTC:NHVCF), which is at the opposite end of the spectrum, perhaps because it is much closer to production.
The resource estimate on Northern Vertex’s 100%-owned Moss Mine has been pegged at 377,000 ounces of gold, averaging 0.76 g/t gold, through a 43-101 report done by M3 Engineering done in June of 2015.
Grade-wise, Bullfrog’s property is on par with Northern Vertex, averaging a grade of 0.7 g/t gold.
But, since Moss is much closer to production in the near term, the market has rewarded Northern Vertex in a much healthier market valuation per ounce of gold.
Where Bullfrog is currently valued at $16.75/oz of gold, Northern Vertex has a market cap of $71.42 million, giving gold slated to be produced from Moss a much more reasonable price point of $189.44/oz.
That’s still a discount of nearly 85% from the $1,333/oz gold price today—but the market is valuing Northern Vertex over 11x that of Bullfrog, on an ounce for ounce basis.
It’s not like Bullfrog is dabbling in the greenfields.
TRAILBLAZED BY BARRICK
The Bullfrog Gold Project has already produced gold in the past, up until Barrick Gold (NYSE:ABE)(TSX:ABE) terminated production in early 1999.
The economics of the project were different then, as gold prices at the time averaged less than $290 per ounce.
Innovation in the mining sector has improved the economics of such a play, and for Bullfrog, the infrastructure already in place, along with the mounds of data that came with the property, straight from the vaults of the mighty Barrick bring incredible amounts of value to the project as a whole.
Bullfrog’s President and CEO David Beling secured the former Barrick property back in 2011, after fortuitously setting up camp adjacent it with their own staking and consolidation.
“Our being already adjacent to the property was important to Barrick,” says Beling. “It didn’t hurt that I’d done business with the main contact for the property back when I was running a large heap leach operation in the 80s and early 90s.”
The project’s acreage was topped off as Beling picked up another lease on 24 patents in the area, adding another option to purchase an addition 12 patents in the area, and staking another 61 claims himself.
“At this point, I can confidently say that we have the commanding land and commanding resource position in this Bullfrog Area,” adds Beling.
The backbone of the project is the Barrick acquisition.
In total, the Barrick electronic and paper data bases include 157 miles of drilling in 1,298 close-spaced holes, and more than 2,500 pounds of documents.
Internally, Bullfrog Gold estimates the remaining mineral inventories around the Barrick Mines to be 470,000 ounces averaging 0.89 g/t.
Bullfrog believes these estimates could be readily and inexpensively upgraded in compliance with US and Canadian estimation standards.
Though Barrick’s buildings and equipment have since been removed, much of the important infrastructure remain in place: Suitable access roads, pit ramps, main powerline and substation, paved state highway, beyond adequate water rights, and a nearby town less than 4 miles away with amenities and services.
ADDITIONAL NEVADA PEER COMPARISONS
Much like the Northern Vertex comparison, Bullfrog has several more comparable that are receiving far more valuation on their gold in the ground.
At a market cap of $67.17 million, Corvus Gold (OTC:CORVF)(TSX:KOR) and its 628,000 ounces of gold resource on its North Bullfrog Project are receiving a valuation of $97.40/oz of gold.
Pershing Gold (NASDAQ:PDLC)(TSX:PGLC) has 778,000 ounces of gold from its Relief Canyon Project. The company is valued at $86.63 million, giving the underground resource a value of $111.35/oz of gold.
On its Kilgore Project, Otis Gold (OTC:OGLDF)(TSX.V:OOO) has a resource estimate of 520,000 ounces. The company is currently valued at $42.17 million, leaving their gold with a valuation of $81.10/oz of gold.
Only West Kirkland Mining (OTC:WKLDF)(TSX.V:WKM) with its market cap of $21 million and its Hasbrouck/3Hill project which has an estimated resource of 762,000 ounces (average grade of 0.58 g/t) is even close to the unfair undervaluation of Bullfrog Gold—Their resource is only valued at $27.56/oz of gold.
WHAT DOES THIS MEAN?
It’s obvious that something here doesn’t add up.
Historically, gold miners tend to be undervalued. What this means is that in a rising gold-price environment over the intermediate term, miners should move towards outperforming their historical leverage factors.
An easy example to show the detachment between where the market should be on miners, and where they already are with gold can be laid out as such:
Say a company can mine every ounce of its gold for a price of $900 per ounce, only to sell it later for $1,300 for a profit of $400. Now, suppose the price of gold rises to $1,500, and costs of production remain stable…
That same company is now making $600 per ounce in profit, for an increase of 50% in profitability. Contrast that with the initial rise in gold price, which was only 15% ($1,300 to $1,500).
It should be clear as day, that percentage-wise, the miner stands to gain more than that of the gold market as a whole.
Now take that same example, and put Bullfrog into the place of the sample company. The price of gold has gone up already by $100 per ounce since the resource was released in late June, making the $16.75/oz price point that the market is giving Bullfrog’s 624,000 ounces even more of a head scratcher.
These kinds of anomalies don’t tend to stay unnoticed for too long. So, if an investor is looking for a flash sale for ounces of gold, Bullfrog would be possibly one of the cheapest access points to gold that is out there… for now.
USA News Group
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