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The Gold Stock Strategist analyzes leading junior gold producers and major gold mining companies.

Comments are welcomed!

Monday, April 28, 2008

Capital Gold

CURRENT PRICE: $0.69
TARGET PRICE RANGE: $1.55 to $2.62

Capital Gold Corp. is a gold mining and exploration company. The company has been in production for two quarters and is in the final stages of expanding their production facilities at the El Chanate Mine in Sonora, Mexico. The mine is expected to have a 10-year life open pit mine with additional discovery potential. Capital Gold is also looking for other mining prospects in Northern Mexico.

Mining operations at El Chanate commenced during the third quarter of 2007.

The common shares of Capital Gold are listed on the Toronto Stock Exchange under the symbol CGC and the Over the Counter market under the symbol CGLD.

CAPITAL GOLD SUMMARY

TSX: CGC

AMEX: CGLD

Shares Outstanding: 176 Million (196 million fully diluted)

Market Capitalization: ~$120 million

Telephone: (416) 304-2170

Capital Gold Web Site

Capital Gold Video

Capital Gold currently owns a single property with over 1.8 Million oz of gold resources (measured, indicated, and inferred per NI 43-101).

One key advantage is that, similar to Metanor Resources, Capital Gold has a lab on site to hasten exploration of the existing El Chanate project, with mineralization open at depth and to the East.

One disadvantage is that, like Minefinders—another emerging producer with operations in Mexico—Capital Gold is dependent on a single mine site for production.

Production is projected to be 50,000 oz. in 2008; 60,000 oz. in 2009; and 80,000 oz. in 2010.

Capital Gold has 90,000 ounces of gold hedged, but the hedge is structured more like a royalty since they sell the gold at spot prices and pay the counterparty $35 for every ounce sold.

Capital Gold has ~$13 million in debt.

Cash currently available as of February 2008 = ~$5 million.

The following methods are what I use to value Capital Gold for my investment purposes and provide a range of short-run and potential long-run value.

SHORT-RUN CASH FLOW SHARE VALUE

$1.55 per share in 2008 using a cash flow model valuation and assuming the following:

10x cash flow
$250 per ounce production cost
50,000 ounces of production in 2008
$2 million G&A
$10 million capital expenditures
196,100,000 shares outstanding (fully diluted)
$900 price of gold in 2008

POTENTIAL LONG-RUN RESERVE SHARE VALUE

$2.62 per share based on current resource base.. The majors are paying about $280 an ounce for buyouts at $950 an ounce POG. Capital Gold currently has about 1.8 million ounces of measured, indicated, and inferred gold times $280 an ounce minus the $13 million in debt equals $501 million. $501 million divided by 196 million shares equals $2.62 per share.

DIRECTORS
Gifford A. Dieterle
Robert N. Roningen
Roger A. Newell
Jeffrey W. Pritchard
John Postle
Ian Shaw
Mark T. Nesbitt
John Brownlie

MANAGEMENT

Gifford A. Dieterle, Chmn./Pres./Treas
John Brownlie, Chief Operating Officer
Chris Chipman, Chief Financial Officer
Jeffrey W. Pritchard, Corporate Secretary, VP Investor Relations
Robert N. Roningen, Senior VP
J. Scott Hazlitt, VP Mine Development

As a final note, AngloGold Ashanti has an option to buy a 51% share of Capital Gold’s El Chanate project. We will analyze and assess likelihood of AngloGold Ashanti exercising the option in a day or so here on the Gold Stock Strategist.

--------------------------------------------
Full disclosure: I do not own shares in Capital Gold Corp.. The information provided in this post is believed to be correct, but not guaranteed. Investing in junior gold miners entails risks. Readers are responsible for their own investment decisions

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