While activities in Mexico occasionally become front page news due to the violence which is affecting some parts of this nation, it is also a very active mining jurisdiction with several major, intermediate and junior miners having production facilities in the country. In fact, Mexico has a rich mining history that spans almost 500 years. Some investors will associate Mexico more with silver production as it is the #1 silver producer; however, the country also has abundant resources of gold, copper, lead and zinc. Mexico produced approximately 2.5 million ounces of gold in 2010, which was close to a 50% jump over 2009’s production. The majority of gold produced in Mexico comes from mines where gold is obtained as a co-product of silver and copper operations or as a by-product to polymetallic deposits. These types of deposits are finding favour with miners as there is a scarcity of major gold discoveries.
Peter Munk, founder and Chairman of the world’s largest gold company Barrick (TSE/NYSE: ABX), said “the future of gold mining likely lies in mixed-metal mines”. He further noted that “Gold finds are becoming more and more difficult right now. What most large companies do now is look for mixed-metal mines, where gold is a part of other metals and other minerals.” (source: http://goldinvestingnews.com/6276/british-columbia-gold-rush.html). In 2010, Mexico produced around 60 tons of gold, and the country’s regulatory regime is helping it attract interest from miners. Large mining companies like Goldcorp and intermediates like Aurico Gold, Alamos Gold, Agnico-Eagle etc are also active in Mexico.
Over the last year there have been several mining deals happening in Mexico. Companies may be headquartered in Canada, but note that operations and projects are in Mexico. The most recent deal (announced on September 19, 2011) is Agnico-Eagle Mines Ltd (TSE/NYSE: AEM) increasing its position in Mexico with the purchase of gold explorer Grayd Resource Corp. (TSX VENTURE: GYD) for $275-million. The purchase price might increase further as this was a cash and stock deal and Agnico-Eagle share prices have declined due to them shutting down the Goldex mine in Quebec. However, Agnico-Eagle seems committed to pursue this acquisition from their actions so far. In return, Agnico-Eagle will get ownership of the La India project in the Mulatos gold belt in Sonora, Mexico. The project has an indicated resource of 26.8 million tonnes at a grade of 0.88 of a gram per tonne, the company said. The offer is a 65.7-per-cent premium over the company's 20-day average weighted price ending Sept. 16, 2011. The La India project has 1.26 Million ounces of NI-43 101 compliant gold resources (measured+indicated+inferred resources). This translates to a valuation of $218 per ounce.
Another acquisition which happened last year was the acquisition of Capital Gold by Gammon Gold (now called AuRico Gold Inc) (TSE:GAM, NYSE: AUQ). Capital Gold was acquired after a bidding war with Timmins Gold Corp (TSE: TMM). Another recent possible deal was Northgate Minerals planning to acquire Primero Mining for $370 Million. (This deal did not happen as Northgate had another offer and was merged).
We believe Mexico will witness many more acquisitions involving junior miners. One such interesting emerging Mexican gold producer that we have under coverage in Ubika Research is NWM Mining Corporation. (Note: Ubika Research has received compensation from NWM to provide analyst research coverage). NWM is focused on the development of the Lluvia de Oro / La Jojoba gold mine located in Sonora in North West Mexico. The project covers a total of 5,075 hectares and encompasses the past producing Lluvia de Oro mine, the La Jojoba gold reserve, and numerous historic workings. NWM has a proven and probable reserve estimate of 384,361 ounces of gold in a very small land area of the project.
NWM started producing gold in May 2011. When production began, 1,064 ounces of gold were produced for the quarter ended June 30, 2011. It is worth nothing that the company has an experienced management team both at the corporate level and at operational level in Mexico. The company reported producing 1150 oz in July 2011.
NWM has identified numerous high grade zones of mineralization which it is planning to explore further and could improve the resources on the ground and get up to the million ounce mark and have a material mine life increase. NWM is trading at 10.5 cents with a 44.5 million dollar market cap. This market capitalization translates to $115 per gold ounce in reserve. If it were to increase theresource ounces , which is possible given the several targets it has identified this undervaluation will be even more. Based on the current reserves, the NWM stock is undervalued at $115 per gold ounce in reserve. NWM should trade at double the current levels to get to a valuation at the level in which Grayd Resources (TSXV: GYD) is being acquired by Agnico-Eagle.
The risk with NWM is that it has to get the production ramped up and demonstrate to the market that it has the production processes under control. If it were to do that, it can generate free cash flows from gold production to aggressively pursue exploration work to increase the resources and make itself an attractive target. The large number of shares outstanding is also a bit of a dampener on the stock along with the long time it has taken to get to this point.
Both Aurico Gold and Timmins Gold Corp are already active and producing in the neighbourhood.
If NWM’s resource ounces increase and production starts to ramp up, NWM may be an attractive target for other miners. On the plus side, management has signed a $5 million revolving loan facility to help them with capital if they need to make further investment in their mining operations. Being un- hedged, NWM is fully leveraged to a high gold price once its production ramps up. To learn more about NWM Mining, view analyst commentaries and watch the CEO video interview with Chris Berlet, visit their investor information hub at:http://www.smallcappower.com/microsite/nwm_mining_corp.html
Apart from NWM another interesting junior miner in Mexico is Paramount Gold & Silver Corp (TSX /AMEX: PZG). (Please note Ubika Research has received compensation from PZG for providing media coverage). Ubika Research has been consistently following PZG as visitors of smallcappower.com may already know. PZG has been a strong performer, despite the recent pull back and correction relative to several other junior miners. Paramount Gold’s addition to the Russell Global, the Russell 3000 and the Russell Microcap cap indexes along with the popular Market Vector Junior Gold Miners ETF (symbol: GDXJ) has given the company a high profile and strong institutional share holder base.
On April 11, 2011 Paramount announced new resource estimates for its San Miguel project in Mexico. The resource estimates represent a significant increase in both gold and silver resources for the project. The estimates also include a meaningful indicated resource for the first time. Based on a 1:40 gold to silver ratio, the resource estimate equates to 285,375 indicated gold equivalent ounces and 1,607,975 inferred gold equivalent ounces. Furthermore, the NI 43 101 report has given strong indication that the San Miguel project has a lot more potential to host a sizable resource. Paramount is well funded to advance the San Miguel project, to continue a drill program and complete the Preliminary Economic Assessment study which is underway.
To learn more about Paramount Gold & Silver (NYSE Amex: PZG) (TSX: PZG) (TSE: PZG), view analyst commentaries and watch the new CEO video interview with Paramount Gold President and CEO, Mr. Chris Crupi, visit their investor information hub at: http://www.smallcappower.com/microsite/paramount_gold_silver_corp.html
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