Time is Gold-en, Cash is King
– Momentum Public Relations –
In the exploration and development process for precious minerals, time is often a more valuable commodity than gold, nickel, copper or platinum. Time can present a challenge to junior mining plays. Particularly, when a company runs out of time and capital. Equitas Resources Corp (EQT–TSXV) has demonstrated that they have a solid grasp on this reality.
Equitas recently announced its intention to merge with a private company, Alta Floresta Gold. On March 7, 2016, formal due diligence was successfully completed. Alta Floresta has a 60 percent interest in Alta Floresta Gold Mineracão Ltd, a company that holds six gold properties, and four production licenses. The operation spans more than 184,000 hectares of land in the Mato Grosso, Brazil. Of these properties, the Cajueiro Project is already in production.
The goal of the merger is to provide the company with liquidity to fund ongoing activities while, at the same time, creating value for shareholders. Specifically, the transaction will put EQT in a stronger position to support the rigorous exploration and development of its 100{92d3d6fd85a76c012ea375328005e518e768e12ace6b1722b71965c2a02ea7ce} owned highly prospective Garland venture in the Voisey’s Bay area of Labrador.
Investor fatigue was beginning to set in for Equitas as its shares declined to C$0.05 in recent weeks after trading in the range of C$0.12 to C$0.19 in the fourth quarter of 2015. Shares in Equitas are poised to trade at higher levels given the stability that the recent transaction will provide.
Of equal long-term importance, the cash that will come from a lower cost gold operation, like the Cajueiro Project, will enable EQT to withstand a resource sector bear market in the future. However, it appears that the five-year bear market for gold and precious metals is ending as bullion has increased from the recent lows and is sustaining price levels around USD$1250 per ounce. Trending upwards after a number of years of declining prices and trading in the USD$1050 to USD$1100 range.
The lengthy process of exploration, geologic assessment, review of resource potential, financing and commercial ramp up can be challenging. If less than ideal circumstances prevail, or if the market for gold or other metals is soft at a critical time, a company can find itself in a situation with sunk costs and no path forward. Many potentially lucrative mining ventures can run out of cash before they fully conclude on the viability of a resource discovery or are able to move from minerals in the ground to full operational viability.
Equitas Resources has resourcefully given themselves an advantage many ventures don’t have. Upon regulatory approval of the acquisition, Equitas plans to construct a gravity plant to expand the current production activities at Cajueiro gold which should produce almost immediate positive cash flow.
The combination of a skilled senior management team at Alta Floresta Gold with the considerable technical and management expertise at Equitas should serve to boost efforts to discover and commercialize their nickel deposit in Labrador. Ultimately, the transaction stands to make Equitas a stronger company with quality gold and nickel assets as well as recurring cash flow.
The newly merged combination of Equitas and Alta Floresta Gold represents an excellent opportunity for investors to hold a smaller scale, low cost, gold production operation while maintaining the large potential payoff that the Voisey’s Bay Garland project holds. To note the obvious, gold producers generate cash, meaning future expansion can be managed in non-dilutive manners.
A transaction like this one is a practical application of the principle that time is money. A producing gold mine generates cash. Cash buys time and time is needed to prove resource and increase shareholder value.