This Gold Mining Junior Is Ready to Double

Continental Gold Inc. (TSX:CNL) is poised to appreciate significantly as progress on its flagship Buritica project continues at a solid pace.

Gold bullion on a chart

Image source: Getty Images.

Despite gold pulling back sharply in recent weeks to be trading at its lowest price since July 2017, junior gold miner Continental Gold Inc. (TSX:CNL) remains an attractive investment. While the yellow metal has lost around 7% since the start of the year, Continental Gold has gained almost 16% and there are signs that it will continue to appreciate even if gold remains weak. 

Now what?

Continental Gold is developing the world-class Buritica ore body in Colombia, located near the Andean nation’s second largest city Medellin. The deposit has been assessed to have reserves of 3.7 million ounces of gold and 11 million ounces of silver giving it an expected mine life of around 14 years. With an average grade of 8.4 grams of gold per tonne of ore for gold and 24.3 grams for silver, it is ranked as one of the highest grade undeveloped precious metals deposits globally.

Notably, because of the high ore grade, the mine on commencing operations is forecast to have exceptionally low all-in sustaining costs (ASICs) of US$492 per gold ounce produced. This is because higher grades make it more efficient and less costly to extract the precious metal contained in the ore.

These are some of the lowest ASICs of any gold mine in the world. They are significantly lower than the forecast US$609 per ounce for Lundin Gold Inc.’s Fruta del Norte project in Ecuador or even Barrick Gold Corp.’s lowest cost mine Laguna Norte, which reported ASICs of US$496 an ounce for the first quarter 2018.

This means that on commencing commercial production in 2020, it will be an extremely profitable mine to operate, even more so should gold return to trading above US$1,300 per ounce.

There is every sign that the Buritica mine will commence production in 2020 as scheduled and be capable of producing on average 253,000 gold ounces annually over its 14-year mine life. As at the end of June 2018, the mine was 31% complete with 3,170 meters of underground development as well as all major earthworks completed.

Buritica also has estimated resources of 4.5 million gold ounces and 15 million of silver, thereby highlighting the considerable potential the deposit holds for Continental Gold to boost its reserves as exploration drilling continues.

Much of the execution risk associated with the project has been mitigated by Continental Gold acquiring financing from Red Kite and receiving a US$109 investment from senior gold miner Newmont Mining Corp. for an almost 20% equity holding. The fact that Newmont has made such a substantial investment in the project underscores the considerable potential that it holds and that the senior miner at an opportune consider acquiring Continental Gold.

The junior finished the first quarter 2018 with considerable liquidity holding US$62 million in cash, US$45 million in working capital and an undrawn US$200 million undrawn on the Red Kite credit facility. 

So what?

Continental Gold is an attractive play on higher gold prices. Even if gold fails to firm in coming months, there is every sign that its stock will continue to appreciate. This is because of the quality of the Buritica asset and the progress on bringing that project to commercial operation. It shouldn’t be forgotten that improving security conditions in Colombia along with conservative candidate Ivan Duque winning the presidential election in June has significantly reduced the geopolitical risk surrounding the project.

For these reasons, it is easy to see Continental Gold doubling in value once commercial operations at its Buritica mine successfully commence.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Matt Smith has no position in any stocks mentioned.

More on Metals and Mining Stocks

Arrowings ascending on a chalkboard
Metals and Mining Stocks

If This Fast-Rising Stock Isn’t Yet on Your Radar, it Should Be

This stock is up 44% in the last year and climbing, and yet there is even more to come with…

Read more »

Super sized rock trucks take a load of platinum rich rock into the crusher.
Metals and Mining Stocks

Is Agnico Eagle Mines a Buy in July 2024?

Although quite a few gold stocks are worth looking into for their dividends, the less-than-modest capital-appreciation potential can be a…

Read more »

Gold bars
Metals and Mining Stocks

The Best Gold Stock to Invest $1,000 in Right Now

Want to invest in precious metals? Here's the best gold stock to buy right now, and it isn't a traditional…

Read more »

A worker wears a hard hat outside a mining operation.
Metals and Mining Stocks

1 Canadian Mining Stock Worth a Long-Term Investment

This mining stock has a huge future ahead of it, especially as copper surges in demand around the world. And…

Read more »

People walk into a dark underground mine.
Metals and Mining Stocks

How to Turn Your TFSA Into a Gold (or Copper) Mine Starting With $10,000  

These two top stocks can turn any TFSA into a gold mine -- or a copper mine, if you really…

Read more »

Safety helmets and gloves hang from a rack on a mining site.
Metals and Mining Stocks

1 Canadian Mining Stock to Buy and Hold Forever

Canadian investors can consider gaining exposure to quality mining stocks such as Wheaton Precious Metals in June 2024.

Read more »

A stock price graph showing growth over time
Metals and Mining Stocks

Why Cameco Stock Soared 23% This Year

Cameco stock continues to ride high on strong supply/demand fundamentals and growing momentum in the nuclear industry.

Read more »

growing plant shoots on stacked coins
Stocks for Beginners

1 Copper Stock to Buy as Copper Prices Shine

The price of copper continues to climb, and more copper production is on the way for this top stock up…

Read more »