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Trans-Siberian Gold (91% Profit in 14 months)

Gold is certainly glittering. The shiny metal hasn’t seen as much speculative interest since 2011.

Trans-Siberian Gold plc digs out the gold (along with silver - though it accounts for only 3% of revenues) from the Asacha deposit in Eastern Russia with a license to operate to 2024 (extendable). In 2019, it obtained a 20-year license to mine the nearby Rodnikova deposit for $3m.

Measured, incurred, and inferred gold reserves for the Asacha deposit are over 553,000 ounces. Estimated reserves for the Rodnikova deposit are over 1m ounces. Current production runs at about 45,000 ounces (with cash costs of $672 per ounce per the latest interim report). If the estimates prove out, there’s over 30 years of gold to be mined. The real value to investors, however, would come from management’s ability to acquire further mines at reasonable (or cheap) prices.

The company is listed on the London AIM exchange at sells for GBP 53.6m or 60.5p per share. The current market capitalization is backed by GBP 60.8m of tangible assets. Net debt amounts to less than GBP 8m representing an insignificant gearing ratio of under 13%.

It generated sales of GBP 48m for the twelve months ended September 30th 2019. Average recent profits are around GBP 9m representing a return on equity of 14% and a trading multiple of 6x after-tax earnings.

Gold prices have risen substantially since these results from $1,300 to over $1,600 per ounce and recent trading updates show an uptick in revenues. Covid-19 doesn’t seem to have dented operations and the devalued ruble will further reduce costs in $ terms (the functional currency).

Management has committed to a base dividend of $3m or GBP 2.4m (at current exchange rates) with promises of special dividends depending on profits. (Management have form in this matter having paid $11m in special dividends over the past five years.) This provides a base dividend yield of 4.5%, which should reduce downside for the stock.

The most recent insider purchases of stock was on January 2nd, 2020 at a price of 83p - a 37% premium to the current price.

The shares appear to be reasonably priced though it’s far from clear it’s a screaming bargain. There is, however, plenty of optionality with rising gold prices in this investment.

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