Platinum Group Metals: Time for Blast Off

Platinum Group Metals (NYSE: PLG/TSX: PTM) is about to fly. Back just 90 days ago I wisely bought PLG (prices will reference PLG versus PTM as I’m a US investor) shares at just $1.10-$1.14 per share, literally scraping all time lows in price. However, I then foolishly flipped out of my shares within 2 weeks, way too early. I was fooled on the power and shift of precious metals entering a new bull market after a nearly 5 year bear cycle. My strategy on gold stocks has been steady and I’ve taken almost no profits on gold holdings since the enormous surge of 2016. But platinum I have less commitment to and knowledge of, however, the value here may even be greater than gold. From 2000-2010 roughly, it took almost 2 ounces of gold to buy one ounce of platinum. Now, the ratio requires 1.2 ounces of platinum to buy one of gold, indicating value in platinum (the gold to silver ratio has been at multi decade extremes as well and points to a favorable time for silver performance going forward relative to gold).

But we don’t really need to say more than that about the ratio because of the special value and tremendous assets PLG controls. We’re about to see the company embark on significant production after years and about $500 Million in exploration and development costs being deployed. PLG has mostly funded development through equity and has less than $100MM of debt on the books. Their low cost Maseve mine was commissioned in February 2016 and is now entering production, which is exactly when you want to invest in a mining company (the other time being into a discovery cycle). This is a 10 million ounce deposit when including proven, probable, and M&I reserves, which is not small.

The company is forecasting 116,000 ounces of platinum production this year, 185,000 in 2017, and a steady state of 250,000 ounces annually with a 20 plus year mine life. Combined independent life of mine cost averages out at $625 per ounce, leaving room for serious cash flows. In addition, the company’s Waterberg project (these are both in South Africa) has 35 Million ounces of indicated/inferred platinum already! This is a monstrous project in which PLG owns 54%. I’ll get a bit into economics and potential valuation metrics shortly but first take a look at the charts.

This daily chart clearly shows a bullish triangle pattern at the end of its road. We will see a breakout either up or down within hours/days. 70% plus of patterns like this continue in their primary trend, which is now UP for PLG. You will see a sweet combo of MACD just turning up, a 2 month digestion/consolidation of big gains, and an RSI near 50, leaving lots of room to run when it busts out.

chart 1

 

Are we “chasing” a stock that already tripled? No. And that’s the biggest mistake that investors are making right now in my opinion in the precious metals mining complex, you just don’t get it. We have begun a new cyclical bull market in precious metals and mining stocks and there is a LONG way to go on the upside. Eventually we will have a sharp pull back and buying opportunity but it isn’t happening like people thought/hoped. Let’s simply step back and look at the ten year chart here to gain some perspective of how bombed out this stock had become:

 

chart 2

 

The chart is a little busy, but let me point out a few key points. Accounting for a big roll back the company did over a year ago, the share price was $45 per share in 2007 and $30 in early 2011. The long term down sloping blue trend line is circled in the $8-9 area, which is where I think the share price is going just on a mean reversion. But remember, 5 years ago this project was FAR from where it is now, entering strong and growing production into a likely rising platinum price environment. Conceivably, this company is worth twice what it was 5-7 years ago, or more, when simply looking at reserves, CAPEX, exploration success, and overall development.

In late 2013 I actually met with CEO Michael Jones in Vancouver in their offices. We have a mutual friend and the company was already on my radar because of their terrific assets. However, even though greatly impressed with Mike and PLG, I avoided the stock for over 2 years due to the sense that the sector had more washout coming, evidenced by repeated technical breakdowns. But during tax selling season late in 2015, I said to myself “this is insane”! I believe PLG will prove to be a multi bagger return for long term investors. In the short term, the stock is about to breakout and we should see fresh 52 week highs rather quickly. Some resistance at $5 and $6 will occur, but I don’t expect strong resistance until we hit the long term trend line at $8-10 or so. $8-10 is my price target range by year end 2016, which is just under a triple in just 7 months. I know this seems quite aggressive but precious metals stocks are volatile, they can produce horror on the downside and shock and awe on the upside! “Conservative” traders can enter upon a breakout of the triangle pattern and lock in a nice 30-40% return by selling around $4.75.

