A Case for Gold – the Value in Kerr Mines
There’s just something about gold… it’s nice to own and invest in, but it can be fraught with problems when you try to analyze what a company’s worth. We found a good one in Kerr Mines (TSX: KER) (OTC: KERMF).
We’re not the only gold bugs who’ve shown an interest in Kerr Mines. Precious metals guru Eric Sprott holds a 9.4% position and one thing you can say about Sprott is, he’s a savvy-investor, when it comes to gold stocks.
Kerr Mines is sitting on over 8 million dollars in cash and just revealed positive drilling results at Copperstone Mine in Northern Arizona, which is a late-stage development and former producer of gold. Copperstone consists of an 11,800-acre land package that historically produced 500,000 ounces of gold. The technical information has been prepared in accordance with the Canadian regulatory requirements set out in NI 43-101 and reviewed and approved by Michael R. Smith, Registered Geologist.
Initial results of its Phase I underground drilling program with 10 of 12 drill holes intersecting significant gold mineralization and increasing the confidence in expanding the resource at the Company’s Copperstone project in Arizona.
Results extend down-dip and up-dip gold grade and extend mineralized
areas along strike in 2 sections of the Copperstone Zone
Historical drilling results confirmed
New intervals drilled from underground through the D Zone include:
32 feet @ 16.2 g/t Au (KER-17U-12)
20 feet @ 8.6 g/t Au (KER-17U-06)
15 feet @ 5.1 g/t Au (KER-17U-04)
10 feet @ 7.9 g/t Au (KER-17U-05)
13 feet @ 6.2 g/t Au (KER-17U-11) and
9 feet @ 5.4 g/t Au (KER-17U-11)
Now having lots of acreage doesn’t necessarily mean it’s all ripe with nuggets of gold just waiting to be picked up, but in Kerr Mines (TSX: KER) (OTC: KERMF)’s case, its damn near that rich – and WAY UNDERVALUED in share price, which we’ll explain further on.
The [property] is fully-permitted with extensive infrastructure in place, meaning Kerr Mines has a 450 ton-per-day mill already onsite and the tunnels going down to the high-grade gold ore are already there. Electricity and water are there too, so the cost to Kerr Mines (TSX: KER) (OTC: KERMF) is LOW< LOW<low to produce.
Now to its ore bodies.
There are 942,000 ton of Measured and Indicated gold ore with a grade of 10.3 grams per ton. That’s some high-grade gold!!! On the Inferred side, there are another 335,000 ton with a grade of 12.2 grams per ton. That’s in the soon-to-be further explored “South Zone”, which has GREAT POTENTIAL TO EXTEND THAT ORE BODY. But in the Proven and Probably category, Kerr Mines (TSX: KER) (OTC: KERMF) has 910,000 ton with an average grade of 8.8 grams per ton. So, what does that spell? MONEY, BABY…. MONEY!!. Now you can see why the great Eric Sprott got his checkbook out and bought into the project.
The Value in Kerr Mines
There are many factors that determine the value of a mine. The grade of gold is obviously first in determining an investment into a gold stock like Kerr Mines. But with such HIGH GRADES of gold, from Proven, Measured and Indicated to Inferred, the numbers are OFF THE CHARTS.
So, is Kerr Mines a takeover target? Perhaps, but not from the likes of the majors, like Barrick Gold (NYSE: ABX), Newmont (NYSE: NEM), or GoldCorp (NYSE: GG). Why? Too small… but with Kerr permitted with a mill in place and the tunnels opened up to access the three zones previous not mined and the heavy hit Kerr Mines (TSX: KER) (OTC:KERMF) discovered in the South Zone, its most likely going to be in production next year. In fact, the feasibility study needed to go into production is expected in the fourth quarter of this year. So that tells us that Kerr Mines intends to go into production.
On the OTC market, KERMF is trading at $0.24, $0.32 on the Toronto Stock Exchange (KER). KER traded as high as $0.41 ca in the last 52 weeks and from our standpoint its easily a DOUBLE BAGGER – and here’s why…
Grassy Mountain is a gold property just 70 miles from Boise Idaho that has about 420 claims and 250,000 ounces of reserves with a grade of 5.32 grams per ton. Its owned by Paramount Gold (NYSE: PZG), which acquired Grassy Mountain in an all-stock deal with a net present value of $107 million (based on $1300 oz gold).
We’re comparing apples to oranges here, but both properties (Kerr Mines and Paramount Gold) have high-grade gold ore, though Kerr Mines (TSX: KER) (OTC: KERMF) is NEARLY DOUBLE THE GRADE – AND – HAS NEARLY FOUR TIMES AS MUCH GOLD ORE. So, what does that tell you?
We interviewed a seasoned Nevada geologist familiar with both properties to get his take on Kerr Mines, asking – “What’s it Worth” – and here’s what he had to say… “The property was a past producer and profitable, but there are a lot of considerations when trying to value the property.” His take was that “in a sale, it’d go for somewhere near $100 MILLION DOLLARS,” citing the Grassy Mountain sale we described, above, as a comparison.
Ok… let’s say the number is Sprott on. How do you interpret that in share value? There are approximately 190 million shares issued and outstanding and if you come away with a book value approach – assuming a sale for $100 million – then you’re looking at somewhere around $0.50 per share.
The pundits all say that gold (in 2018) is more-likely going to trade in the $1300 range vs $1225 where it is currently, so if you up the commodity price you also up the gross return. Miners like to look at their properties in internal rates of return or net present value, but as Kerr Mines is listed on the Toronto Stock Exchange, an updated 43-101 Report would be in order before Kerr Mines (TSX: KER) (OTC: KERMF) releases that kind of information. So, we’ll say it for them in our parlance… IT’S A DOUBLE-BAGGER!!