EDITOR: | August 5th, 2014 | 2 Comments

Epstein’s gold junior pick with tremendous upside — Gainey Capital

| August 05, 2014 | 2 Comments
image_pdfimage_print

Gainey CapitalGainey Capital Corp. (TSXV: GNC) is a gold and silver exploration and development company exploring an aggregate of 18,766 hectares strategically located in the gold/silver-rich Sierra Madre Occidental Trend in western Mexico. Surrounded by major and mid-tier TSX and NYSE precious metals producers First Majestic Silver, Primero Corp, Chesapeake Gold, Goldcorp, Endeavor Silver and Great Panther Silver, the Company’s flagship El Colomo property is largely underexploited and is the focus of the Company’s near-and long-term development plans.

However, what makes Gainey Capital unique is its 100% ownership of a completely refurbished gold processing facility operating at 300 tonnes per day, “tpd,” capable of being upgraded to 600 tpd with minimal additional capital. This is the ONLY facility in the area to include a gravimetric/flotation processing center, which optimizes recovery rates. Gainey is in active negotiations with multiple parties about toll milling their ores. Toll milling will generate meaningful cash flow to fund exploration and development of Gainey’s own properties. The company could be mining its own ore and processing it at its own mill within 6-9 months. [Please See Video Clip of Mill at the bottom of the company’s homepage]

Under-Promise & Over-Deliver, Everyone Says it, CEO David Coburn Does it

I have been speaking with Founder & CEO of Gainey Capital Corp., David Coburn about his plans for the company. I had been hearing that Gainey was a company to watch. Then on June 13th, Jay Taylor put out an excellent report on Gainey. I called Coburn. Over the years, I’ve spoken with hundreds of management teams. One of the more frequent things I hear from them is that, “I want to under-promise and over-deliver!” While that’s a great corporate philosophy, rarely does it seem to happen….

That’s why it was so refreshing to speak with someone with vast experience running successful companies efficiently and delivering on promises. As CEO, he has very little support staff and ends up doing a wide range of work himself, which he’s happy to do–it’s in his DNA. Proof of his prudent corporate governance came just recently when Gainey was offered C$10 million in equity capital. Coburn conservatively took only C$2.7 million to avoid excessive dilution.

Exceptionally Strong Team for a Junior Company

Like any successful manager, David surrounds himself with top-tier talent. For example, in charge of Gainey’s 300 tpd gold processing facility is George Cantua, Mexican Operations Manager. He was hired from Barrick Gold where he supervised a 24,000 tpd milling facility. George was responsible for Gainey’s mill upgrades coming in on time and under budget. Board member Larry Segerstrom was Geology Manager at the largest gold mine in the world for 7 years, Freeport McMoRan’s Grassberg project as well as COO of Paramount Gold/Silver. Gainey also has Peter Megaw on the team. His company Cascabel is heading up the explorations strategy. He is the most successful exploration geologist in Mexico. Peter is the technical brains behind Mag Silver.

Strong Financial Team

David Coburn has also assembled some of the smartest, “precious metal” investment bankers and investors in the USA/Canada/Mexico whose investment in Gainey Capital have been lead by Mexico Billionaire Ernesto Echavarria. Coburn explained that this investment by Echavarria of $1.3 Million is a key strategic play for both Gainey and Echavarria given Gainey’s operations are literally in Mr Echavarria’s back yard and that Mr Echavarria is an extremely intelligent & successful precious metal investor among his other business holdings. Mr Echavarria was quoted as saying,

“I am excited to participate as a major investor in Gainey Capital given it is in an area that contains very high gold and silver mineralization ” Echavarria went on to say “this is a unique opportunity given that Gainey has a operational Mill that is in one of the best areas in Mexico”.

Comparison Made to Peru’s Dynacor, Gainey Capital Even Better

Jay Taylor made a compelling comparison between Gainey Capital and Dynacor, based in Peru. Dynacor has proven the business model of toll milling for strong cash flow and deploying that cash into exploration & development. However, Gainey has a market cap that’s one third that of Dynacor and Mexico is a safer location to do business than Peru. Make no mistake, I like Dynacor a lot and think that stock could double in the 12 months. Gainey Capital hopes to expand Mill capacity to 600 tpd. Coburn believes an expansion to 600 tpd could be accomplished within 6 months at an all-in cost of just C$100k-C$200k.

