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

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Thursday, May 1, 2008

What Will AngloGold Do After Option on Capital Gold?

A reader of my analysis of the valuation on Capital Gold and the AngloGold option asked me what AngloGold does with Capital Gold IF they exercise the option to buy out 51% of Capital Gold's El Chanate project.

No one really knows what Anglo will do and that includes me. All I can do is assess the economic incentives and glean what is available in public documents.

Gold reserves in the ground are worth something, especially if the means to extract that gold is already in operation. If they are paying attention to the numbers, it makes sense for AngloGold to exercise the option.

My sense is that AngloGold eventually goes for a full buyout (for the same reasons outlined earlier) and keeps the existing team operating the El Chanate project. At what price, heaven knows.

The tough thing to gauge is whether Anglo sees Capital Gold as a distraction from their core holdings. Anglo is still digesting other problems, particularly in South Africa. That may stop or slow them down on a "buy out" of Capital Gold.

Good luck,

Gold Stock Strategist

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