General Metals Corp.
Rating: Speculative Buy - 12 month price target = $1.50
GNLM $0.39 — (OTC BB) May 17, 2007
Total Revenues (Millions)/ Earnings (loss) per share;
FY (12/05) - 1 M / (0.14)
FY (12/06) - 0 M / (0.20)
FY (12/07) E - 0 M / (0.25)
52 - Week range: $0.06 - $0.89
FY (12/06) - 0 M / (0.20)
FY (12/07) E - 0 M / (0.25)
52 - Week range: $0.06 - $0.89
Shares outstanding as of 21-05-07: 39 million
Approximate float: 70.12 million
Market Capitalization $29 million
General Metals Corporation (OTCBB: GNLM.OB) is a gold and silver mining company. The company has a 100% undivided leasehold interest in the Independence mine, which is predominately a silver mine, consisting of 14 whole and fractional mining claims encompassing 240 acres. General Metals Corporation also focuses on acquiring mineral rights and mining opportunities in Ghana,
Key Investment Considerations:
Key Investment Considerations:
I am rating General Metals Corporation (OTCBB: GNLM.OB)with a Speculative Buy rating and a twelve-month price target of $1.50 per share based on the likelihood successful commercialization of the independence mine in Nevada.
Reduced Risk: The Independence Mine deposit could potentially be open pit mined, with the ore being treated with excellent recoveries, opening the way for cash flow over the next 1-5 years, which could finance future exploration activities. A 1997 geologist report by Akright estimates that the Independence mine contains 2.5 million ounces of silver and 235,000 ounces of gold at shallow depths. The company has indicated its competency at recovering precsious metals at low depth. The Company’s 2007 production from the shallow target mineralized cyanide heap leach is targeted at 4,000 ounces of gold and 250,000 ounces of silver.
Despite this, investors should recognise, that management could be over-estimating mineral reserves, and that the necessary authorisation from State and Federal regulators to mine the claim have not been obtained.
Deep Target: A deep target at the Independence mine is estimated to hold 2 million ounces of gold. General Metals Corporation is currently conducting drilling on the property to determine the grade and quantity of gold and silver present in the mines.
Location: The Independence property is strategically located on strike with Newmont's world class Fortitude / Phoenix gold skarn deposit whose gold reserves exceed 8.5 million ounces and is scheduled for production in mid 2006. The Independence property has reasonable potential to develop an underground resource in the Antler sequence. General Metals Corporation control 100% of The Independence claims which are completely surrounded by Newmont Mining's Phoenix Mine and is a 240-acre island with legal access. From 1983 - 1997 there were several exploration campaigns conducted by Noranda, Teck Exploration, Northern Dynasty and Great Basin Minerals which resulted in about 80 reverse circulation and core drill holes being drilled and reported.
Management Expertise: General Metals CEO is Mr. Stephen Parent, who has worked in the mining industry for 25 years and has previously managed the several junior mining companies in the United States and Canada.
The Outlook for Gold and Silver: The precious metals research firm GFMS Ltd. estimated that at the end of 2005, above-ground stocks represented a total quantity of approximately 155,500 tonnes, of which 64% had been mined since 1950.
• During the past year, gold trading ranged from US$540 to US$730 and 2007 could bring similar volatility to the gold markets.
• One of Wall Street’s best technical analysts sees gold surpassing US$730 per ounce this year and US$3,000 within the next ten years.
• Analysts are calling for gold to average from US$600 to US$675 per ounce in 2007, after averaging slightly over US$600 in 2006.
• Central banks' gold holdings are the equivalent of about nine years’ worth of industrial and jewelry demand.
Global inflation concerns, geo-political tensions, high crude oil prices, depreciation of the US dollar against major global currencies and rising US public debt have caused major investment funds to invest in gold to hedge risk.
Company Overview:
Exploration Plans: The Company plans to conduct a three-phased drilling program at its Independence mine;
Phase I: Phase I of the drilling program is underway. The Company plans to drill 15 to
20 holes with a depth of 500 meters and two reverse circulation holes of 1,000 meters to determine the vertical location and another 5 to 10 shallow holes to analyze and determine the grades of gold reserves.