In a prime example of under-promise and over-deliver, Coburn’s team got its 100% owned processing facility up and running in June without fanfare. Instead of a grand press release, Coburn has been methodically operating the plant and, importantly, testing local ores, to work out the kinks. While Coburn is not prepared to discuss the profitability of the 300 tpd facility, he has every indication that profitability should be robust. As a proxy, investors have publicly available data on Dynacor’s gold processing facility. That plant is fed with higher grade material than Gainey’s facility has access to, but Dynacor’s facility reported net income in 2013 of C$9 million. That C$9 million was ENTIRELY from toll milling third party ores.

If Gainey could reach a run-rate of just half of that amount, C$4.5 million of profit on a C$19 million market cap, that alone would be a solid outcome. However, with margins possibly rising next year if the company starts processing its own ore AND with throughput possibly doubling to 600 tpd, Gainey could be looking at annual run-rate profits of greater than C$4.5 million next year, without selling a single share of stock or borrowing any money. Did I mention that I like this story very much?

Tight Capital Structure, Zero Debt, C$ 3 Million of Cash, Surrounded by Majors….

What’s not to like? Gainey is sitting on C$ 3 million in cash, it should be cash flow positive in August, it has no debt and a tight capital structure with 42.4 million shares outstanding. Of that amount, 19.2 million shares are in escrow from 1-3 years. The basic market cap at C$ 0.45 per share is C$ 19 million, again with zero debt and C$ 3 million of cash on hand. That’s an Enterprise Value, “EV” (market cap minus cash + debt) of C$ 16 million.

Mexico is a top mining jurisdiction and there are several well known players nearby including Primero, First Majestic, Great Panther and Goldcorp. Unlike many juniors who are out of cash and increasingly desperate to sell out to a major, Gainey is in the opposite position. Not only does Gainey not need to turn to larger neighbors for help, those neighbors may turn to Gainey as some have highly prospective, non-core properties to sell…. Properties that are worth a lot more to Gainey because it owns the only gold processing facility in the region to include a gravimetric/flotation processing center, which optimizes gold and silver recovery rates. Yes, I know, I already said that, but it’s worth repeating.

Opportunity For Near-Term Production

How many times have I heard this, “near-term production.” Near-term appears to range from next month to next decade! How close is Gainey to first production of its own ore? The company could begin mining ore from an owned, fully permitted property within about 6-9 months. This could be a potential game-changer, especially if the company expands to 600 tpd of processing capacity before that time. Again, all of this could be achieved with no additional shares or debt.

Dynacor is printing money in Peru and deserves the praise it receives for operating a highly successful toll milling business model. To reiterate, Dynacor is ONLY toll milling third party ore, exactly like Gainey is. If Gainey can double capacity to 600 tpd AND start to process its own mined ore, upside on the stock could be significant. NOTE: This is my opinion only. Coburn will continue to take things one step at a time, under-promising and over-delivering

That means making sure the existing 300 tpd facility is running at high efficiencies. It means doing some further work on its owned, permitted property that might have three mineralized veins, not just one. It means signing toll milling customers to fill the 300 tpd mill and possibly installing a new ball mill to expand to 600 tpd. This is not pie-in-the-sky long-term dreams… this is highly actionable neat-term activities that should cause the stock price to rise.

Conclusion

Investors in natural resources stocks have had a rough 2-3 years. Hundreds of junior miners are out of cash and out of time. They are desperate to be acquired or are looking at continued equity dilution for years to come. Gainey Capital breaks the mold, it’s entirely different. Gainey has all the blue-sky upside of a junior miner, but is poised to be cash flow positive, has no debt, no need to raise additional equity and is sitting on C$ 3 million of cash. Run-rate annual profits could exceed C$4.5 million next year for a company with an EV of C$ 16 million as CEO David Coburn executes on specific, relatively low-risk operating plans in a proven, low-risk jurisdiction.

To access the Gainey Capital Corp. corporate presentation, click here


InvestorIntel

Editor:

InvestorIntel is a trusted source of reliable information at the forefront of emerging markets that brings investment opportunities to discerning investors.


Copyright © 2017 InvestorIntel Corp. All rights reserved. More & Disclaimer »


Comments

  • Financial Press – Breaking Business & Economic News

    […] on August 5, 2014 by Peter […]

    September 10, 2014 - 1:07 PM

  • richard snyder

    spot on commentary no hipe …thanks

    February 25, 2015 - 8:54 PM

Leave a Reply

Your email address will not be published. Required fields are marked *