Calibre Mining: One of the Most Undervalued Gold Producers

Calibre Mining (TSX: CXB) (OTCQX: CXBMF) is one of the most undervalued gold producers. Here's why.
Calibre Mining (TSX: CXB) (OTCQX: CXBMF) is one of the most undervalued gold producers. Here's why.

It’s easy to forget past successes when the stock market keeps climbing. It’s also easy to overlook undervalued plays generating tens of millions of dollars in free cash flow every year.

But amongst the high-flying speculative stocks, these are the types of plays that can outperform in this environment. 

And one specific company stands out. 

You see, the same guys behind this company are the same guys who – not long ago – took an underperforming asset, turned it around, and in just over a year sold it for over a billion dollars. 

That same asset is now one of the lowest-cost gold mines in the entire world.

Yes, I am talking about Newmarket Gold (Newmarket), which Kirkland Lake Gold bought out in a transaction worth over $1 billion. 

I first introduced Newmarket Gold to readers back on July 26, 2015, when it was trading at C$0.82.

In September 2016, Canada’s Kirkland Lake Gold announced that it would acquire Newmarket for roughly C$1 billion – valuing Newmarket at C$5.28 per share.

That’s a gain of more than 540% in barely over a year.

But that’s not all.

The Newmarket team didn’t look at the deal as an exit – they looked at it as a way to bring even more value to existing shareholders.

And boy, were they right.

Today, Kirkland Lake is worth over C$43* per share.

*as of November 20, 2019.

If you were a Newmarket shareholder and held on, each of your shares today could be worth nearly $20*.

That’s a potential return of 2339% from the $0.82 per share.

*based on a 0.475 consolidation.

A $10,000 investment could have become $233,900.

A $100,000 investment could have become $2,339,000.

In fact, it could’ve been more – much more. 

Kirkland Lake shares traded as high as $76 last year!

If you bought Newmarket at $0.82, the price at the date of my original report, and sold at the high last year: 

A $10,000 investment could have become $360,000.

A $100,000 investment could have become $3,600,000.

I bet anyone who sold early is kicking themselves – including myself.

But here’s the good news.

We have a second chance with the same team. 

This company is Calibre Mining (TSX: CXB) (OTCQX: CXBMF).

Calibre Mining

(TSX: CXB) (OTCQX CXBMF)

For those who haven’t read my first report on Calibre, I strongly insist that you go back and read it – and even if you have, read it again.

I sold too early the last time around with this group – and I said I wouldn’t do it again.

It’s why I haven’t sold a single share from the original investment I made back in 2019. Not one.

You see, not only do I believe that gold is going higher in the second half of this year, but I believe Calibre will execute on many fronts, leading to a re-rate in the current share price.

Let me explain.

Gold Finds Support

First off, as our charting indicators recently indicated, there is strong support for gold at US$1700. 

Secondly, from a macro standpoint, there are just too many reasons why gold should rise against the US dollar. We have discussed this many times.

Despite that, investors have sold off their gold stocks over the last few months in favour of high-flying tech stocks.

While it has been a good move in the short term, I don’t believe anyone should have 100% of their portfolio in high-flying stocks. There has to be a portion of it invested in undervalued growth companies generating free cash flow.

For me, Calibre is one of those investment opportunities – especially at the current share price.

You see, even if gold drops to US$1,500/oz, Calibre is still going to generate a whopping US$216 million of free cash flow between this year and 2025.

If gold hits $1800 again, that number jumps to a whopping $319 million. 

I am not talking revenue – I am talking FREE CASH FLOW!

Best of all, these numbers are assuming Calibre doesn’t increase production more than their guidance or make any discoveries. 

And that’s why I am excited.

Calibre Executes

If you were simply looking for undervalued investments within the mid-cap gold producers, Calibre stands out amongst its peers. 

Take a look: 

It’s undervalued when it comes to both gold production and total resource while having one of the highest 2021E consensus free cash flow yields.

But that’s just the beginning.

Calibre is and has been spending millions drilling to increase its resource base over the last year. If you have been following this company and our coverage, you’ll have seen a string of successful operating and drilling results – many times, forcing analysts to increase their price targets for Calibre.

Here are just a few examples:

I suspect the trend of successful drill results will continue this year, with Calibre increasing its gold resource base; thus, making it even more undervalued when compared to its peers.

Increasing the resource is one thing, but there’s something else that I don’t believe has been factored into Calibre’s current share price: exploration and discovery.

Exploration Upside 

Calibre has between $14-17 million already allocated to exploration drilling this year. Given the past successes of Calibre’s team, I would be shocked if they don’t find any new gold ounces – especially given the geology of their assets.

Remember, the same core team took a failing gold operation and transformed it into a billion-dollar buyout in one year. It did this by improving operations, expanding resources, and making discoveries. 

That recipe created Fosterville – one of the lowest-cost gold mines in the world.

Those same cooks are now using the same recipe with Calibre – and things are heating up.

Look for upcoming news of drilling, resource expansion, and gold production in the coming weeks and months to add further upside to this unhedged gold play.

CXB share price at time of this writing: C$1.50

Disclosure: Equedia and its directors own shares of Calibre Mining and options granted by the Company. Calibre Mining is also an advertiser.

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