"There is nothing more deceptive than an obvious fact."
-Sherlock Holmes

When I am discussing companies or simply following the discussion online, I often find people talking about jurisdiction risk. Some countries are considered, for a multitude of reasons, more dangerous for investments than others. Examples of jurisdictions considered risky include: most of Africa (particularly the Alliance of Sahel States in West Africa), China, any of the -Stans, Mexico, Ecuador, Colombia, Guatemala, Papua New Guinea, or any country you might find difficult to spell more generally speaking.  Jurisdictions generally considered safe tend to be limited to the First World: Canada, most states in the USA, Australia, Finland, Sweden and Spain, but also such countries as Brazil, Argentina and Guyana.

Market valuations of companies operating in "safe" jurisdictions tend to be vastly higher than companies operating in "unsafe" jurisdictions, whether the market's perception is realistic or not. The argument is simple: higher risk jurisdictions command a higher risk premium, and by extension lower valuation multiples. The risk in question being most often cited (and I believe, most represented in the valuations) is the dreaded nationalization risk, with the second place taken in some cases by social license risk, i.e. will the company be allowed to gain all the approvals to operate a mine. I believe the market is assigning a lot of weight to these tail risks in valuing companies operating in jurisdictions where such risks are perceived to be more likely to materialize. I believe less focus is put on considerations like permitting timelines and asset quality. Some hated jurisdictions have extremely prospective ground; great mines and projects operated by sector leaders; a short and painless permitting process; or all of the above. The quality of a company from a corporate standpoint, in other words the quality of the company's management team may in some cases also be disregarded in the face of perceived tail risks. It seems to me that low likelihood tail risks are overrepresented in some companies' market valuations.

Often times when myself or somebody else points out the cheapness of certain companies operating in one of these risky jurisdictions, a typical response that comes up in the discussion is that the company is cheap because it's operating in a risky jurisdiction and that it deserves a lower multiple. And while that is certainly a sound argument that I agree with, when I follow up by asking what a reasonable risk premium is then for assets in risky jurisdictions, I get the online equivalent of a blank stare in response. It's obvious that higher risk commands a lower multiple, but what is a reasonable multiple for an asset in a risky region? I'm not going to tell You, the reader, what You should think. I think everybody should come to their own conclusions. But I encourage You to ponder upon that question when considering company valuations in the market. You might be surprised about the value you can get for the price you pay!

Curious Cases of Confounding Cheapness

Now I am going to demonstrate what I mean by considering some select companies' valuations. Full disclosure, I own some of the following stocks, and this is not intended to be an article where I tell You to buy the stocks I own and sell the companies I don't own. I believe everybody should invest their own money based on their own research, preferences, risk appetite, time frame and perceptions. I realize that for some investors, certain risks are too high to take for any price, regardless of whether the perception of risk has a firm basis in reality or not. I am going to simply share my own views, which may be mistaken or different from somebody else's, and I apologize beforehand in case I make inaccurate statements or leave out crucial information. I also encourage people to engage in healthy debate and discussion with me and each other if this article sparked any ideas or thoughts. I hope some of my observations provide at least a little bit of value for You, the reader.

Curious Case #1: The two masters

Let's begin by considering two companies both of which I consider extremely high quality: Alamos Gold ($AGI) and Endeavour Mining ($EDV). The companies, while very different, bear some important similarities. Both have amassed a track record of accretive growth, sector-leading costs, adept management, and a strong portfolio of assets with durable cash flows. Both companies have proven capable of meeting their guidance targets and growing their asset base either organically or inorganically in an accretive manner, replacing mined resources and reserves net of depletion, and building mines on time and on budget. Both companies' mines each have LOMs exceeding ten years based on reserves alone, and both companies have corporate AISC just around $1,000/oz, with Endeavour's often below that and Alamos' trending down towards $1,000/oz over the coming years (although notably, Alamos and Endeavour include G&A within their corporate AISC unlike most of the industry!). Both companies beat the world's leading gold mining companies in AISC as well as corporate G&A relative to ounces produced without breaking a sweat. Unlike most of the competition, both Alamos and Endeavour have visibility to strong growth and durable cash flows at sector-leading margins, with an amazing track record to boot. Both companies also have some of their operations in unpopular jurisdictions, with about a third of Alamos Gold's production coming from their open pit Mulatos mine in the now notoriously anti-open pit Mexico where President AMLO's populistic chest-beating statements about shutting down all open pit mines is expected to continue during the tenure of his follower Madam President Claudia Sheinbaum... while also about a third of Endeavour Mining's production comes from Burkina Faso which is infamous among investors for President Traoré's populistic cheast-beating statements about taking control of some of the country's gold mines where mining companies are not in adherence to the new mining code.

