The pullback in the price of gold in July and the first half of August has created, what I believe, is a fantastic entry point for the top mining stocks. This is why last week I did a post about my position in Wheaton Precious Metals. But when it comes to total percentage gains, the thing is, the best small cap stocks will go up more in a positive gold market than large caps. And what is key now is that the recent dip in gold has taken a lot of people's eye off of this small cap space and that has created opportunities for us to invest in true value plays.
I want to tell you about a stock today that from a fundamental perspective is in perhaps the best position of any gold exploration stock. I'm talking about Xtra-Gold Resources Corp. ("Xtra-Gold"), which trades on the Toronto stock exchange as XTG and on the US OTC market as XTGRF. This is an advanced stage exploration stock that not only has enough money in the bank to fund its coming drill programs for its properties, but is actually already making money.
The company announced in its last earnings report for the first quarter in May that it made a net income US$1,920,672 for the quarter and finished that quarter out with zero debt. Most exploration companies like it have to do financing that dilute its shareholders once or twice a year. Xtra-Gold does not. James Longshore, the founder and CEO said, “the Company continues to demonstrate its ability to self-finance our drilling/work programs through the Community Mining Project. With this quarter net income of approximately $2 million, we have enough cash to internally finance our 2021 and 2022 work programs. We are aggressively expanding our resource, with the goal of getting the Kibi Gold Project recognized as a significant gold discovery.”
In fact, this company has not had to raise any money from the markets for over ten years thanks to gold sales. That has kept its trading float small and helped it create an army of strong shareholders for itself. These sales have been generated through contracted alluvial gold mining over the last 7 years, generating gold sales/cash flow of approximately US $5 mil. per year.
The company has the rights to drill and mine gold on a package of properties covering five mining leases of 55,094 acres in the Kibi Greenstone Belt in Ghana. With a GDP of over $66 billion Ghana, has a legal system based on British common wealth law and a democratic government, making it ranked as one of the most politically stable countries in Africa by independent geopolitical experts.
Ghana has been a central mining location for large mining companies for decades, with over 150 million ounces of gold discovered and an annual production of 4.5 million ounces, it is the largest gold producing country in Africa. Newmont, AngloGold Ashanti and Kinross Gold all operate there.
Here is the CEO of Xtra-Gold with some of the beautiful bars the company sold.
So what is the Kibi Gold Project?
It's Xtra-Gold's flagship property, consisting of five mining leases, and as you can see from this map its surrounded by major gold companies, owning, and in some cases mining, major deposits.
Four of the top five public gold trading companies are operating in Ghana: Newmont Mining, Anglo-Ashanti, Goldfield’s and Kinross. All four of these majors have depleted their reserves over the last 10 years plus in Ghana, and none of them invested much in grassroots exploration. Hence, if Xtra-Gold hits a major discovery, getting a potential bidding war among these companies is a high probability.
Xtra-Gold announced its "Maiden Discovery in August 2012 of 278,000 oz’s of gold in Indicated category (3.38 mil. tonnes grading 2.56 g/t) and an additional 147,000 oz of gold in Inferred category (2.35 mil. tonnes grading 1.94 g/t). The resource is open ended, with potential to add significantly by doing additional follow up drilling."
"Over the last several years, the Exploration Team has identified over 6 newdrill targets through grass roots exploration. All of these drill targets have the potential to add significantly to our Maiden Discovery, and are drill ready."
Xtra-Gold owns its diamond drill rigs, which has reduced its drilling costs by roughly 80%,and will expedite the expansion of the resource. It's two rigs are currently drilling in Zone 3 of the Kibi Gold Project to show significant expansion potential of Maiden Discovery.
They are looking to increase its resource estimate to over one million ounces of gold and go from there. Here is a slide from their corporate presentation to give you an idea of what part of their work area looks like.
There is a lot of potential here. Consider this. On the average a premium gold asset should get approximately 10% the value of gold in the ground. For example, if gold is trading at US$1,500, and an exploration company can prove up 2 mil. ounces the fair value on take-out price should be US $300 mil. Xtra-Gold has less than 50 mil. shares outstanding so that equates to US$6 per shares. If gold moves to the US$2,000 plus level than fair take-out at 2 mil. oz resource, would be US$8.
Just a few weeks ago, on August 11, Xtra-Gold issued a press release detailing positive news for its latest drill results, which included "a newly defined gold zone (“Twin Zone”) occupying a parallel fold structure in close proximity to the Double 19 deposit, on the Company’s wholly-owned Kibi Gold Project, located in the Kibi – Winneba greenstone belt (the “Kibi Gold Belt”), in Ghana, West Africa." It also boosted its "Boomberang Zone."
Here is a picture of the drill in operation, going down into the ground to see how much more gold is down there to be mined out.
Well, the drill came back out and discovered gold deposits of economic grade. You can see the full details in the press release, but to sum it up, newly discovered Twin and Boomerang gold zones show economic grades in the early drill results, and now the company plans to put approximately 20 drill holes in each to verify size of the ore body to calculate how much it will add to their resource.
Xtra-Gold has drilled less than half the area of this gold anomaly, which is 2.5 Km in strike length. This area along continues to exhibit the potential to be a 2 mil. oz gold deposit, which represents approximately 1% of their total land position in our gold belt. Once they can show the public the Kibi Gold Project is a deposit of 1 mil. oz's or more, it will be then put on the "map" as a significant gold discovery.
If this new zone they are drilling holds to depth they should be ready to surpass the 1 mil. oz in the next 90 to 120 days. The longer term goal for them would be to then grow the resource to 2 mil. over the next 18 to 24 months.
Look, nothing is guaranteed, but small cap stock investing is about getting in something big early. That's why you buy a dozen or so and look for a few to pay off huge, some to go up, and the rest to be so-so. The tough part though is that you can get in winning company and still not do well in the stock overtime, because most small cap stocks get diluted. That's the story of the so-so stocks. That is not going to be the case with Xtra-Gold and why it is my top small cap stock pick for this month and why I believe if you choose one gold exploration to invest in it is the one.
There is no brainier buy for me right now.
Disclosure: Mike Swanson owns shares of Xtra-Gold. Because Xtra-Gold is a small cap stock with a market cap of less than $100 million he has put himself in a trading blackout on the stock and will not buy or sell a share of it for at least 30-days from the date of this post (09/01/2021). Wallstreetwindow.com, is owned by Timingwallstreet, Inc., which is being compensated by a third party (Leadgopher LLC DBA Pinnacle Ad Network) to conduct an investor awareness advertising and marketing campaign for Xtra-Gold Resources. This third party paid Timingwallstreet Inc., $17,000 to produce and disseminate this and other similar articles and send traffic to them through paid advertising campaigns for 30-days from the date of this post (9/01/2021). This compensation should be viewed as a major conflict with our ability to be unbiased, more specifically: This communication is for entertainment purposes only. Never invest purely based on our communication. For more on trading risks read our policy statement by clicking here.