Spec Value Rating for Vista Gold Corp
Why do you think Vista Gold Corp is the best gold proxy among your 2025 Favorites?
Vista Gold Corp (VGZ-AM): Good Spec Value rated Favorite - JK owns
Vista Gold Corp was made a Good Spec Value rated 2025 Favorite because its 100% owned Mt Todd project in Northern Territory of Australia is fully permitted for an open-pit 50,000 tpd milling operation which a March 2024 feasibility study indicates has an after-tax IRR of 20% and a net present value range of USD $562 million to $1.2 billion at discount rates of 10% and 5%. Based on 130 million fully diluted shares that suggests a price range of USD $4.33-$8.98 as a fair value, though in keeping with the rational speculation model a fair value would be 50%-75% of that amount. That would be a range of USD $2.17-$3.25 for an NPV based on 10% discount rate, and $4.50-$6.94 using 10%. The market, however, is assigning only a USD $0.56 price to Vista Gold, which is a way of expressing extreme doubt that Mt Todd will ever go into production. The updated feasibility study accounts for the 20%-30% cost inflation the world has experienced since the pandemic and uses $1,800 gold as the base case price for the 6.4 million ounces it would produce at an average rate of 400,000 ounces annually over a 16 year mine life from a proven and probable reserve of 280,375,000 tonnes at 0.77 g/t gold. At $1,800 gold the 20% IRR clears the 15% hurdle, and at a 5% discount rate the NPV exceeds the $1 billion CapEx, another important development hurdle. While analysts might accept 5% as a suitable discount rate for calculating the NPV, producers might prefer to use 10% where the $564 million NV is almost half the CapEx and thus does not clear the development hurdle. But, wait a minute, why quibble about using 5% versus 10% as a discount rate when the current gold price is $2,670 per oz after a stunning 26% gain in 2024?
When the discounted cash flow model is run using $2,670 gold the after tax IRR jumps to 46.4% and the NPV range jumps to $2.3 to $3.5 billion at 10% and 5% discount rates which is double the CapEx using 10% as a discount rate. The NPV per share value ranges from USD $17.10 to $27.18, which, applying the Rat Spec Model ladder of 50%-75% of the expected outcome would generate $8.55-$12.83 at 10% and $13.59-$20.39 at a 5% discount rate. So why is the stock trading at $0.56 per share where it represents extremely good speculative value? The main reason is that the market not only thinks gold's uptrend is finished, but that soon enough gold will retreat back below $2,000 where Mt Todd is not so obviously a development candidate. But should not the stock be trading at least in the $1-$2 range on speculation that a producer will make a bargain bid for Vista Gold?
One of the obstacles is the CapEx of just over $1 billion, which everybody knows will end up higher when you actually construct a mine. That means a buyout offer is limited to a handful of major producers (500,000+ oz annual production) such as Barrick and Newmont, big producers who at the moment are more interested in swallowing smaller producers as Newmont did with Newcrest last year. In addition, the majors are not yet ready to acquire and develop large CapEx projects with grades below 1 g/t even though at the current gold price deposits are well in the money. During gold's bull cycle from 2003-2011 when gold ran from $300 per ounce to nearly $2,000 gold producers were a leveraged alternative to owning physical gold. The mantra since 1980 has been that Global West nations such as the United States are engaged in fiat currency debasement thanks to persistent federal deficits that have led to very high total debt to GDP ratios. The gold bugs believe that eventually defaults will happen and the price of gold will soar far beyond just tracking annual inflation. But even if all gold did was to track inflation, while OpEx would rise for operating mines with a sunk CapEx, mines that were profitable when production started would see their total cash flow grow as gross margins stayed constant. Gold producers thus enjoyed the luxury of much higher cash flow multiples than their base metal peers.