That is where the many similarities of Endeavour and Alamos Gold end. Both companies have a third of their production in high-risk jurisdictions, but Alamos has 2/3 of its production in the safe, familiar and beloved Canada while Endeavour's assets are all in Africa. As such, it is obvious that Endeavour deserves at least a slightly higher risk premium than Alamos. What kind of valuation multiples do the companies enjoy? And more importantly, what kinds of valuation multiples do you think they should enjoy? 

Let's look at the numbers.

All numbers expressed in USD; 0.75 CADUSD going forward

Assuming gold price of $2,400/oz for all calculations going forward, hedges and prepayments not accounted for

OCF+C or "Operating Cash Flow + Corporate" here excludes taxes, royalties and streams, drilling and growth capex, and includes G&A, stock compensation and interest expense (do not consider this the same as FCF because drilling and growth capital costs, hedging, asset level royalties or streams and tax specifics can vary! This is intended to provide an understanding of asset-level cash flow from operations, with financing costs and corporate overhead taken into account.)

Alamos Gold

2024 Guidance: 550-590koz Au @ $1,250-1,300/oz AISC

Growth: After the stellar acquisition of Argonaut, the Magino mine will ramp up and improve production and cash flows with a full year of operation starting in 2025. Alamos has visibility to grow to 575-625koz @ $1,175-1,275/oz AISC in 2025 and 630-680koz Au @ $1,100-1,200/oz AISC in 2026, with line of sight to 700-830koz by 2029 with Lynn Lake with AISC likely to reach $1,000-1,100/oz, plus potential inorganic growth opportunities from a management team that has proven to be skilled in M&A. NPV is likely to be maintained or improved organically through the drillbit, with depleted reserves being replaced by newly discovered ounces. Continued cash flow is likely to keep strenghtening the balance sheet's already zero-debt cash position and further improve valuation relative to EV over time.

Fully Diluted Enterprise Value: $8.00B

2024 bottom/top guidance OCF+C: $605M / $678.5M

2024 middle guidance FDEV/OCF+C: 12.47x

FDEV/2029e OCF+C: 6.88~8.79x 

Endeavour Mining

2024 Guidance: 1,130-1,270koz Au (100% basis) / 995-1,117 (attrib.) @ $955-1,035/oz AISC

Growth: the recently commissioned Lafigué mine and Sabodala-Massawa BIOX expansion having a full year of production will increase annual production by about 100kozpa starting 2025, and there is visibility to grow production by 300~500kozpa (with a 10% government carry to Côte d'Ivoire) at likely <1,000/oz AISC within five years as the tier 1 Tanda-Iguela (or Assafou) project is developed, more information to come in the form of a PFS in Q4 2024 and a DFS likely next year, with project build to follow and commissioning by the end of 2028. The Ity mine, also in Côte d'Ivoire, is expected to be developed further into a superpit in order to increase resources & reserves and extend LOM and therefore improve NPV. I see at least 1.3-1.5Mozpa attributable production at a corporate AISC <1,000/oz in 2029. Organic growth through the drillbit likely to remain extremely accretive to net asset value especially at Assafou, and while I don't see Endeavour as being necessarily acquisitive the CEO is on record saying the company may engage in M&A if the projected return on capital employed fits their strict standards. Now that the company's recent growth phase has subsided, the $835M of net debt ($1.2B long term debt) on the balance sheet will likely dwindle down and turn into a net cash position within two years and possibly be paid off in full within three, improving valuations relative to Enterprise Value. In addition, the company is likely to ramp up the shareholder returns program with dividend and buyback raises due to higher cash flows and lower capital expenditures until Assafou reaches FID stage.