The first section to be drilled is on the Independence shallow target and will also be the first section to be mined once permitting is received for the proposed cyanide heap leach operation. The Company has already drilled and sampled approximately 130,000 tons of mineralized material that should generate over $3,000,000 of revenue on recovery.
Phase II: General Metals Corporation plans to drill 20 holes of 500 feet in the Independence target
Phase III: The Company intends to drill five holes of over 3,000 feet in depth in the Wilson-Independence Deep target to determine the grade, quality and quantity of gold and silver reserves and the economic feasibility for commercial exploration and mining.
Geology: There are two known types of ore deposits in the Independence and Fortitude mine areas. Both are believed to have been formed around the Wilson lobe and the main body of the Copper Canyon stock, a 38 million year old granodiorite intrusive. These lobes may be connected at depth to a larger intrusion. The shallower Independence mine ore deposit contains elevated silver values relative to gold, indicative of higher level epithermal veins that overlie deeper hypothermal mineralization where gold values are expected to increase.
Previous mine records and more recent surface drilling indicate that the mineralization found at the Independence Mine is the higher level expression of a deeper gold skarn ore target at depth. The Wilson-Independence property contains both shallow and deep economic grade mineral potential.
Financing: General Metal’s financing strategy is to raise funds in small increments that allow it to complete exploration of a specific targeted area while minimizing dilution to existing shareholders. The Company has budgeted $1.35 million for its Phase I drilling activities. In addition, the company has also approximately 6.1 million warrants outstanding exercisable through June 30, 2007. If these warrants are exercised, the proceeds the Company would receive in excess of $1.5 million.
Phase I: Phase I of the drilling program is underway. The Company plans to drill 15 to
20 holes with a depth of 500 meters and two reverse circulation holes of 1,000 meters to determine the vertical location and another 5 to 10 shallow holes to analyze and determine the grades of gold reserves.
The first section to be drilled is on the Independence shallow target and will also be the first section to be mined once permitting is received for the proposed cyanide heap leach operation. The Company has already drilled and sampled approximately 130,000 tons of mineralized material that should generate over $3,000,000 of revenue on recovery.
Phase II: General Metals Corporation plans to drill 20 holes of 500 feet in the Independence target
Phase III: The Company intends to drill five holes of over 3,000 feet in depth in the Wilson-Independence Deep target to determine the grade, quality and quantity of gold and silver reserves and the economic feasibility for commercial exploration and mining.
Geology: There are two known types of ore deposits in the Independence and Fortitude mine areas. Both are believed to have been formed around the Wilson lobe and the main body of the Copper Canyon stock, a 38 million year old granodiorite intrusive. These lobes may be connected at depth to a larger intrusion. The shallower Independence mine ore deposit contains elevated silver values relative to gold, indicative of higher level epithermal veins that overlie deeper hypothermal mineralization where gold values are expected to increase.
Previous mine records and more recent surface drilling indicate that the mineralization found at the Independence Mine is the higher level expression of a deeper gold skarn ore target at depth. The Wilson-Independence property contains both shallow and deep economic grade mineral potential.
Financing: General Metal’s financing strategy is to raise funds in small increments that allow it to complete exploration of a specific targeted area while minimizing dilution to existing shareholders. The Company has budgeted $1.35 million for its Phase I drilling activities. In addition, the company has also approximately 6.1 million warrants outstanding exercisable through June 30, 2007. If these warrants are exercised, the proceeds the Company would receive in excess of $1.5 million.
Valuation: Outlook
At current ore prices, the value of the shallow target gold production could be in excess of $150 million and the value of potential production from the deep target could exceed $1 billion. Gold and Silver production in 2007 could afford $5 M+ in revenues. Junior Gold and Silver companies tend to trade at very high Price/Sales multiples, ranging from 10 times revenues to over 300 times revenues. Newmont Mining (who owns the adjoining property in Nevada), a large mining company, trades at a Price/Sales multiple of four times revenues.
General Metals Corporation has a market capitalization $29 million, which is approximately 1/5th the short near-term revenues which could be generated from developing shallow target gold deposits. A 1x multiple of short term realizable revenues, or roughly $1.50 per share is more appropriate.
Summary: I believe that the long run prospects of the Company are positive. Its risk reward ratio advocates purchase of the stock. In the short term however, the stock may be continue to be subject to high volatility.
