August 5th, 2009:
Capital Gold Corp. (CGC)
Current Price: $2.48 (split adjusted)
www.capitalgoldcorp.com
Please note this report was written before CGC implemented a 1 for 4 reverse split and moved from the OTC BB to the AMEX.
We are pleased to introduce our new gold stock suggestion Capital Gold Corp. (CGLD). CGLD is one of the fastest growing and most profitable gold mining companies in the world right now. We believe CGLD is undervalued at the current levels and has a tremendous amount of upside potential.
CGLD owns 100% of 16 mining concessions located in the Municipality of Altar, State of Sonora, Republic of Mexico totaling approximately 3,544 hectares (8,756 acres or 13.7 square miles). They also own 466 hectares (1,151 acres or 1.8 square miles) of surface rights at the El Chanate gold property in Sonora, Mexico.
CGLD began producing gold at El Chanate in August 2007 and, since that time, has produced over 75,000 ounces of gold, at one of the lowest operating costs in the industry. CGLD's production costs are around $255 per ounce while other gold companies like Newmont Mining (NEM) have production costs of almost double that at $480 per ounce.
CGLD keeps its costs low and profits high for several reasons. First, CGLD mines in a relatively populated area of Sonora, Mexico, with a good skilled workforce entirely Mexican. There is no need to furnish housing or meals for the crew as they can go home at the end of the day. In addition, they have a good local mining contractor and diesel costs are lower in Mexico. CGLD anticipates reaching a gold production target rate of 70,000 ounces in 2009 and has proven and probable reserves of 832,000 ounces of gold.
CGLD reported a 42% increase in revenue for the third fiscal quarter, ending April 30, 2009, as compared to the third fiscal quarter of last year. CGLD has reported revenue of approximately $42 million with over $21 million in gross profit for the most recent twelve months.
If CGLD produces 70,000 ounces of gold per year and gold prices rise to $1,500 per ounce, we could be looking at annual revenues of $105 million in the future.
CGLD reported net income after taxes during the last nine months of $7,687,000 on revenues of $32,934,000. If CGLD can maintain a net profit margin of about 23.3% and generate $105 million in annualized revenue, we could one day be looking at approximately $24.5 million in annualized net income.
Most gold companies right now are trading with P/E's well above 20. If we use a conservative P/E of just 20 for CGLD with net income of potentially $24.5 million that would equal a market cap of over $490 million! With approximately 193.4 million shares outstanding for the company that would give CGLD a share price of $2.53, up 308% from its current share price of only $0.62!
CGLD already had an offer to be acquired at $0.76 per share by Gammon Gold (GRS) which from our understanding was turned down by the board of directors. CGLD’s management and shareholders obviously see the upside potential over the long-term for the company.
NIA believes CGLD could become one our biggest winners during the upcoming inflationary crisis as gold prices potentially go through the roof.
A co-founder of NIA has purchased 15,000 shares of CGC and could sell them at any time.
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