Fully Diluted Enterprise Value: $6.66B

2024 bottom/top guidance attributable OCF+C: $1,241M / $1,497M

2024 middle guidance attributable FD/OCF+C: 4.86x

FDEV/2029e OCF+C(attrib.): 3.36~3.91x

Discussion

Despite the fact that both companies have about a third of their production in risky jurisdictions, the market seems to not give any risk premium for Alamos Gold while Endeavour is getting steeply lower multiples to asset level cash flow. At today's market prices, Alamos, despite producing roughly half the amount of gold and by extension revenue compared to Endeavour both today and into the future, is also consistently given at least twice as high a multiple both now and in the foreseeable future. It is worth mentioning that sector leader Agnico Eagle ($AEM) screened slightly above 10x FDEV/EBTDA based on my math, so Alamos today on 2024 guidance is actually enjoying higher multiple to asset level cash flow than even the company often considered the best gold mining company in the world! Alamos is so highly desired, and Endeavour so hated by the market that Alamos actually has a 20% higher enterprise value than Endeavour despite the latter earning twice the former's cash flow.  In fact, with cash flows from an operational Lynn Lake mine (likely 4-5 years into the future) taken into account, Alamos is at today's market price valued higher than Endeavour today without any of Endeavour's growth taken into account. In the curious case of Endeavour and Alamos, the implied risk premium between Africa and Canada, based on this stark gap in valuations, is over 100%. Is this disconnect in valuation really justified? Peculiar deltas in valuations can be found between other comparable companies as well but I especially wanted to highlight this case as I think it's one of the more dumbfounding situations in the market, which I believe offers great opportunity for the patient investor looking for value, yield, growth and quality in one package for a cheap price, with the tradeoff being having to take on a slightly higher tail risk.

Curious Case #2: Trouble in Ecuador?

Ecuador, the small South American country situated in the middle of the delicate Amazon rainforest, is extremely well endowed from the perspective of minerals and prospectivity. It is home to prolific copper and gold deposits, some of which are household names in the mining sector, and some of which are infamous among non-governmental organizations and local populations. Said groups are actively protesting against the development of the mining sector in Ecuador due to environmental concerns while in stark dissonance the government continues to try to attract investment and grow the mining sector. There are multiple world class deposits in Ecuador, including the operational Fruta del Norte gold mine and the Mirador copper mine, as well as three large development stage copper and gold projects owned by junior mining companies. The curiosity of Ecuador manifests itself in the gap between the valuations of the operator of Fruta del Norte, Lundin Gold ($LUG) and two of the juniors operating in Ecuador, Lumina Gold ($LUM) and Solgold ($SOLG).

The name "Lundin" is regarded with reverence in the mining sector. The Lundins are a Swedish family who have grown their legacy into that of a veritable mining dynasty. The Lundin family is responsible for outsized gains for investors in the resource sector across many companies, and are known for their excellent track record in financing and building companies from scratch into billion dollar status. Whenever the Lundins are involved you can expect to see premium valuations, and justifiably so. Therefore it's no surprise to see the market appreciating what Lundin Gold has to offer: A tier 1 high grade gold mine in the heart of the Amazon rainforest, deep underground, producing upwards of 500kozpa below $900/oz and LOM exceeding ten years, with new discoveries made recently and operational improvements ahead. The Lundins proved the world that you can build and operate a mine in Ecuador, and despite being a single-asset producer the market is giving the Lundins love. Today Lundin Gold is valued at a still arguably slightly undervalued ~8x FDEV/OCF+C for FY2024, with the stock price in a more or less terminal uptrend since March. It may take time but quality and value eventually assert themselves through price discovery.

The situation with the development stage project owners is not quite so rosy however. Concerns over whether the companies will gain license to actually build and operate these mines have hammered the share prices of Solaris ($SLS), Solgold and Lumina, and investor sentiment is awful. Unrelenting anti-mining headlines on Ecuador bombard investors like shells next to the trenches. Another day, another news article about demonstrations or aggressive resistance towards the development of new mines. Nothing new on the Western Front.

However, despite seemingly flagrant opposition, mining companies operating in Ecuador have gained support from their own local communities, the government, and even multi-billion dollar resource sector giants. Lumina Gold has received a $300M project financing stream from Wheaton Precious Metals ($WPM); Solgold has received a $750M joint stream financing from Franco-Nevada ($FNV) and Osisko Gold Royalties ($OR); and Solaris was recently slated to receive equity financing from Chinese copper-gold giant Zijin (SHA: 601899) but the deal got scuttled by the Canadian government. Mining legend Ross Beaty owns over 1/4 of Lumina and intends to make yet another successful company sale among his dozen or so previous successful ventures in the sector. Solgold has strong support from the industry, as not one, not two, but three mining giants together own about 1/4 of the shares outstanding: 10% is owned by both BHP ($BHP) and Newmont ($NGT), respectively, and 6% is owned by the Chinese Jiangxi Copper (SHA: 600362).  Despite social hurdles, the majors of the mining industry are eager to put more than a billion dollars on the line for these massive copper and gold projects. At what price would You be willing to take on the risk?