I’ll be publishing a more analytical report on Platinum Group Metals in May so be sure to sign up for our newsletter for updates in the box below. For “back of the napkin” sake, let’s look at 35 million ounces in the ground at Waterberg. In a more normalized market for platinum development stage assets, which is where we are headed, $50 an ounce in the ground is reasonable. That’s $1.75 Billion, giving PLG’s majority ownership a nearly $1 Billion value alone. Cash flows on Maseve, giving $150-200 an ounce cushion on costs, should be about $30MM per year. A growing assets/production profile should command 20X those earnings, or $600MM in year one, yet more than doubling within 24 months. You can fairly extract a $1.5B valuation on PLG right now giving further reduction to these very generalized numbers. But if the price of platinum rises from the $1,050-$1,100 an ounce area, the leverage goes through the roof.

PLG is a terrific speculation in the low to mid $3’s. It is a great way for investors to own platinum at a very cheap price per ounce and technically the chart is extremely bullish. Next report I will show sector comps, which glaringly shows that the market is not valuing PLG’s assets fairly. But make no mistake, these are world class assets and this company’s stock and platinum will shine once again!

The most recent investor presentation can be viewed here:
http://s1.q4cdn.com/169714374/files/doc_presentations/2016/apr/Platinum-Group-Metals-Ltd.-April-20-2016-FINAL.pdf

I am long shares of PLG and may choose to buy more or sell without notice

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GDXJ: How Much Upside is Left?

I’ll touch on the short term in this report but the main purpose is to take a step back and put the current powerful rally in mining stocks into perspective well into the future. As you can see from the daily chart below, GDXJ has doubled in price in just 90 days to kick off 2016:

chart 1

Even though the bullish action has left tentative buyers in the dust, junior gold miners via GDXJ have only touched into slightly overbought territory a few times. So, even though the move has been significant, there seems to be a stealth component to the action.

If you have been a premium Gold Investment Letter member, you have heard me preach steady accumulation in the gold, silver, and junior mining sector for over a year. In Q4 2015, I amped up my position and encouraged investors to bolster holdings in our favorite juniors. This conviction wasn’t just from the gut, but from the amazing data referenced below. The problem folks have now is pulling the trigger and buying into the precious metals sector after such a big move higher. However, I will show you why that is a mistake.

Earlier this year, gold stocks bottomed on January 19th. The Barron’s Gold Mining Index was trading at the same level as it was 42 years ago! The BGMI relative to both gold and the S&P 500 was at its lowest level in 90 years and the recent almost 5 year bear market was itself the worst in 90 years. The Hui/Gold Ratio bottomed in January at .09 but its long term median level is .35. With the ratio now back at .16, it still needs to more than double just to get back to its median and this assumes gold stays flat. But we all know that in volatile sectors such as gold/mining stocks, the median is virtually always busted through on swings up and down.

Make no mistake, this sector was utterly bombed out by the time it bottomed in January. If gold hits $1,550 per ounce, the miners will need to triple to return to the median HUI/Gold Ratio and for bulls that think $2,000 an ounce gold is in the cards down the road, we’re looking at a 550% rise in the miners if the ratio goes back to its highs of .636. Another data point is that the gold miners need to rise another 80% for the HUI/S&P 500 Ratio to return to its long term median of .174 and 450% for it to return to its historical time high of .544.

Regardless of the compelling data, many investors after years of seeing mining stocks roll over and being punished for buying, are very skeptical. At the turn of every bear to bull market, this is normal, but recognizing the true turn and taking action early can mean the difference in making millions versus just hundreds of thousands of dollars. Losing heart at exactly the wrong time is a common loser’s mentality, but something that can be changed in an instant for those that are willing.

