It was interesting to see research from RBC Capital Markets recently putting a value of US$375 mln on the Barsele gold project in Sweden.
RBC was conducting an in-depth analysis of the valuation and potential of Canadian stalwart Agnico Eagle (TSE:AEM), which holds a 55% interest in the project and is operator.
But while it was nice for Agnico to have its Barsele asset given such a punchy valuation, in terms of the overall company it remains relatively small beer. The US$375 mln of the Barsele project sits inside a US$2bn-plus development portfolio which itself is dwarfed by a suite of producing assets valued by RBC at over US$6.3bn.
But for Agnico’s 45% joint venture partner at Barsele, Venture-listed Barsele Minerals Inc. (CVE:BME), the implications are much more meaningful.
The numbers RBC uses are supported by its faith in Agnico’s long track record of success, but even so aren’t that aggressive.
The basic assumption is that each established ounce of gold in the ground is worth US$150.
And since, according to RBC, there are now 2.5 mln equivalent ounces of gold at Barsele, that multiplies out to the US$375 mln number.
But here’s where it gets interesting from the point of view of investors in Barsele Minerals.
The valuation of the 45% stake nets out at just under US$169 mln - well below the current market capitalisation of Barsele Minerals on the TSX-V, which stands at around C$70 mln.
That’s a C$100 mln value gap, which by any standards looks chunky, and given that the mining markets are now coming alive again, may not last.
After all, looked at another way and allowing for a capital base of 124 mln shares fully diluted, then the Barsele project is worth approximately US$1.36 per Barsele Minerals share.
The current share price on the Venture Exchange is C$0.68, which represents a discount of over 50%.
What happens now will be key to closing that value gap. The first thing is that investors might wake up to the upside that’s on offer, underwritten by the exploration and development teams of one of Canada’s most successful companies.
Second, Agnico’s exploration programme will rumble on and continue to deliver positive newsflow. The last set of drill results released to market showed nine metres at over 12 grams per tonne uncapped, as well as 84 metres at 2 grams per tonne and 78 metres at 1.25 grams capped.
More of these kind of numbers will be likely to breed confidence in a market already buoyed by a favourable comparison made by Agnico to one of its existing producers, Goldex, which RBC estimates will produce upwards of 110,000 ounces of gold per year over the next five years.
This year Agnico has said it will spend just shy of US$5 mln at Barsele, so there should be plenty of newsflow coming through.
In the meantime, it’s perhaps also worth noting that Barsele Minerals President Gary Cope has around 12% of the equity in the company, meaning that directors’ interests are directly aligned with shareholders’.