TPS Trade Alert – September 6, 2016

Recommendation:

Buy Vista Gold Corp. (NASD: VGZ) up to $1.20 per share.

 

The Opportunity:

When you think about investing in gold, all the questions boil down to a fairly simple choice.

Do you invest in gold itself, or the companies that mine it?

Is it best to invest in the ETF that reflects gold prices, to buy bullion and coins, or to buy stock in a mining company?

A large amount of money that’s invested in physical gold bullion is placed in an ETF such as SPDR Gold Shares (GLD), which typically shows up in the top ten list of ETFs ranked by asset value.

Look beyond the ETF and the physical world of gold and you’ll find more than 200 different gold mining companies on the world’s stock exchanges.  Some of them are massive, global organizations, such as Barrick Gold Corp (ABX) and Newmont Mining Corp (NEM).  These miners have huge market caps… Barrick is a $25 billion company and Newmont isn’t far behind.

For penny stock investors, there are scores of small mining companies with much lower market caps.  These penny stocks are highly speculative, the market cap is usually below $20 million, and most trade on Canadian exchanges.

We’re too cautious to take a flyer on a gold mining penny stock like Miranda Gold Corp (MAD.V) or Romios Gold Resources (RG.V).

But our research has led us to a quiet Littleton, Colorado company that offers investors something rare.  There’s ample cash on hand to cover anticipated expenses.

But it’s not just money in the bank that makes Vista Gold (VGZ) attractive.  It’s the combination of three high quality exploration and development projects, a management team that knows the business, and financial momentum.

The projects are in Mexico, the United States, and Australia.

 

Financials:

Vista is making money.  The firm reported net income of $1.6 million for the quarter ending June 30, 2016. This includes an unrealized $3.3 million gain on an investment in Midas Gold Corp.

The company has been in business since 1983. But it has spotty performance when it comes to profitability.

In 2015, the company reported net income of $1.29 million and EBITDA of $1.91 million.

But these results weren’t typical.  In 2014, it lost $8.6 million and in 2013 $21.8 million.

We like the balance sheet.  There’s money in the bank… $16.0 million in cash and $10.3 million in government securities.

And there is no debt.

 

Trade Rationale:

We like the solid balance sheet and we like the well-managed approach to diversification.  Vista is in the business of mining, development, and exploration.  We also like the scenario of rising gold prices.

 

Investment Risks:

Our biggest concern is the stock price.  We can’t help but wonder if we’re showing up late for the party.  After all, this is a stock that traded at 28 cents last year and soared to hit $1.59 in early August.

Our least troubling concern is the direction of gold prices.  We believe there are strong arguments to be made for an upward trend.

• For investors in Europe concerned with the direction of the Euro, it is a highly attractive hedge.
• Institutional buying has been increasing.
• Demand in China has been trending up.

 

Potential Return: 

Vista’s stock has never been able to claw its way back to the glory days of the nineties.  In 1993, the stock traded at $61.25.  Since then, it has been in the doldrums, except for a brief spike in 2006 when it traded over $10.

But this is a stock that for most of its recent history has traded in the $1-3 dollar range.

Gold mining stocks have been doing well.  We anticipate slow, steady growth.

 

Key Facts:

Company:                                   Vista Gold Corp.

Ticker:                                          $VGZ

Recent Price:                              $1.07

Buy up to Price:                          $1.20

Market Cap:                                $88.71 million

Avg. Daily Volume (3 month):        1,969,578

 

Chart:

 

Category: TPS Trade Alert