If you fear that you are chasing too much after soaking up the daily GDXJ chart above, take a look at the monthly, over a 10 year period:

chart 2

Clearly, we are veryyyyyyy far from the 2011 highs! We would need to see a 5 bagger from current levels to hit the low $150’s. But, keep in mind that with the thinned herd of survivors in the sector, if gold breaches the 2011 highs, GDXJ could see new highs ultimately as well. The monthly downtrend line was just breached in March and it is good to see a confirmation month or two before christening an official breakout. But, that is what we have here, a brand spanking new bull market that should last multiple years.

Because gold is really an opposite reflection of the currency we view the world in, the action varies based on where you live. For Brazilians, Russians, Canadians, etc, gold has been ripping since early 2015. As I type, spot gold is $1,555 an ounce in Canadian dollars, and is up over 85% the last 5 years in Brazil. The USD strength the past couple of years has masked the gold bull but we’re now poised to see a very strong run in gold priced in US dollars. For a real perspective that most people aren’t aware of, let’s consider what the global paper currencies have done against gold since 1971, when gold officially decoupled from the dollar. In 1971 gold was $35 an ounce. Now it is approximately $1,240, an almost 3,500% gain over 45 years (inversely, it has been a massive fall in the value/purchasing power of the US Dollar).

In the early 1970’s, 14.5 British Pounds bought one ounce of Gold. Today, 888 Pounds buys it, a rise of nearly 6,000%. In Canadian Dollars, from C$38 to $C1,555 for an over 4,000% rise. The USD has actually outperformed its British/Canadian counterparts (purchasing power declined less). Keep in mind that this 3,500% rise for Americans in Gold included a brutal 20 year bear market from 1980-2000. So, the British Pound has lost 98.4% of its value since 1971 while the USD has lost 97.2% of its value in Gold. If Gold hits $3,000 an ounce in USD, we would basically match the Pound decline in percentage terms (98.8%). If Gold hit $10,000 an ounce it would mean a 99.65% loss in USD value but at some point, a fall of this magnitude is certain, because every paper currency unbacked by Gold goes to ZERO over time.

We have heard for years in the US how tame inflation has been. But, stretching back about 30 years on memory, I recall buying candy bars for 25 cents. What are they now…$2? This is the ultimate function of Gold, to remain a store of value/savings over long periods of time. The value it commanded a century ago (give or take), buys the same amount of comparable goods today and will remain so. NIRP (negative interest rate policies) taking effect in various nations around the globe will only stimulate demand for gold and silver. The just over 40% decline in the price of Gold from high to low into 2016 and the almost 90% decline in mining shares sets up a powerful pendulum for GDXJ. Remember, just a basic reversion to the mean will see gold miners double again from here and other historical metrics indicate the upside could be even greater.

Certainly, a shakeout will come to the sector eventually. Nothing goes straight up. My hope is that the bearish action in the weekly chart below shows us a correction could occur now for a few weeks. We’re finally overbought a bit, hitting resistance, and saw a big fade from the highs last week.

chart 3

I say “hope” because I know a lot of people have missed this move. Personally, I want to load up even more on the first meaningful correction that we see in my favorite names. Make no mistake, the bell has rung, we are in a new cyclical gold bull market, and gold, silver, and mining stocks are going much higher. We’re monitoring the short term action in GDXJ closely but feel strongly that meaningful pull backs should be bought. There is much money to be made trading in a bull cycle but the big money is made by buying in early and sitting. Our 18 month target on GDXJ is $70 and within 36 months we believe 2011 highs near $150 per share will be tested.

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Legal Disclaimer: I am offering ideas for your consideration and education. I am not offering financial advice. I am not a financial or investment advisor and am acting in the sole capacity of a newsletter writer. I am a fellow investor and trader sharing his thoughts for educational and informational purposes only. This publication is a 100% subscriber supported. No compensation is received by the author from any of the companies mentioned for the recommendation of a stock in this service (if this changes or there is exception-it will be clearly disclosed to our readers). Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided on the Website is based on careful research and sources that are believed to be accurate, Mr. Muschinski does not guarantee the accuracy or thoroughness of the data or information reported. The opinions published on the Website belong to Mr. Muschinski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Muschinski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published on the Website have been prepared for your private use and their sole purpose is to educate readers about various investments. By reading Mr. Muschinski’s essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Muschinski, Gold Investment Letter’s employees and affiliates, as well as members of their families, may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Gabelli Global Gold Natural Resources & Income Trust—Huge Yield and Capital Appreciation Upside