Let's see how the juniors are priced relative to their assets.

Lumina Gold

Lumina's PFS stage Cangrejos gold project is located ideally with extensive infrastructure, water resources and the closest local community 7km away is supportive of the project. Cangrejos is the 26th largest primary gold asset in the world by resource, hosting over twenty million ounces of gold and over 2.5Blbs of copper in I&I resources, and about 11.6Moz Au and 1.42Blbs Cu in Probable reserves. While the grade is only about 0.7gpt AuEq, the low 1.26 W:O strip ratio, extensive local infrastructure, cheap <$0.07/kWh power price and the massive scale of the operation guarantee Cangrejos the envied tier 1 status. According to the 2023 PFS, Cangrejos is expected to produce 469koz AuEq (371koz Au, 41Mlbs Cu) over a 26y LOM at $671/oz AISC on a byproduct basis, meaning annual EBITDA in excess of $640M in a $2,400/oz Au world. The PFS study shows a $3.5B NPV5% at $1,980/oz gold price. A rough NPV calculation at an 8% discount rate and $2,400/oz gold price should yield NPV8% in excess of $4B based on my math looking at the mine plan. A DFS is slated to be completed next year along with the permitting process, with investment protection agreements to be signed by the end of 2024. The project costs almost a billion dollars to build, but that capital expenditure is in line with capital costs incurred at Fruta del Norte and Mirador, and Lumina has secured $300M in stream financing to help cushion the project build and deliver the project into a buildable stage without dilution. Company founder and veteran mining entrepeneur Ross Beaty has stated that he intends to continue his legacy of exiting his ventures through acquisition, and that he is confident the project will find a buyer.

FDEV: $186M

Avg. annual EBITDA: $640M

FDEV/avg. annual EBITDA: 0.29x

NPV8%: >$4B

FDEV/NPV: <0.05x

Solgold

Solgold's PFS-stage Cascabel copper-gold project differs from most projects of its scale in that it is not an open pit project, but instead it utilizes a mining method developed for large bulk tonnage deposits located deep underground called block caving. A recently built block cave mine in BC, Canada called Red Chris is operated by Newmont, loses to Cascabel in both tonnage and grade, and is included by Newmont as one of their core tier 1 assets. This, coupled with Newmont's 10% shareholding of Solgold, validates Cascabel's tier 1 status as well.  Cascabel has 539.7Mt @ 0.60% Cu and 0.54gpt Au P&P Reserves, totaling over 7Blbs copper and 9.4Moz gold. The project's M&I resources at slightly lower average grade total over 23Blbs copper and 26.8Moz gold, making Cascabel not only one of the biggest undeveloped copper projects but also one of the biggest undeveloped gold projects in the whole world. The PFS study contemplates a 28y initial LOM with the mine producing on average 182kt copper and 277koz gold annually at an average coproduct AISC of $0.69/lb Cu. With a $3.85/lb Cu, $1,750/oz Au price deck the NPV8% is $3.2B. When gold is $2,400/oz the coproduct AISC should be at least $0.60/lb Cu, bringing average EBITDA at $4/lb copper to about $620M. The reserves only account for 30% of the total metal included in the resource, so this mine will likely be extended far beyond its initial 28y LOM. The initial capex is $1.55B, of which $750M is already financed by stream financing. The project is still pending the completion of an ESIA, and has to be refined to DFS stage before a final investment decision can be made, and the company estimates that all permitting, funding and technical work will be out of the way by 2028 for a final investment decision.

