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Vista Gold Is A Disappointment

Vista Gold (ticker VGZ) has a management team with obvious experience in mining operations.  It's always good to see geologists and engineers running a junior mining company.  I would have more confidence in this company's potential if their operational results matched the C-suite's pedigree.  A producing mine would justify their high salaries.  Check their pay yourself on the ticker's Yahoo Finance listing.

One Mt. Todd, Australia gold project is their primary live option at this time, with other projects that may pay royalties if other partners have their acts together.  The Mt. Todd site's most recent NI 43-101 report is dated July 7, 2014.  Its key findings are disappointing.  The 2P reserve estimate is 0.84 Au g/ton for the Batman deposit and 0.54 g/ton for the heap leach pad.  Those are very low ore grades compared to profitable mines worldwide.  The MII resource estimates for Mt. Todd aren't any better.  The initial capex estimate of almost US$1.05B means they need a large mining company as a serious partner.  Their base case assumption of $1450/oz as the gold price is too optimistic because gold closed at $1133/oz today.  I looked at their base case scenario of operating costs at $756.11/oz and capex (presumably spread over the mine's life) at $292.33.  Adding those up to $1048.44/oz gives us the minimum gold price that makes this mine economically viable.  Gold's long-term average price is far below that level, and a lot can happen over this mine's projected 13-year life.

Financial statements matter.  I reviewed Vista's latest 10-Q dated July 31, 2015.  They had US$3.8M in cash on hand at the end of June, plus $11.1M in short-term investments.  That would ordinarily be a mother lode of cash for a junior mining company.  I have to wonder why they are representing positive net income with zero operating revenue.  Their research and development grants from the Australian government (mentioned in note 10 of the 10-Q) are no substitute for a live mine, so it's more appropriate to doubt these grants' usefulness as recurring revenue.  Consider Vista's negative retained earnings of -$410M to know how much investor capital has disappeared down dry holes.

This stock has traded below one dollar since the summer of 2013.  Since it now trades around $0.29, anyone who bought it in the past decade is severely underwater.  I see these kinds of companies all the time on the investor relations circuit, clamoring for attention and waving term sheets at private investors.  Whatever potential that may have appeared in Mt. Todd's earliest 43-101 reports has never materialized.  That is why Vista Gold does not belong in my portfolio.

Full disclosure:  No position in VGZ at this time.