Gryphon Gold (TSX: T.GGN, Bullboard; 45 cents)
www.gryphongold.com
52-week High: $1.05; Low 40 cents
Majority of junior gold stocks have struggled even as we saw $1000 per ounce. Gryphon was in the same boat and we watched the stock drift from a stable 80 cents into the 60-cent range. Then, the company announced a merger last month with a stock trading in the 20-cent range and GGN fell to about the mid 40 cents in sympathy with the other company (and the proposed share exchange ratio). We sent several emails questioning why this deal was being done in the first place. They justified it one way or another but the further they got into the details, the more they realized it was not good for Gryphon shareholders.
So we've watched the share price falling while gold hits records, we've seen a resource calculation report that has been delayed for months, and then we watched a botched merger. To make a long story short, this has been one stumble after another. Much like the disaster on Bear Stearns when it fell to $3, what we're witnessing with Gryphon at 45 cents is a crisis of confidence. In other words, shareholders have lost faith in this management group.
So, if you can turn a blind eye to the performance over the past year and treat this price like something entirely new, the 40-cent range may represent exceptional value and strong leverage to gold.
Their last financing was $3.4 million at 80 cents and they have multiple projects in Nevada. In addition to what they had already proven on their core project (Borealis), a $10 million acquisition last summer puts them on target to prove up three million ounces of gold in 2008/09.
With 61 million shares outstanding and $5 million in the bank, the market at 45 cents a share is valuing their gold projects at $22 million (61 million shares x 45 cents minus the cash). If three million ounces are moved into the proven/probable category, the value per ounce of gold at 45 cents/share is equal to buying their gold for $7 per ounce ($22 million / three million ounces of gold).
As peed off as we are at management and the share price, we’re also not so stupid as to see value when it’s right under our nose. It may be possible to take full advantage of this "crisis of confidence" as we really question how much lower this stock could trend from here.
The turning point on Gryphon could come soon as they expect to report their 43-101 report for the Borealis property by the end of April. They have been working on this report for an entire year and it’s very possible we're going to see a substantial increase in their gold resource totals when compared to the previously reported resources. Already the ounces are significantly undervalued so the better this report looks, the better the chances of hitting strong capital gains in 2008 from this level.
Drilling was delayed through the winter but will be back underway in May. They hit some very good holes a year ago and there are several strong targets throughout their Nevada property. On the neighboring pediments zone, recent interpretation of data suggest that the initial drilling that discovered the very thick (up to 1,450 feet) zones of anomalous gold and alteration at several points in the Western pediments may be on the margins of higher-grade gold systems. Drilling in this region along with the proven Borealis region should provide good news flow into late fall. Should they hit in the pediments, the odds are very good it would be a large gold system.
Right now the stock is valued well below proven ounces (even in this poor market), the upcoming 43-101 report should add more value, and drilling over the next six months will add a bit of excitement if we're lucky. Gold overall is holding up well and should the sector bounce back, we would receive a nice bonus along the way.
Disclosure: Danny Deadlock owns 25,000 shares of Gryphon Gold (TSX: T.GGN)
