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To illustrate an example of our findings, let’s consider Argonaut Gold, Inc. (Sym:OTCPK:ARNGF). The chart pattern and Fibonacci retrace levels for ARNGF suggest we’ll enter long at $.80 per share. At this price level, Argonaut’s market cap would be $142M, while its current assets are $123.5M, and total liabilities are $88.5M, resulting in an Enterprise Value of $106M, considerably less than their current market Capitalization.
Argonaut has total resources of 12.9M ounces of gold. Based on their Enterprise Value relative to proven, probable, and measured resources, at $.80 per share investors are purchasing these resources for $19.42 per ounce. To provide a comparative perspective, when performing the same analysis to Newport Mining (Sym:NEM), one of the larger cap miners, the Enterprise Value to resources is $321.55 per ounce. Said differently, in the context of Newport Mining’s share price compared to Argonaut’s share price, investors are paying 16.5x more for Newport shares than Argonaut shares.
The adage – “when the tide goes out, all vessels drop”, is ever present in this mining sector. This means that well managed financially strong and reserve rich companies drop proportionately to those less desirable. However, as the underlying metals perform, these financially solid reserve rich shares will rise exponentially. The disparity has created enormous value for investors willing to capitalize on such opportunities – provided they do their homework.
Lastly, the chart pattern for Argonaut is perfectly matched to the fundamental attributes of the company, suggesting an intermediate to long term low will establish in the $.80 region, with a price target of over $15.00 per share, offering up a 20-30 fold increase over the next 2-3 years as the price of gold completes its corrective move against the drop from 2011.
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