Dozens Of Catalysts On Deck For This Stock

While commodity stocks often allure many investors given their ability to return upwards of 200% in a strong year, they are not for the faint of heart.

This is because cyclical stocks can rise just as quickly as they fall, they regularly retrace over 70% of their advances and they can be extremely volatile.

It’s for this reason that one must size positions conservatively, ensure one isn’t aggressively overweight in a single commodity group, and have a proven method for buying and selling these names.

However, a name occasionally comes along that boasts several unique attributes, with the most attractive of these being elevated grades, a new major discovery in an attractive mining jurisdiction, and the ability to grow rapidly with modest upfront capital.

Over the past 40 years, there have been two names with similar profiles that enjoyed 1000% plus share price returns in a sub 5-year period, and these were American Barrick (1985-1988) and Kirkland Lake Gold (2016-2019).

And for investors that were paying attention, they had the time to position themselves in these names even after there was an obvious hint of a new major discovery, as long as they didn’t wait too long.

Today, one name in the gold sector shares similar attributes to both major past winners.

And while there are no guarantees that we see similar returns, I see over 100% upside to fair value currently, and that assumes the company doesn’t make another carbonate replacement deposit [CRD] discovery in its wide open Hilltop Corridor in Nevada.

Back On The Sale Rack

i-80 Gold (IAUX) is a $625 million company in the gold sector with three projects in Nevada and considerable infrastructure.

Its three projects include Ruby Hill, Granite Creek, and McCoy Cove, in order of importance, plus an autoclave (one of three producers with refractory processing capabilities in the state), heap-leach pads, and an existing CIL plant.

This infrastructure has paved the path for i-80 Gold to become a 400,000+ ounce producer later this decade, and new discoveries made over the past year suggest that the company could enjoy much higher margins than previously expected given new high-grade discoveries at both assets.

At the company’s Granite Creek Mine, a new discovery called the South Pacific Zone looks to have added considerable gold ounces to Granite Creek Underground, with the potential to increase the mine life from 5 years to 10+ years at similar to better grades (9.5+ grams per tonne gold).

This mine alone should support a 70,000 ounce per annum production profile, and it is just one of six potential future mines given that the company has multiple deposits in its portfolio (Mineral Point, Granite Creek Underground, Granite Creek Open Pit, Ruby Deeps, McCoy Cove, and Blackjack/Hilltop).

However, the bigger opportunity looks to be Hilltop at its Ruby Hill Project, a new CRD discovery next to a town (Eureka) made famous for its bonanza grade CRD mines with a significant gold credit in the 20th century.

The most exciting part about the Hilltop discovery that lies south of a partially mined out open-pit is that it could be at least 70% higher grade than any of the company’s high-grade gold deposits (18.0+ grams per tonne gold-equivalent) and when combined with a high-grade skarn deposit on the property (Blackjack), it adds critical mass with considerably more tonnes available for future processing.

The result of this is that i-80 could look at converting its CIL plant on the property into a flotation plant to process two concentrates (lead/silver and zinc), and these ounces would be much higher margin than what i-80 Gold plans to produce at its three other future underground gold mines.

Despite the incredible drill results released over the past year at its projects, i-80 has not seen the appreciation it deserves because of depressed sentiment sector-wide.

For investors new to the story, this has opened up an opportunity to start a position in the stock at a dirt-cheap valuation, and I have been accumulating below US$2.40 at current prices.

This is because based on an estimated net asset value of ~$580 million for Hilltop/Blackjack which assumes only a 10-year mine life and starting at a 750 tonne per day processing rate (expansion to 1,500 tonnes per day in Year 5), i-80’s market cap is nearly covered by its polymetallic potential alone.

The Fundamental Case

i-80 Gold may look expensive relative to some developers and has a market cap ($625 million) that is above that of other junior producers, and this is despite i-80 Gold being a relatively small producer, expected to produce barely 40,000 ounces of gold this year.

However, the company stands out given that it is the only producer sector-wide with the potential to increase gold production by over 900% over the next five years (2028 vs. 2023). I believe this justifies a premium multiple.

Meanwhile, we have seen larger gold producers pay up for significant gold/polymetallic discoveries over the past decade, with past examples including Fronteer Gold, Great Bear, Arizona Mining, Ventana Gold, and most recently, Sabina, which all fetched $1.0 billion plus valuations.

So, while i-80 Gold has a path to an upside re-rating given its industry-leading production growth, it also has a path to a re-rating if a suitor acquires the company.

Given the caliber of its recent discoveries, its very attractive location in a top mining jurisdiction, and its extensive infrastructure, I would not be shocked to see a takeover offer in the next two years assuming i-80 Gold continues to consistently drill $1,000/tonne plus rock values at its new polymetallic discovery at Ruby Hill.

The Technical Picture

While i-80 Gold’s short-term momentum has flipped to neutral following its sharp pullback, the stock is pulling back to an important level on its daily chart.

This is an area of previous resistance near US$2.30 where the stock was rejected multiple times before breaking out in Q4 2022 following its bonanza-grade intercept at Hilltop (~80 grams per tonne gold-equivalent over 10 meters).

See the Full Technical Analysis Report for IAUX

In addition, the stock has also come all the way back to re-test its 200-day moving average, a level that often marks a strong support zone for stocks that have begun new multi-year uptrends.

So, with dozens of catalysts on deck (maiden resource estimates, economic studies, pending drill results), and the stock now finding itself short-term oversold into a key support area, I would not be surprised to see the stock make a strong rebound and find a floor in the $2.30 – $2.40 region.

The Bottom Line

Based on an estimated net asset value of $1.39 billion and a 1.10x P/NAV multiple to reflect i-80’s recent high-grade discoveries in a top-3 mining jurisdiction, I see a fair value for i-80 Gold of $1.55 billion or US$4.85 per share using its fully diluted share count (320 million shares).

This translates to over 100% upside from current levels, but it assigns limited upside to any new discoveries and Hilltop, and is instead based on its significant gold mineral endowment.

If we were to see a new discovery in the Hilltop Corridor and once resources are proven up at Blackjack/Hilltop, I believe the stock could easily justify a fair value north of $1.90 billion (US$5.95).

Hence, with the stock down nearly 30% from its highs and short-term oversold, I see this sharp pullback as an attractive buying opportunity.

Disclosure: I am long IAUX

The above analysis of I-80 Gold (IAUX) was provided by financial writer Taylor Dart. Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing. Given the volatility in the precious metals sector, position sizing is critical, so when buying small-cap precious metals stocks, position sizes should be limited to 5% or less of one’s portfolio.

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