FDEV: $409M

Avg. annual EBITDA: $620M

FDEV/avg. annual EBITDA: 0.66x

NPV8%: >$3.2B

FDEV/NPV: <0.13x

Solaris

While not as high quality a project as the above two, Solaris' Warintza copper project, located 40km north of the operational Mirador mine, has similarly extensive infrastructure as the above mentioned Cangrejos project. The resource stage project hosts 909Mt @ 0.53% CuEq M&I resource (0.37% Cu, 0.02% Mo, 0.05gpt Au) with a higher grade component hosting 704Mt @ 0.71% CuEq (0.52% Cu, 0.03% Mo, 0.06gpt Au). The mine is being developed as an open pit project similar to its operating neighbor, and a PFS study is expected in H2/2025. The company has submitted and Environmental Impact Assessment this September, expecting a technical approval in H1/2025 and an exploitation agreement in H2/2025. The Warintza project belongs in the top 10 undeveloped copper projects globally, and in a copper-starved world is an important source of supply. Many projects of similar tonnage and grade have turned into long life copper mines. Most recently a similar project, the Josemaria copper-gold project, hosting 1,012Mt @ 0.3% Cu, 0.94gpt Ag and 0.22gpt Au was taken over by Lundin Mining ($LUN) for C$625M, and later they sold a 50% interest of Josemaria to BHP for US$690M, together combined for a total implied value of US$814M. The projects are similar in scale and grade, and while project development specifics and economics are certainly going to be very different, these deals give us a glimpse to what kind of money is being invested in copper projects of this scale. 

FDEV: $384M

PFS expected in H2/202

Similar size project recently sold and JV'd between two majors for $814M

Discussion

While it is clear that Lundin Gold deserves the super-star status it enjoys in the market, investors are treating other tier 1 assets located in Ecuador as essentially dead money. However, the perceptions held by investors regarding Ecuador are not shared by multinational mining conglomerates, royalty/streaming sector leaders, and high net worth individuals, and despite resistance from certain local populations and NGOs the local communities in the immediate area of influence of these projects are by and large supportive. Lundin Gold's Fruta del Norte mine has improved perceptions around mining in Ecuador as evidenced by Lundin's survey results in Ecuador. Is there signicant risk and uncertainty? Absolutely, however... You have two tier 1 projects, both trading at a fraction of their net asset value and also well below their projected average annual EBITDA, backed by over a billion dollars of investment from resource sector leaders. Please recall the last time You considered investing in projects of this caliber at valuations like these. Is no price low enough to take the risk that either project gets built?  Remember that even a mine like Mirador was built despite all the opposition against it, and Fruta del Norte was built in a time when nobody believed it was possible to build another mine in Ecuador. If it can be done twice, it can be done thrice. For the intelligent speculator, Lumina and Solgold offer tremendous upside potential with minimal geological, financing and execution risk, and a relatively high social risk which I think is overestimated by the market.

Curious Case #3: History repeats, or at least rhymes

About two years ago, IAMGOLD ($IMG) seemed to be mired in troubles. The gold producer, at the time operating mines in Burkina Faso and Canada had about 2/3 of their total 600kozpa production coming from the Essakane mine in Burkina Faso. They had started building the Côté gold mine, one of the largest gold projects in Canada, which would produce on average 367kozpa Au for 16 years at a sector-leading $694/oz AISC, for an initial capex of $1,147M. However in Q1/2022 the company announced that the initial capital expenditures to build Côté would rise from the originally projected by about $1,200-1,300M -- or in other words, the project capex had doubled. Investors were furious, and the stock fell from a high of C$3.735 to a low of C$2.52 on the day of the announcement, continuing to trade as low as C$1.265 during the year as AISC was also higher in Q2. The day Côté finally poured first gold on April 1st, 2024, $IMG shares opened at C$4.38 and closed C$4.94, and with Côté ramping up is today trading very well. Like many other development-stage projects in recent years, Côté had an extremely troubled development with initial capital costs rising to eye-watering levels -- the final capex ended up being close to $3B, more than 2.5 as much as initially planned --  which deservedly caused the company's shares to trade poorly. Yet when those growth pains finally subsided the market started to lend its favor to IAMGOLD once again.

Today, B2Gold ($BTO) is in a somewhat similar situation today as IAMGOLD used to be. B2Gold is a gold producer with operating mines in Mali, Namibia and the Philippines, producing about 800kozpa with the Fekola mine in Mali accounting for about half of the company's total production. In February 2023, B2Gold announced the acquisition of Sabina Gold ($SBB) for an all-shares consideration with an implied value of C$1.2B. The Goose (or Back River) project, located in Nunavut, Canada, would have an initial capex of C$610M and would produce an average 223kozpa for fifteen years at a sector-leading $679/oz AISC. On June 23 2024, B2 announced a revised C$800M capex for Goose due to scope changes; along with FY/2023 results B2 revised Goose capex to C$1,050M; and in recently September 2024 they again revised the project capex, to C$1,540M -- in other words, the initial capex has increased by about 2.5 times from initial estimates, and the project is today still being built with first gold expected in Q2/2025, a quarter late from original plans. In the meantime, B2, much like its peer IAMGOLD, has endured lashings in the market for its significant exposure to a Sahel Alliance state, and B2 has also had to revise its guidance for 2024 down due to underperformance and equipment failures at its mines, especially at Fekola which accounts for most of the company's production. The market has given B2 what it deserves: a cold shower, and much of it likely from disenfranchised Sabina shareholders.