I’ve been pounding the table with our members since last November to accumulate shares in GGN when it was trading in the high $4’s. After a precipitous drop to start 2016 where it touched $3.60 per share, the price has surged along with the gold complex to $6.05 today. At $4, the yield was 21% per year, 17% at $5, and still just under 14% per annum now at $6. The daily chart below looks quite bullish with a golden cross to start the month, higher highs and higher lows since late January, and MACD that is just turning bullish today.

chart 1

 

Certainly the ETF is trading quite a bit higher than its lows but does that mean it should be avoided? No. In fact, topped off my personal position on Friday and will add on any significant pull backs into the $5’s. If you take a step back and view the ten year chart below, it’s easy to see that the current move higher is barely a blip on the radar. In 2007-2008, GGN traded between the high $20’s and low $30’s.

CHart 2

 

Currently GGN pays out a monthly cash dividend of 7 cents per share, or .84 annually. This is a very healthy yield to sock away if you feel confident that you won’t lose money on the ETF price itself. GGN uses a covered call writing strategy against the funds mining/resource positions, generating the consistent cash flow. However, as we’ve seen, this distribution can and does fluctuate alongside the performance of the ETF itself and gold mining stocks in general.

I believe that we have officially entered a new bull market in gold and mining stocks. If that is indeed the case, GGN will certainly continue not only rising in price, but also in cents per share in dividend payments to shareholders. Say over 2 years we see our investment grow to $10 per share AND receive a 14% annual dividend, I think you and I would be quite pleased. But, I believe that it is even better than that! You see, from 2005 to 2012, the average yield was .14 cents per month or double what we see now. If the yield again begins to climb, the actual yield on money invested at current levels could double! Imagine racking up 28-30% yields and experiencing capital appreciation in the fund itself.

We saw a steady deterioration in distributions starting in 2013 when they fell to .12 per month, then .09 in 2014, and finally .07 in 2015-present. But, I believe this trend will reverse potentially as soon as end of year 2016 when GGN can justify a jump back to .09-.10 cents per month. This will simply be because the value of the companies in the fund have increased along with the cash flow on the covered calls. I have recommended to our premium members to make GGN a core holding in their gold mining stock portfolio because of the unique and heavy dividend feature. We also get diversification via the fund’s holdings in various gold mining securities.

If we are indeed in a new bull market in gold, now is the time to bolster holdings in vehicles such as GGN. I would not chase the price beyond $6.25 or so. But up to that price combined with accumulation on any meaningful pull backs is encouraged. I don’t recommend my personal strategy for everyone, as it entails leverage and more risk, but it can be considered. I own a large portion of my shares on margin due to low margin rates. As long as I can sell out flat on the ETF itself, there is almost a 10% annual arbitrage between the margin rate I pay and the annual dividend.

If you really think about it, my yields on capital are enormous. Use 100,000 shares as an example, which would cost $600,000 approximately. I put up $250K to buy the 100K shares, leaving a bit of cushion on margin. At 84 cents annually, the dividend is $84,000, minus the $18,000 or so margin interest I’m incurring, that leaves $66,000 per year in cash income. I’ve now boosted my yield to just under 27% annually on cash out of pocket! If the distributions return to normalized levels of 14 cents per month, yes I’ll be cash flowing over 50% per year at that point on the initial $250K I put to work now. This is how leverage should be used, where the blow up risk is not high and the yield is juicy enough to pay down your principal risk relatively fast.

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GoldQuest Mining—700% Upside as Romero Progresses

GoldQuest Mining (GQC.V 28 cents/GDQMF) is still a bargain at current prices. Even though our premium readers are up over 100% since we initiated GQC at 13 cents in our top ten juniors to buy report in November 2015, there is plenty of upside left for investors. In fact, my belief is that the 2012 highs of $2 per share, just after they discovered their Romero deposit in the Dominican Republic, will be revisited again and likely surpassed in the latter stages of this new gold bull market cycle. GoldQuest is a best of breed junior mining company with top tier management, investors (Robert McEwen owns 9%), and assets.

