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Original Version 0.20, May 09, 2011, Buy recommendation issued, CRG.TO closed at C$1.16
Version 0.30, May 10, 2011 -- included tax and liabilities in the break up valuation.
Version 1.10 , August 12, 2011 -- updated to reflected June 30, 2011 financial statements.
The web presence of Corona Gold is pretty much limited to the documents the company has filed at Sedar.com. As of May 2011, the company does not have a website and the company does not appear to have any active Investor Relations group. I have not found any promotion of the company and only became aware of it from a heads-up from a GoldMinerPulse site visitor.
My own take of Corona Gold is that it started out as a Canadian junior gold exploration company that acquired gold exploration properties when gold and silver prices were significantly lower. Seeing the rise in precious metal prices, the company leveraged it land holdings to evolve into the equivalent of a closed end fund investing in the shares of Canadian junior precious metal miners and also making equity investments in world class mining projects on a global basis.
As of May 2011, Corona Gold was trading at a significant discount to its apparent liquidation value. This blog computes the Corona Gold liquidation value with the most recent closing market prices and is updated daily approximately 1 hour after the close of TSX trading. The valuation assumptions used are detailed. However, please note, that this blog, as all blogs at GoldMinerPulse should not be considered as investment advise.
The evoluation of Corona Gold in the words of the company is:
Historically, the Company has been involved in the exploration of geologically attractive properties for precious and base metals in Canada. From 1993 to 2007, the Company's principal exploration activities had been on the Thunder Lake West, Thunder Lake East and certain adjacent properties in and around Dryden, Ontario (collectively the "Thunder Lake Property") and on certain properties near Dayohessarah Lake (the "Sugar Zone Property" or "Dayohessarah Lake Property"), located in northwestern Ontario. In early 2006, based on improving gold prices, the Company announced that it would look at ways to maximize the value of its existing resource properties and that management would also explore new resource-based exploration and investment initiatives. [Corona Gold Corporation Management's Discussion and Analysis for the Year Ending December 31,2010]
The estimated fair market valuation for Corona Gold based on its cash and investments was C$0.96 at the 2012-May-17 close. The actual closing price was C$0.53 a discount of 44.8% to the estimated fair market price.
Fair market value computed using a fully diluted share count of 21.45M, the closing market prices on 2012-May-17, and the estimated cash held by the company plus the value of its loans, equity investments in mining companies, its interest in the Sugar Zone deposit and discount factors to account for current liabilities, future taxes as well as a discount factor to account for liquidation of junior minors:
Cash and Short Term Investments
Current Assets (cash, pre-paid expenses and receivables): C$8.00M or C$0.37 per share.
The current assets include $7.927M in cash and cash equivalents. The current loan receivable is accounted for as part of the African Mineral Investment.
African Mineral Investment: C$4.00 M or C$0.19 per share.
As at June 30, 2011, the Company estimated the fair value of the outstanding balance of the Term Facility at approximately $3,996,669, of which $3,527,306 is presented as long-term. The Company estimates the fair value of the Term Facility using a discounted cash flow approach, based on its best estimates of the period over which the Term Facility will generate cash flows.
February 2011 senior secured non-revolving credit facility investment in African Minerals, part of a $418m Feb 2011 Secured Loan Facility for the Tonkolili iron ore project in Sierra Leone as detailed on slide 14 of 23 of an April 2011 African Minerals presentation. Per the April 2011 African Minerals presentation referenced above, "By end March 2011 over $600m spent on project with 70% physical completion" on a fully funded $1.1B phase 1. China Railway Materials Commerical Corporation is a strategic investor in the project.
African Minerals is listed on the London Stock Exchange's AIM market (LSE quote). The term facility is due two years from closing. Interest is to be paid monthly at a compounded annual rate of 11.5%. If the Term Facility is outstanding at the first anniversary of closing, 3% of the outstanding loan balance is payable as a bonus. [Corona Gold Corporation Management Annual Information Form, March 28, 2011]
I am assuming that the interest payments from this loan will be applied towards company's day to day operating expenses while leaving a surplus sufficient to make the net present value of the loan equal to the face value of the loan.
Mining Company Equity Holdings
6.6 M shares of Ryan Gold Corp. (RYG.V): C$2.409M or C$0.11 per share.
Ryan Gold Corp. is an exploration company focussed on gold exploration primarily in the Yukon Territory, Canada. The Company is well funded and has a large land package of approximately 2,428 km2 comprised of 50 different properties. [Ryan Gold Announces Increase in Size of Private Placement to $42,275,000 April 28, 2011 News Release]
0.8 M Ryan Gold Corp. warrants: C$0.000M or C$0.00 per share.
The Ryan Gold warrants are valued by the amount they were in the money (i.e. exercise the option and sell the stock to pocket the amount the warrants were in the money). This valuation ignores the significant time premium expected with these warrants.
1.5748 M shares of Sabina Gold & Silver Corporation (SBB.TO): C$3.150M or C$0.15 per share.
Sabina Gold & Silver has 100% interest in the Hackett River silver zinc project, the Back River gold project, and the Wishbone project, all of which are located in Nunavut, Canada. During 2010 the company expended more than C$56M in exploration and development programs on these projects. The company also holds properties in Red Lake Ontario as well as a property in the Stewart-Eskay Creek area of British Columbia. [Sabina Gold & Silver Annual Information Form for the year ended December 31, 2010]
For more on Sabina Gold & Silver please see the GoldMinerPulse Metal Value Report.
