Everywhere in the markets, we’re all looking for value. Whether it’s investors, analysts, or companies looking for acquisitions, value is what matters. Investing in solid businesses with excellent cash flows and growth prospects is the name of the game.
One particular company I’ve been intrigued by of late is gold miner Troilus Gold (TSX:TLG). Indeed, the junior gold mining space is one I typically don’t put a lot of time and energy into analyzing. However, Troilus looks to me to be an exception to this rule.
Here’s why this top TSX stock is on my watch list right now.
A jackpot of resource potential
The main reason investors (and other, larger gold miners) look at junior players is the size of their potential reserves. Junior exploration and development companies have the mandate of finding the best-quality reserves and bringing these to a commercially viable place. Typically, at some point, an acquisition is discussed with the larger players seeking reserves enhancements.
In the case of Troilus, the company is sitting on some pretty impressive prospective gold mines. The company’s current resource is estimated to be around eight million ounces. This is extremely significant in scale, relative to what other junior miners are able to typically drum up.
If we do the math on eight million ounces at even a discounted price of gold around US$1,500 per ounce, this total resource should bring in around US$12 billion in revenue over time, once fully mined out.
Given Troilus’s market capitalization of only $166 million, it appears this company’s stock price isn’t factoring in a lot of value being generated from the company’s properties. Of course, more expansion and drilling updates will be required to validate the exact size of reserves held by Troilus. Anything can happen over the medium term, and investors are right to remain wary of junior players in general. However, the need for additional mining resources and reserves makes Troilus a prime junior mining candidate right now. After all, these prospective resource numbers are impressive, and larger gold miners are likely to view these properties this way.
Troilus represents the speculative end of the mining sector. Sure, investors could go for a much more well-known mega-cap name like Barrick Gold for exposure. However, the upside goes to those willing to take on a bit more risk. In this case, Troilus looks to me to be a stock with a very decent risk/reward profile right now.
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 Chris MacDonald has no position in any stocks mentioned in this article.