GQC’s chart is typical of many gold miners. On the daily chart below, the stock has more than doubled since February 1st, leaving many investors in the dust that banked on further weakness to buy. This stage of the new gold bull creates this common myth in investor’s minds, in that, they believe they “missed it”, because they didn’t buy at the absolute bottom.

chart 1

 

However, when we simply take a step back and look at a ten year chart, we see that this party is just getting started!

 

chart2

 

Investors bid GQC up 40X on the Romero discovery news, already a year into the gold bear market in 2012, due to the high grades and potential just beginning to be revealed. Now, we have 4 more years of work and data that has grown and de-risked the project significantly, yet the share price is only a fraction of what it was 4 years ago. These are circumstances that I love and GoldQuest truly has the goods to substantiate MUCH higher prices both now and in the future.

The company has been quite prudent in expending capital and raising equity from the capital markets. Their largest raise was back in August 2012 when they took in $15MM at $1.25 per share. The next raise was not until late 2015 when they brought in a couple of million (including $1MM from McEwen), followed by $3MM they closed on April 1st. Certainly investors that chased the stock in 2012 and bought in at $1-2 had a very frustrating few years ahead of them as the share price slowly ground down all the way to 7 cents. But in the time, the company moved forward on more drilling and produced a very robust PEA in May 2015.

The PEA at a 6% Net Present Value (NPV) is $219 million (over $300 million at $1,500 gold) with a strong IRR of 34%, and capital payback in less than 3 years. CAPEX is very reasonable at under $150MM with a low all in sustaining cost of $572 per ounce of gold equivalent. They showed production ramping to over 150,000 ounces per year gold equivalent which is big for a company trading at less than a $50MM market cap. At current gold prices we’re talking about $200MM in annual revenues with substantial cash flow. Next is the pre-feasibility study (PFS), which GQC projects will be done in Q2 2016, so it is coming soon.

I expect the PFS to show various improvements on economics and moving more gold into the measured and indicated territory (they have over 2 million ounces already). The market cap of GoldQuest per ounce of M&I gold reserves, compared to their peers in Dominican Republic, is very cheap at less than 1/3 (peers were $57 per ounce in the ground in January with GQC at $11. All of the miner’s share prices have increased quite a bit since then but the gap remains large). This weighted sector gap could even widen as GoldQuest completes work on their PFS this quarter and the feasibility study in Q4 of this year. This simply means that GQC could justify a very strong run in share price, just to catch up to where their peers are valued.

Lastly, GQC only included just over 1/3 (34%) of Romero in their mine plan, leaving large upside to what has already been logged in the PEA. The Tireo Gold Belt in DR has many prospective targets to duplicate success at Romero. So, as GQC continues exploratory drilling going forward, there is the potential for more discoveries and expansion of the Romero project. News drivers this year will come from drilling and the PFS and feasibility studies, which will confirm that this is definitely going to be a mine, and a very profitable one at that.

I suggest readers continue to buy shares of GQC up to 35 cents per share and on any pull backs. My 12 month target is $1 and 24-30 month target is a return to $2 per share, which are huge percentage gains (over 300% to $1 from current prices and nearly 700% to $2). GQC is a core junior gold mining holding in my portfolio and I have no interest in selling anytime soon. This is one to primarily ride out through the ups and downs of this new gold bull cycle. Taking principal risk out at some juncture is always a good idea and I will consider that near $1 per share, but not much sooner.

 

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For those interested in hearing more about our favorite juniors like Goldquest, we invite you to buy our special report: Top Ten Junior Gold Stocks to Own in the Next Bull Cycle. This includes a one year premium subscription to GIL.