4.998533 M common shares of Treasury Metals (TML.TO): C$3.599M or C$0.17 per share.
Treasury Metals has 100% ownership of the Goliath Gold project, a project with an Indicated and Inferred gold, silver, copper, lead and zinc deposit located near Dryden Ontario, Canada. The deposit is near the TransCanada highway with good access to power lines, natural gas and water supply. The company also holds a 3% NSR royalty on the Goldgroup Cerro Colorado Gold Mine in Mexico which is expected to produce 25,000 oz in 2011.
For more on Treasury Metals please see the GoldMinerPulse Metal Value Report).
2.4411 M shares of Harte Gold Corp (HRT.V): C$0.561M or C$0.03 per share.
For more on Harte Gold please see the GoldMinerPulse Metal Value Report.
2 M flow through shares of Odyssey Resources Limited (ODX.V): C$0.270M or C$0.01 per share.
0.028111 M shares of African Minerals (AMI.L): C$0.186M or C$0.01 per share.
0.125 M African Minerals warrants: C$0.000M or C$0.000 per share.
The African Minerals warrants are valued by the amount they were in the money (i.e. exercise the option and sell the stock to pocket the amount the warrants were in the money). This valuation ignores the significant time premium expected with these warrants.
Mining Property Holdings
Sugar Zone payments due: C$2.50M to C$3.00M or C$0.12 per share assuming the lower payment.
To fully acquire Corona's interest, Harte must pay the Company an additional $2,500,000 in cash on or before the second anniversary of the Comprehensive Agreement or, failing such payment, $3,000,000 in cash on or before the third anniversary of such agreement. Harte will pay Corona $90,000 in cash on or before each sixth month anniversary of the Comprehensive Agreement until payment of one of the amounts specified above. Harte became the operator of the Sugar Zone property upon signing of the Letter Agreement and will remain as such for so long as the Option remains in good standing. In the event that Harte fails to make any of the required payments to the Company, the Option may be terminated and operatorship of the Sugar Zone Property will revert back to Corona. [Corona Gold Annual Information Form for the year ended December 31, 2010]
Future Tax and Other Liabilities
Future Tax and Current Liabilities: C$3.07M or C$0.14 per share.
This figure represents a rounded figure of the liabilities plus the future tax liabilities identified in the December 2010 financial statements. The fair market price estimate was reduced by this amount.
Junior Explorer Liquidation Discount Factor
Junior Explorer Liquidation Discount Factor: C$0.05 per share.
This discount factor assumes that Ryan Gold, Sabina Gold & Silver, Treasury Metals, Harte Gold and Odyssey Resources could be sold at a discount of 10% from the last closing price. The fair market price estimate was reduced by this amount.
Cash is not discounted. Likewise the African Mineral Investment, shares and warrants are not discounted since the positions are relatively small to current average daily trading volumes.
I believe the fair market valuation of Corona Gold presented is a balanced to perphas slighly conservative outlook. An unplanned liquidation of some of the junior mining company stocks would no doubt cause stock price depression and the actual liquidation price would be lower. A junior explorer liquidation discount factor was applied to account for the likely fees for someone to hand the sale of a relatively large position of some what illiquid junior mining shares. However, Corona Gold does not need to raise cash and has demonstrated a good track record of taking profits in junior mining stocks as well as good timing on market entry. For example, Corona Gold purchased Ryan Gold shares at much better prices than the most recent C$2.00 private placement completed April 28, 2011.
I have been very conserative in valuing the warrants by ignoring time premiums. Applying Black-Scholes and assuming a market existed for such warrants, would likely yields a few cents per share in time premium.
Given current share prices, Harte Gold might well have trouble raising cash to complete the purchase of the Sugar Zone property. However, the Sugar Zone property has relatively high grade deposit and would likely attract another buyer/partner allowing Corona Gold to realize cash from the property. The Harte Gold stock price already reflects expected financing challenges.
The management and ownership relationships surrounding Corona Gold need to be added as a future update -- the Corona Gold board has several members from Dundee Corporation (or its subsiduary), a well connected Canadian asset management company. Quoting from the Corona Gold 2010 Annual Information Form:
As at December 31, 2010, the directors and officers of the Company as a group beneficially owned, or controlled or directed, directly or indirectly, an aggregate of 1,315,044 Common Shares, which is equal to approximately 7.0% of the issued and outstanding Common Shares. In addition, 4,971,197 Common Shares representing approximately 26.4% of the outstanding Common Shares, are beneficially owned by Dundee Corporation, a company controlled by Ned Goodman, a director of the Company [Corona Gold]...
I believe Corona Gold represents an unique investment opportunity to buy an exciting basket of already undervalued Canadian junior precious metal mining stocks at a further discount. I do not expect the Corona Gold stock price discount to fair market value to remain indefinitely. However the timing for the market to recognize Corona Gold's value is not easy to predict and could remain for some time -- daily trading volume is limited and the stock is selling off from a run-up at the end of 2010. Further drops in stock price may occur in the short term while the long term should see a move towards a price closer to a fair market value. I have recently taken a small position in Corona Gold and will add to my position on future dips if any. I plan to hold these positions while the gold bull remains in place.
Please use my Talk Back to leave any comments/suggestions for this blog. Also, if you are aware another company in a similar situation to Corona Gold, please let me know -- I found about Corona Gold from visitor feedback so TIA.