Let's see what these companies' numbers look like.

IAMGOLD

2024 guidance: 625-715koz (attrib.) @ $1550-1,695/oz AISC

Growth: Having commissioned Côté Gold earlier this year and expecting to ramp up to 90% throughput by the end of the year, production in 2025 is going to increase thanks to the first full year of production at full capacity. In addition, IAMGOLD is looking to buy back part of Côté's ownership interest from JV partner Sumitomo, increasing it from the current 60.3% to 70%, which will increase attributable production by 16%. A gold prepayment agreement, entered into to help finance Côté Gold, will roll off in June 2025, further directing cash flows to the company. Côté is expected to produce 495kozpa on average for the first six years, increasing attributable production post-consolidation by about 200kozpa (from 130-175kozpa) through the end of the decade. Corporate AISC will decrease significantly thanks to Côté's AISC being <$800/oz for the first six years of operation, giving IAMGOLD a corporate production profile averaging about 870kozpa at $1,300/oz AISC in 2025 and onward. Essakane mine, contributing about 400kozpa attributable production has ore reserves until 2028 but resources could support production until the end of the decade, meaning production should be able to stay flat at 2025e levels until 2030, with likely slightly higher AISC. On the project development side, IAMGOLD owns the Nelligan open pit project which holds 2Moz Indicated and 3.9Moz Inferred resources, along with the nearby high grade Monster Lake deposit with about 400koz @ 12.1gpt Au, which together make for a promising development project, however unlikely to be commissioned until later in the 2030s at the earliest. 2029e production could be at least 850koz @ $1,400/oz AISC, impacted by Essakane's final extended operating years having higher sustaining costs more waste material would likely need to be mined to reach those extra ounces of gold. IAMGOLD is turning from a struggling underdog story into one of consistent execution, and the market has begun to reward the company for it.

Fully Diluted Enterprise Value: $2.95B

2024 bottom/top guidance attributable OCF+C: $295M / $462M

2024 middle guidance attributable FDEC/OCF+C: 7.79x

FDEV/2029e OCF+C(attrib.): 4.19x

B2Gold

2024 guidance: 800-970koz Au (100% basis) / 678-720koz (attrib.) @ $1,420-1,480/oz AISC

Growth: With Goose being pouring first gold by the end of H1/2025 and ramping up to full production in 2025, along with Fekola operations finally receiving permits for expansion after agreements were recently made with Mali with regard to the newly introduced mining code, B2 is likely to see cash flows increase in 2025 and 2026 when Goose gets its first full year of operation, which is expected to continue at around 300kozpa for the first five years from commissioning. The company is expecting production to be ~1-1.2Moz in 2025 @ $1,030-1,150/oz AISC with Goose accounting for about 120-150koz, meaning production for 2026 is likely at least 150kozpa higher, around 1.25-1.45Moz. Fekola Regional production is expected to contribute around 100kozpa of additional annual production through the end of the decade after 2025 from higher-grade saprolite gold deposits around Fekola. The Colombian Gramalote project, to be commissioned by the late 2020's, is expected to contribute over 230kozpa for the first five years of operation and 185kozpa through its 12.5y LOM, for about $800M initial capex and at <$900/oz AISC, which would replace production from B2's Namibian Otjikoto mine which is running low on ore and only has reserves left for another year of operation, but also Indicated resources that could support production an additional five years or so until 2029. Attributable production in 2029 could be around 1-1.1Moz Au @ $1,150-1,250/oz Au, with production staying flat relative to 2025 due to Otjikoto's mine life coming to an end by then, and corporate production over the next five years to peak in 2026. In addition, B2 has significant strategic equity investments in multiple junior mining companies such as Snowline Gold ($SGD), and Founders Metals ($FDR), and also owns a significant part of the producing midtier Calibre Mining ($CXB), enjoying upside from either selling appreciated shares or taking over promising companies with one foot already in the door. If operational hiccups experienced in recent years are starting to be overcome as I think they are, B2Gold is going to follow IAMGOLD's footsteps in turning from a consistent loser into a better performer.