GoldMoney/Bitgold—The “Internet Stock” of the Gold Bull Market

I took a chance in waiting to publish my official buy recommendation on GoldMoney (XAU.V/BTGDF), hoping we would see another dip to $4. We got lucky, and now everyone has a shot to invest at the same prices as the institutions, which just put in over $36 million at $3.90 in February via a significantly oversubscribed round of funding. This is flat out the most unique story in the gold complex and should be considered as a core portfolio holding if you believe the new gold bull market is upon us (I do). The official name of the company is GoldMoney but it operates 2 separate businesses, the other being Bitgold.

Bitgold is what drew me to the company both as an investor and customer. However, GoldMoney added credibility to the story when Bitgold acquired them in the summer of 2015. GM was founded by James Turk, a respected thought leader in the gold sector. GM’s business is easy to comment on as it’s pretty straight forward, they sell and store gold bullion for investors. Their value add is the trust factor (safe audited storage) and they also have sales reps that act as advisers to their clients. As can be expected, their business hemorrhaged significantly from 2011-mid 2015, with an almost 70% decline in revenues.

This however, just like everything in the gold space, is highly cyclical. In late 2015, growth returned to GoldMoney, as I point out below in the most recent quarterly financial results. Now, I guarantee many people will not agree with my assessment of the value here and that’s just fine. I have an extensive background as a gold, technology, and even specifically as a Fintech sector investor, which is what I consider Bitgold. At the end of the day, GoldMoney adds a now growing revenue base (fairly significant), credibility, and possible synergies with their large book of clients (over 20,000 clients and $1.4 Billion in assets under management).

Bitgold brings a revolutionary and potentially highly disruptive global payments and savings platform to the equation. I liken them to being a Paypal but using Gold as the currency (“money without boarders”). Current global trade mechanisms including between banks, particularly clearing and settlement, have major bottlenecks and are inefficient. It takes a long time to settle certain funds (a check from a Canadian company last year took 30 days to clear! And that was confirmed at each of my banks and I approached three), currencies are volatile, and costs can be quite high.

In fact, peer to peer money transfers average a 7.6% fee! This is a $600 Billion dollar annual market that generates over $30 billion in fees for banks (the average amount sent is $200 at a time). Bitgold is disrupting this model, offering swift transference globally and buying or selling your gold costs just 1% (the lowest fee structure anywhere, by far). They provide the customer the ability to choose between 10 global storage locations secured by Brinks (Dubai, London, Singapore, etc). You can also spend your gold anywhere that Master Card is accepted via a GoldMoney issued debit card (I have one but the mission now is to save in Gold while it is cheap, compared to my primary currency the US Dollar, and I will spend in Gold after it gets expensive again down the road).

A cool and convenient feature is the ability to utilize automatic savings in gold, digitally, as often as you like. I have a Capital One online account that auto deducts $1K per month into a savings account. Now, I have a little more than that (I and many others start out small to get comfortable with the system/company) being deducted from a credit and debit card every 3 weeks, converting into grams of Gold in my Bitgold account (you can also transfer funds via ACH, wires, Bitcoin, etc). The goal here is a global savings and payments platform denominated in Gold, and that’s exactly what it is. Not only do I not have to worry about storage as I buy more physical bullion, but if I want to, I can pay someone (or my bills) in Gold, from my Bitgold account. I can also have my gold bullion delivered to me at any time as well.

This is an extremely attractive model and technology platform for individuals, institutions, investors, and businesses. What’s next is a launch of Bitgold’s merchant payment product, “Bitgold for business”. As an entrepreneur with various online operations, I will use and welcome this service. Currently, I use Paypal for all online payment transactions, whether that’s premium subscriptions to GIL or data purchases. So, instead of those of you who pay the monthly or annual subscription fee in dollars via Paypal, using this system, all of my revenues would be instantly converted to Gold. In the early stages of a new Gold bull market, I like the thought of this a lot!

I will get into Goldmoney’s revenues, capital structure, and valuation in a minute but first want to point out the explosion in new users. Upon launching in May 2015, they had 33,000 new customers. As of March 2016 (11 months later) they have over 800,000 customers, adding more than 75,000 per month on average. To put this into perspective, and why I feel that this company could ultimately become huge, let’s look at how long it has taken some of the technology unicorns to reach their first 1 million users. Keep in mind, Bitgold will do it between months 12-13.