But something odd has happened. During gold's 26% increase in 2024 the gold producers as a group underperformed gold, even though gold at $2,670 when inflation adjusted from $400 in 1980 is reflecting a 69% real gain above the $1,578 inflation adjusted price. This can be seen in the KRO Producers Index I created for companies producing at least 100,000 ounces annually. There are several reasons for this switch. One is the allure of Bitcoin, which more people seem to think will hit $1 million per BTC than think gold will sale past $3,000 and keep going. Another reason is Trump's takeover of the Republican Party whose members were historically gold bugs who liked to talk about America's imminent collapse due to its apparent deviation from libertarian free market principles but were smart enough to put more money into gold stocks than bullion because they did not actually want America to collapse. Today the Trump policies Republicans are required to embrace are the opposite of what they used to believe in, and Democrats, whining about how Trump has stolen all their talking points, haven't figured out yet that they should be loading up on gold and gold stocks. The third reason is that the price of gold is rising because it is members of the Global East such as China and Russia who are buying physical gold ahead of an escalation of the geophysical conflict between Global West and East. They are not interested in buying Global West listed gold producers nor the NYSE listed GLD ETF; and neither are American investors. Somewhat shocked by this change of fortune the major gold producers are reluctant to take the current gold price seriously and be aggressive about acquiring undeveloped gold deposits owned by juniors.
In the case of Vista Gold's Mt Todd project there is also the matter of its tainted history. When Vista Gold acquired Mt Todd in 2006 the project was cheap to acquire because the Batman deposit had been put into production several times with disastrous outcomes. At the time Vista Gold styled itself as a gold optionality junior which acquired gold projects from distressed owners, upgraded them where possible with additional work, and either sold them or held them as leveraged bets on the long predicted gold bull market. Since acquiring Mt Todd Vista Gold has gradually sold all its other projects and used the proceeds to fund the challenge of solving Mt Todd's metallurgy and geological domains in order to come up with a feasible ore schedule and flow-sheet. However, until the mine is built there remains uncertainty that the past problems are truly solved, and with the majors worried that BTC rises while gold falls, they are in no hurry to buy out juniors like Vista Gold.
Vista Gold Corp is Good Spec Value rated Favorite for investors who believe that global fundamentals will cause gold to soar past $3,000, which seems to be the new $2,000 threshold for the market, and ignite a secular bull market that returns premium pricing to the majors. During his second term Trump will have absolutely no guard-rails to keep him from derailing America with policies that alienate the leader of the Global West from other Global West nations as well as members of the Global South who have already realized China butters their bread much better than America. With his bluster about the United States taking over nations like Panama, Greenland and Canada Trump has greenlighted the ambitions of China and Russia with regard to Taiwan and Ukraine, and beyond. The rest of the world will buy gold, not Bitcoin, when things get ugly.
Vista Gold Corp understandably does not want to wait for this kind of ugliness to drive the inflection into a secular gold bull market because it could unleash a general equity market collapse that pulls down gold producer prices as it did in 2008. And unlike in 2008 quantitative easing will not be the solution to fixing broken economies. In late 2024 Vista Gold decided to proceed with a feasibility study for a 15,000 tpd mining operation which would have a much lower CapEx than the 50,000 tpd scenario that only the majors can develop. This feasibility study is mainly about cost discovery and rescaling the engineering while also using a higher cutoff grade to raise the reserve grade. The economic numbers will be lower than the 50,000 tpd scenario, but certainly much higher than the current $0.56 stock price. Once the 15,000 tpd feasibility study is done Vista Gold Corp becomes a plausible acquisition target for intermediate gold producers (100,000-500,000 oz per annum) which will not have to explain to their shareholders how they will fund a $1 billion plus CapEx. The majors tend to pay cash, whereas intermediates are willing to pay paper.
The gold inflection may be a slow process that plays out during 2025 while the market waits to see what policies the Trump administration deploys to Make America Great Again and the impact they start to have. Once an intermediate producer has acquired an asset like Mt Todd it has the dual option of developing the 15,000 or 50,000 tpd scenario. This in effect leverages the upside for the intermediate if Global West investors warm up to the idea of a secular gold bull market. Back in early 2011 the gold producers developed downtrends while gold was still ramping toward $2000 in late 2011. By early 2013 gold had begun its collapse back to $1,100, a price that wrecked the economics of new gold projects mobilized by the producers and vindicated the market's negativity. Today the market thinks this past will soon enough repeat itself. Owning Vista Gold Corp is to place a highly leveraged bet that the market is wrong.
