Gold has always held its value well during economic turmoil, even during times of war. For thousands of years, people have looked upon gold as a safe haven from financial crises because it was a store of value.This makes sense since the price of gold tends to rise and fall along with other assets such as stocks and bonds. If investors expect inflation to increase, then they will demand a higher return on their investments. When inflation rises, the purchasing power of the U.S. Dollar decreases. When this happens, the price of gold increases.
Especially at the moment small cap mining companies tend to be overlooked as they are more volatile and investors are avoiding risks.
On the other hand small caps can have a lot of potential which can lead to massive returns. One company where this is possible is Soma Gold out of Vancouver Canada!
What is Soma Gold?
Soma is a gold mining company listed on the TSXV and OTCQB with a focus on South American gold properties. Soma owns and operates three producing gold mines on 29,000 Ha property near the town of Zaragoza, Colombia. In addition, they own an exploration property in Para State, Brasilia that is under option.
How many mines do they own and are they active?
The company owns three mines that are named Los Mangos, La Ye and Cordero. Cordero’s constructions will be completed this Quarter and will be active next year. Los Mangos and La Ye have been producing since 2013 and 2010. They currently produce 156,000 tonnes per annum of ore. However, they are looking to expand their terrority and may add future mines.
Location and Geology
The El Bagre, El Limon and Nechí projects lie within the Central Cordillera of the Andes Mountains. In the Bagre-Nechí gold mining district most of the historical gold production to date has come from alluvial deposits within river basins, including the Nechí River. In addition to alluvial gold, structurally controlled mesothermal gold-silver and sulfide-bearing quartz vein lode deposits are hosted within intrusive rocks.
Nechí and El Bagre are two examples of such mineralization. The mineralized veins at Nechí are hosted within the Mesozoic-aged Segovia batholith and mineralized veins at El Bagre are hosted within the Carboniferous-aged El Carmen intrusive. The veins average approximately one meter in thickness and extend for up to five kilometers.
Is the mining easy?
La Ye is currently producing at Level 5 (450m depth) and its development goes down to Level 8 (650m). Los Mangos is starting development and production at Level 4 (370m depth) and its development goes down to Level 6 (500m). In general, mining operations can lead up to 3,5 km below the surface so it’s not that deep. In most cases, the deeper the mining the more expensive it is.
Why could Soma Gold be undervalued?
– Penny stock
– Political risks and unfavourable mining laws in Colombia
– High debt of CA$24.0m
+ Experienced management team
+ Debt comes from owners and will be paid back with high cash flow the following years
+ Profit rose from 319,638(Q3 September 2021) to 2,424,406 (Q3 September 2022) but share price fell 12,68%
+ Rising production with high-grade Cordero mine can lead to more revenue and cost reduction because of operations
+ Production income from mining operations increased from $9.7 million Canadian in 2021 to $16.3 million this year and could increase further the coming year
+ Most of investments in property, technology and equipment are done (CapEx)
+ Q3 2022 had the 2 best numbers despite inactivity due to half month union strike
+ High exploration potential (29000 ha ground)
+ Price-to-earnings could go down to 1 next year, there are only view companies where that is the case
+ Planning 36 000 ounces for 2023 would be around $65.000.000 in revenue at a gold price of 1800 USD/Ounce
+ Increased production from 675 tonnes per day to 1400 and expanded gold production for the coming years
+ Replacement value is a lot higher than enterprise value
Sources: Soma Gold Q3 news, Soma Gold company presentation and Entreprise Value explanation
Is it a good time to invest?
Now the future of all tradeable assets is questionable especially from the capital market. Even giant companies like Amazon or Microsoft have experienced a downward year in terms of their stock price evolution.
It’s typically the case that in crises penny stocks are considered too risky as their financial reserves are limited. The public concern then leads to investors selling or even dumping their shares which causes spikes.
Conclusion
In my opinion, I don’t think that Soma will have difficulties paying back debt as I could see the company increasing production revenue and its current cash flow. In the current market environment, high potential volatile assets are usually avoided but could on the other hand skyrock in price once the market stabilizes again. I like Soma Gold and I think they could pump once public awareness rises again. Also Soma plans to give something back to investors by paying dividends. That’s why I invested and why I will keep my eye on them even in those difficult times.
Important
Please note that this is not financial advice in any form and investments should only be done after research was made. Also be aware that I did invest in Soma Gold Corp so I might predict the future a bit different. This article only shows my opinion and should only be viewed as a presentation not an inducement for investing. Investing is at your own risk!