Updated, 8 January 2020
|Long-Term Price Case||$1,700/oz.|
|Mineral Reserves||1 Mozs.|
|Average Annual Production||85,000 ozs.*|
|Payable Product||734,200 ozs.|
|True All-in Cost (TAIC)||$1,283/oz.|
|Total Operating Costs||($662,900,000)|
|Total Capital Costs||($81,900,000)|
|Net Profit Margin||25%|
|Absolute Cost Structure (ACS)||75%|
|Total True Value||$3.62/sh.|
|Cash Flow Multiple||5x|
|Average Net Annual Cash Flow||$35,445,000|
|Future Market Cap||$177,225,000|
|Future Market Cap Growth||172%|
Notes: All Values in U.S. Dollars
Alio Gold, with Mark Backens at the helm, has done more soul-searching than is common for a small producer. As a result, it has rapidly been transformed into an enterprise with few illusions and a no-nonsense mission.
At Fahy Capital Management, we typically invest in the deposit first and management second, but the reverse is true with Alio Gold. With this particular investment, we are primarily investors in Mark Backens, as he has made the hard choices required to bolster shareholder confidence.
From the bold sale of non-core assets and the negotiation of a smart financing package with Sprott to the recent lease agreement with Caterpillar and the swift development of a critical Phase II leach pad, Backens has attacked Florida Canyon with a laudable all-or-nothing attitude. He has spearheaded a right-sized capital spending program that is effecting material results for shareholders. He has transitioned San Francisco to residual leach, while pursuing a potential monetization of the mine. Meanwhile, spending at Ana Paula has been reduced to holding costs until the asset is monetized or a JV** is in place.
In closing, as we are confident that Alio Gold will boost production by up to 50% at Florida Canyon in 2020 and grow mineral inventory through brown field exploration, we have boosted our stake for the 3rd time in 24 months.
*For the time-being, we have included an approximately 12,500 ozs. of residual leach output from San Francisco in our valuation model. This will taper down over time.
**We think a JV is the ideal path forward for Ana Paula, an asset on which we have spent a lot of research hours, as well as one that we believe will prove of value to shareholders in the latter half of the decade.