Facebook was the fastest, reaching 1 million in just over 12 months. It took Uber 18 months, Paypal 24 months, and Airbnb 30 months! Whatever your view of what the valuation should be, there is no denying that this company is showing early signs of challenging even the biggest tech behemoths in user adoption. And, this isn’t a niche market, it is MONEY!

Let’s look at the stock, which spiked after its IPO last summer to just under $8 per share, has traded above $5 several times, and has tested just under $3 as its 52 week low. It is currently about $1.50 below recent highs and I believe at a great entry point. There’s a chance it retests $3 once more but I think the odds are higher that is goes above $5 rather than going back to touch $3. Frankly, for long term investors, anything under $5 per share CDN (XAU.V) is a buy. In February, the company announced a $15MM financing at $3.90 being led by GMP and Mackie Research, 2 of the larger Canadian houses. They ended up increasing it twice to $32MM then finally $36.6MM due to extraordinary institutional investor demand. Investors include George Soros, Eric Sprott, and Albert Friedberg.

xau

I like that shares are primarily in the hands of institutions and I believe this could become an institutional darling stock as the gold bull matures. Clarus has an $8.50 12 month price target and Mackie $7, both solid returns from current prices. However, I think it’s going to $12 within 12-18 months, and potentially much higher in time. A new business like this can be fairly tough to value for some but I don’t think it’s that hard as we have Paypal as a generalist comp. I’ll show why I have a $12 PT on the stock based on real numbers but there is a chance that in a few years, this stock is trading at $50 or $100 per share. If it does, some will be based on fundamentals but some will also be on hype because Gold is over $2,000 an ounce (USD) and investors will clamor for a piece of the “Gold internet stock”. The hype factor here could be huge.

Paypal (PYPL) has just under a $45 Billion dollar enterprise value (market cap minus cash) on $9 Billion in revenues, so it is trading at 5X revenues. Profitability does matter and that’s where the comparison diverges as Paypal is nicely profitable, trading at 38X trailing earnings and a forward PE of 22. I don’t expect GoldMoney to be profitable this year, or maybe not next year, but their growth rate will greatly trump Paypal’s at this stage of their respective businesses. Earnings will come for GoldMoney, but if adoption continues to scale as fast as it has been, it makes most sense to spend money on customer acquisition (they have done a good job thus far at under $7 spent per customer), thus delaying profitability (think early days of Amazon).

Last quarter, ending Dec 31st 2015, Goldmoney produced over $80 million in revenues. So, their run rate is over $300 million annually right now. With 64 million shares outstanding, the market cap stands at nearly $250MM. But, they have over $55 million in cash so the enterprise value is less than $200 million. I won’t argue that GoldMoney should be trading at 5 times revenue like Paypal, but I do firmly believe 2X revenue is very appropriate, even right now. That puts the value at over $600 Million, which is triple the current price at $4 per share, giving us a price target of $12.

The Bitgold portion of the business grew revenues at 27% quarter over quarter last Q and I believe that will accelerate once customers get comfortable funding their accounts. It took me a few months but now I will be increasing my account value significantly and any cash infusions I have will partially go to my Bitgold account. Paypal only grows just over 20% per YEAR versus 20% plus Quarterly growth at GoldMoney. Once the model is accepted further, and Gold is trading north of $2,000, XAU.V has the potential to trade at 10 times revenues. This is a very real and sexy opportunity in Fintech, and it’s very early in the game, most people do not know it exists yet.

I strongly encourage those of you that are intrigued to open an account. It’s free and if you use the link below, you get some free gold when you open it! This is a great way to accumulate physical gold bullion at a low cost.

http://bitgold.com/r/8rIEU3

GIL readers should be buyers of shares in the high $3’s to low $4’s. Returns could be enormous but minimally they should be very solid, particularly in a new gold bull cycle. Growth rates here will trump even the leanest, lowest cost producing gold miners, by leaps and bounds. Bitgold is worth owning and watching closely as they allow people to digitally move earths purest form of money, Gold, anywhere at any time.

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