Fully Diluted Enterprise Value: $5.35B

2024 bottom/top guidance attributable OCF+C: $516M / $598M

2024 middle guidance attributable FDEC/OCF+C: 9.61x

FDEV/2029e OCF+C(attrib.): 4.64x

Discussion

Both IAMGOLD and B2Gold are in a similar place right now, with IMG having a bit of a head start compared to B2. Both companies have similar valuations both now and into the future, with IAMGOLD looking slightly more attractive at the moment.  While the market has started to appreciate what IMG has to offer, and some tentative buying has also begun to raise B2's tape higher, both companies remain quite attractively valued with the near future in mind. Both B2 and IMG are fairly valued on a 2024 guidance basis, but cheap especially in 2025 and 2026, with operations remaining relatively stable until the end of the decade. The market may not like that both companies have such a significant amount of production coming from Sahel Alliance states, but the market may begin easing up to these companies thanks to their increased jurisdictional exposure to Canada, which should help increase valuation multiples. I see an opportunity to own improving businesses for a cheap price on a 2025e/2026e basis with a view of taking profits a year or two out from here as the market begins to realize and reward the step-change in cash flows that both companies are about to experience.

Curious Case #4: Perhaps the best deal I have ever seen in the gold sector

I am simply baffled at the opportunity present in Allied Gold ($AAUC) today. The company recently IPO'd about a year ago, to no fanfare at all. In fact I don't think most investors focused on the mining sector even know this company exists to this day. Allied Gold is the new venture of Peter Marrone, who may be better known as the CEO of Yamana Gold ($YRI), which was last year taken over in a joint acquisition deal by Agnico Eagle and Pan American Silver ($PAAS) for a total consideration of $4.8B in cash and shares. His new venture in Allied Gold IPO'd only about half a year later, this time turning his focus from South America to Africa, and he is accompanied by other ex-Yamana people, including Daniel Racine, Jason LeBlanc, Richard Campbell, Gerardo Fernandez and Sofia Tsakos, making most of the management team ex-Yamana. Other management team members bring experience from working in companies such as Endeavour Mining, Centamin and Anglogold Ashanti.

Allied is guiding to produce attributable 314-339koz in 2024 @ $1,400/oz AISC, with about half of the total production coming from the massive Sadiola mine in Mali, and the other half coming from two smaller mines, Bonikro and Agbaou, together forming a hub & spoke operation in Côte d'Ivoire. While the Côte d'Ivoire Complex should sustain 180-200kozpa production for 10+ years, Sadiola would, at today's rate of production, stay in production for almost 28 years with recoveries taken into account, which is why the company is looking to expand throughput and increase production by 50-100% by 2029, which is expected to reduce AISC to <$1,000/oz for a >10 year LOM. Production is also expected to increase earlier than that by 175koz in 2026 with the commissioning of the Kurmuk project in Ethiopia, which should produce 290kozpa for the first five years and 240-250kozpa for an initial 15y LOM, with AISC projected to be <$950/oz through LOM. In the meantime, Allied expects to increase annual production at Sadiola by about 30kozpa in 2025 thanks to production from the higher grade Diba satellite deposit, and continue improving operational efficiencies at both Sadiola and the Côte d'Ivoire Complex to increase margins along with exploring at each of their projects. The company's total resources & reserves is among the highest if not the highest of any operating peer priced at similar market value, sporting 11Moz in 2P reserves and 16Moz in M&I resources, and recent M&A activity around Sadiola and exploration at Kurmuk likely replacing mined reserves.

The company has been doing almost everything right: they operate profitably, are replacing mined reserves, and they're looking to expand while managing risks through gold prepurchase agreements and royalty/streaming deals. Last week the company closed an unfortunate and surprising C$192.2M equity offering, however given that the management & directors own over 1/4 of the shares they certainly weighed their options well, and management & directors participated in the financing to the tune of about C$5.8M. Peter Marrone, CEO, and Justin Dibb, VC, in particular own a lot of shares, accounting for about 13% of the total shares outstanding, and they have been buying all the way down since the company IPO'd, with their average at about C$2.7/share, with the bulk of their shares bought at C$2.63/share during the IPO, and another large tranche bought recently in the equity financing deal at C$3.10/share.

