New Gold Producer with Excellent Blue Sky Potential in Northwest Mexico
With the buying frenzy that is taking place for Capital Gold right now, NWM is setting up for a similar buyout in the next 12 to 16 months and I think we could get a nice multiple (3 or 4 X) out of this one within a relatively short time period. The beauty of this is that investors are soon going to find out how quickly NWM can move. This will give us an immediate lift to the stock as other gold producers in Mexico are looking for ounces to add to their bottom line and will seek to acquire NWM.
The reason the company is still trading at such a low share price is due to the large number of shares outstanding. I believe this will change as the company ramps up their production and proves to the market that they will soon increase their overall resource. Exploration drilling that will soon be underway is very likely going to significantly increase their overall resource numbers. The company has already successfully poured their first gold bar late last year and is now in the process of ramping up to 50,000 ounces of low cost gold production over the course of the next year and a half.
NWM has done what they needed to convince me they are going to create a value proposition that will attract the attention of the larger companies and get us a buy-out. I was waiting for several things to happen and suddenly they have all come together.
First the company will hit commercial production by June of 2011 at a rate of 2000 ounces per month (24,000 per year) with a cash cost out of the ground of somewhere between $350 and $500 an ounce. They will increase this production to 3000 ounce per month (36,000 per year) by December of 2011 and peak out at 4000 ounces per month in early 2012 when we would expect the buyout.
While this activity is going on the company will be dramatically increasing and improving their current resource numbers with very low risk drilling. This is the kind of activity that will start to get the attention of the market as production is happening.
The company has the right production and operational people to get the job done properly and on time. This is critical to these kinds of scenarios and I am confident like I was with Capital Gold that the mine will move forward without many hiccups.
With a rising gold price and anticipated ounces in reserves heading over the 1MM mark by end of next year, I expect this company to be bought out somewhere between C$0.60 cents and $1.00. When you compare what NWM hopes to accomplish to what Capital Gold has done, we should see our share price near the $0.55 cent to $0.75 cent level, especially as gold prices look to go much higher by that time.
I like this deal because it can happen quickly and we are now going through the early stages of production. Based on the gold production we shouldnt have to dilute with any further to bring our resource calculation up to where it needs to be before a potential buyout could be in the works.
Summary
What I like about this deal is that we have the right people to do the job of creating a new mine. This mine will be in a great jurisdiction of which I am very familiar because of my experience and recommendation of Capital Gold over the years. I will be visiting the mine site in Mexico towards the end of this month and will have more to report to you at that time.
It is unique that we have an opportunity with such a low share price that is so close to breaking out on so many fronts. While I had my doubts about how they could pull this off and get the company into production when I first heard of them two years ago, I am now a believer as I tip my hat to the management team for a job well done. I expect more of the same to follow and it looks like the market is going to go their way as all this happens.
For me this looks like another Capital Gold situation where we can capitalize this time in a much quicker time frame.
I have taken a significant position in the company and plan on getting a nice multiple as several mid-tier producers (Alamos Gold, Timmins Gold and others) will probably fight to get these ounces into their bottom line sometime the end of this year or early next year. This is not a 10X situation, but it looks to me like this could be a quick 3X or 4X from where we are now.
NWM is a BUY on any weakness below $0.20 cents.
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