incredibly cheap gold producer

for those looking to add a junior gold producer to their portfolio you would be wise to run the numbers over VRE, like most other companies it has been overly beaten down over the last couple of weeks and presents excellent exposure to the rampant gold price.

for the shorter term traders it also provides excellent upside due to exploration and news regarding the ramp up of production at the Bronzewing Gold Project.

What really attracted me to VRE is the incredibly cheap P/E ratio, given the recent sell off.


For those not familar with VRE a quick outline of their current activities.


Bronzewing Gold Project

Acquired from Newmont back in 2004 for a bargain price when gold prices were yet to start their rampage higher.

The deal left VRE with the following

-The $100 million dollar Bronzewing Gold Treatment Plant
-An 800,000 oz gold resource purchased at only $4 oz average cost
-Over 1000 square km's of highly prospective gold exploration tennements with several strikes measuring over 1km.


Current Bronzewing Gold Production

This is where the amazing value in VRE is

- Current Production 120,000 oz's
- Total Production Costs of $574 oz
- Current Gold Price $1020 oz
- Current Operating Margin $446 oz


Projected Yearly Profit

120,000 oz * $446 oz = $53,520,000


Or EPS of

$53,520,000 / 439,055,266 shares on issue

= 12.2 cps


So with a projected 12.2cps profit it works out to be a PER of 1.4 times 2008 earnings.

I don't think there would be many companies trading on a 1.4 PER out there that is just amazingly cheap.


Bronzewing Plant Regional Processing Plant Hub

On top of their own gold operations, VRE have the added bonus of spare capacity at the Bronzewing plant, meaning there is a host of up and coming gold companies knocking on VRE's door to have they ore toll treated.

With the current gold market environment VRE is in an excellent position to virtually charge whatever they like to have other companies treat their ore at Bronzewing adding another revenue stream on top of their own operations.


Carnilya Hill Nickel

Recently VRE entered into an agreement with MCR to sell their 30% stake in the Carnilya Hill Nickel Mine, netting a profit of $25 million.

These funds have been used to pay off debt and rid the company of any gold hedging allowing them to be fully exposured to the rampant upside of the gold price.



Thanks to the recent market sell off, VRE is now one of the cheapest gold producers on the ASX, with production now at the target of 120,000 oz's per annum and a projected yearly profit of $53 million not including any gold price upside or toll treating arrangements, its hard not to see significant upside from these levels.