After doing some DCF analyses I concluded that the total after-tax NPV8% across the company's mines is over $4B, with most of the net asset value being contributed by Kurmuk and Sadiola. In fact, due to the low initial capex at Kurmuk, it has a similar ~$1.5B NPV8% as B2Gold's Goose/Back River mine which has experienced capex hikes. Kurmuk's process plant has been designed by the serially successful engineering firm Lycopodium and the EPCM contract was given to DRA Global, which is today also doing EPCM services for Ivanhoe Mining's ($IVN) Kamoa-Kakula Phase 3 Expansion project as well as their Platreef Phase 1 project, which leads me to strongly believe that Allied will be able to maintain their guided $500M initial capex and deliver the project on time and maybe even under budget. 

Taking all of the ex-growth capex costs into account Allied Gold is today trading at roughly 8% FCF yield. With 2027e production including a full year of Kurmuk production, the company's FCF yield at today's price is above 40%, meaning the company is trading at about 2.5x ex-growth capex FCF with future Kurmuk production taken into account. And as pointed out by the company in the above slide, the company is trading below its 2026e EBITDA! Allied Gold today is attractively priced, and remains cheaper than its producing peers on basically all measurable metrics: EV/NPV, EV/EBITDA, EV/FCF, EV/oz produced, EV/2P oz, EV/M&I oz, you name it. And in case the balance sheet worries You, the company holds about $100M in debt and $222M in cash, or a net cash position of about $119M, as per the recent equity financing and latest financial report. Allied's market valuation today only accounts for about 0.5x of Kurmuk's NPV8% alone and is trading as if it were a development stage company with no other asset, meaning investors today essentially get the cash flows and NPVs from the Côte d'Ivoire Complex and Sadiola for free.

And that's really the short of it. Certainly there is much more information to cover and I could spend an extra hour writing things I find meaningful about this company, but the investment thesis doesn't get simpler than this: Allied Gold is simply dirt cheap, and has growth lined up to multiply its EBITDA from the ~$200M today to >$700M in 2027e once Kurmuk gets a full year of production, and to >$1,000M in 2029e as Sadiola is ramped up to 300-400kozpa. Do the math; these numbers are realistic, and the company is run by an excellent management team that has proven their capabilities in building a company up from scratch and running multiple operations across different countries, and in so doing creating tremendous value for shareholders.

2024 Guidance: 314-339koz in 2024 (attrib.) @ $1,400/oz AISC

Growth: As discussed above, the company is going to gain rapid growth in cash flows from Kurmuk in 2026 and 2027, and from the Sadiola expansion in by 2029. Although there is also potentially significant exploration upside at Kurmuk as hinted by the management team. They're expecting to update the market on the exploration and resources & reserves later this year. In addition, they're looking to sell a royalty/stream for Kurmuk which will finance the project at an attractive cost of capital in exchange for some percentage of revenues. Production in 2029e should be about 750-890koz (650-765koz attrib.) @ $1,050-1,150/oz AISC, bringing the company's cash flows and margins in line with the likes of Alamos Gold today, and in line or possibly higher than IAMGOLD's cash flows in 2029e.

Fully Diluted Enterprise Value: $668M

2024 bottom/top guidance OCF+C: $222M / $247M

2024 middle guidance FDEV/OCF+C: 2.85x

FDEV/2029e OCF+C: 0.81x

Discussion

In closing, Allied Gold demonstrates perhaps the most stunning dislocation between price and value in the entire gold market when accounting for the risks that are applicable for a mining company operating in a Sahel Alliance state and building a new mine. The quality of the management team is such that I feel comfortable having most of my funds invested in this hated, or perhaps simply yet unknown, midtier gold producer, and I don't think the company's growth aspirations or my own estimates are unrealistic at all. Allied is possibly the cheapest gold stock in the market and I am not afraid to say it.

DISCLAIMER: This is not financial advice. I own or have owned shares of most of the companies mentioned in this article, and I may sell my positions at any notice for any reason without any warning. This article is not to be taken as a solicitation to buy or sell securities. I am not a licensed financial advisor. I am not a paid advertiser or promoter. I'm not a geologist or any sort of professional. Please do your own due diligence and invest at your own risk. Question everything and form your own opinion, this report is only meant to share my own opinions with You, the reader.