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Could Allied Nevada Gold Corp. Be up for Sale?

Allied Nevada Gold (NYSEMKT: ANVGQ  )  has been among worst performers in the gold mining sector, along with bigger companies like Alamos Gold (NYSE: AGI  ) , which is suffering from project permit delays, and Yamana Gold (NYSE: AUY  ) , whose acquisition of Osisko Mining was negatively met by the market.

Allied Nevada Gold has its own reasons for underperforming. The company is experiencing technical difficulties at its sole mine and has no money for its expansion project.

Lawsuits filed against the company
During the first quarter earnings call, Allied Nevada Gold stated that the start-up of the crushing facility at its Hycroft mine has been a disappointment. In fact, both primary and secondary crushing units have suffered production delays due to engineering issues with these units. What's more, the company was not able to give a definite date for the final solution for these crushers.

Allied Nevada Gold difficulties attracted the attention of several law firms that specialize in securities litigation. In the filed class action lawsuits, the company is accused of understating operating difficulties and underestimating challenges with the Hycroft mine mill expansion.  It's too early to say who will win this legal battle, but it will surely add to Allied Nevada Gold's headaches.

No liquidity problems in the near term
In the meantime, the company is making ends meet. This year, Allied Nevada Gold expects capital spending of $87 million, debt repayments of $53 million, and interest expense of $44 million. The company finished the first quarter with $49 million of cash on the balance sheet and generated $23.8 million of operating cash flow.

What's more, the company was able to increase the size of its revolving credit facility from $40 million to $75 million. Notably, Allied Nevada Gold holds $51.5 million on the balance sheet classified as assets for sale. Considering all these facts, there's no liquidity crisis ahead for the company in the near term.

Allied Nevada Gold lacks money for expansion project
Even if Allied Nevada Gold solves its technical problems fast, the main challenge remains. The company has no money for the Hycroft mill expansion project. During the first quarter earnings call, Allied Nevada Gold was asked whether it was considering selling itself to maximize shareholder value. The answer was no. Allied Nevada Gold stated that it was looking for a partner rather than considering a sale.

At the beginning of the year, a company called China Gold Stone Mining Development announced a $7.50 per share offer for Allied Nevada Gold. Allied Nevada Gold responded that it was questioning the credibility of the proposal. In fact, soon after this announcement China Gold Stone stated that this proposal was published in error. The whole story looks mysterious, but it did put the prospects of an Allied Nevada Gold sale on the radar.

It seems like big players currently favor good mining deposits in safe jurisdictions. The bidding battle for Osisko Mining, which was won by Yamana Gold and Agnico Eagle Mines, highlighted this trend. That said, major miners Newmont Mining (NYSE: NEM  ) and Barrick Gold (NYSE: ABX  ) , which have a strong presence in Nevada, could have considered additional assets in the area.

Bottom line
While Allied Nevada Gold states that it is not considering putting itself up for sale, such a possibility exists in the longer term. With that in mind, the company might be attractive at current levels for investors who can tolerate risk.

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Read/Post Comments (3) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 07, 2014, at 5:19 PM, TigerPack1 wrote:

    You are wise beyond your years!

    If you add the stock market cap of $300 million to the net debt the company holds of $400 million to the $1,300 million needed to expand the Hycroft mine into a world class deposit for its owners, the $2 billion net, with NO LIABILITIES leftover would generate anywhere between US$400 million in annual cash flow at current metals prices to as much as $1 billion in 2017 each year at $2000US gold prices.

    Considering the new expansion plan envisions a 20-year mining life with 20-25 million ounces in the ground, a more rational 15-20x multiple of cash flows for long-life precious metals mines gets you to a future value in 3 years (when the full expansion could be realized) of $5-$20 BILLION. Not bad for a $2 billion investment with little or NO RISK to the buyer, outside of gold/silver price changes.

    If you are bullish on gold/silver ANV is a must own right now, in my mind at least. I own enough bought at different times and prices in 2014, for full disclosure.

    The current $300 million market cap to acquire $30 billion of gold and silver in the ground in Nevada, at a permitted and cash flow positive mine at $1300 gold prices is BEYOND INSANE. The 2-year decline in precious metals pricing and piling on by short sellers (50% of the float today) with the appearance of many short-term operating problems at once is a good lesson on how far and irrational market action can take a stock price. I figure ANV is worth at least $10 a share today, given flat gold/silver prices.

    I doubt the company will stay independent much longer as the sharks are certainly circling. NEM, ABX, GG and about 10 other metals miners are complete IDIOTS for not acquiring ANV already.

    Here is the prefeasability study link out a few weeks ago on the expansion proposed -

  • Report this Comment On June 07, 2014, at 11:24 PM, jab5140 wrote:

    During the conference call it was stated that the crusher would be back in service by the end of May. Does anyone know if the crusher is back in service or not?

  • Report this Comment On February 23, 2015, at 6:07 PM, emvici wrote:

    Tigerpack1, so now here we are about 8 months after you commented that you felt Anv was worth atleast $10.00 a share. What do you think it is worth now?.

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Vladimir Zernov

Vladimir Zernov believes that fundamental analysis works best with energy and materials stocks and covers them on Motley Fool.

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