Undervalued Case Study   Metanor Resources Inc. (TSX-V: MTO) (US Listing: MEAOF.PK) (Frankfurt: M3R)   Below is a superior gold production, development, and exploration junior mining company that is deeply undervalued (current market cap = ~C$70M based on 201.7M shares outstanding, trading at ~$0.35 cents per share) with key assets in the mining-friendly region of Quebec. Stable mining-friendly jurisdiction; Quebec 60,000 oz per annum run rate by Q3 2012 at an estimated cash cost of US$464/oz gold (pre-feasibility by Stantec) using only 2/3 capacity Proven Production Capability Replacement value of infrastructure alone is ~$200M (over twice the current market cap of MTO.V) Image 1. Metanor's 100% owned Bachelor Lake Mill   Metanor Resources Inc. (TSX Venture: MTO.V) (US Listing: MEAOF) (Frankfurt: M3R) is an advanced stage development and exploration mining company that is a new gold producer in the making utilizing their 100% owned Bachelor Lake Gold Mill in the prolific Abitibi Mining District of Quebec. Metanor is expected to prepare a bulk sample beginning in Q4 2011, leading to a ramp-up in production that will see a run rate of 5,000 ounces gold per month (60,000 oz per annum) by Q3 2012 at an estimated cash cost of US$464/oz gold (pre-feasibility by Stantec) using 2/3 capacity at their newly refurbished 1200TPD Bachelor Lake Mine & Mill, in Quebec. MTO is leveraged to the price of gold, able to sell 80% of its Bachelor Lake Mine sourced gold at spot prices with the balance sold to Sandstorm as per gold participation agreement. MTO presents investors with an exceptional opportunity as it enters gold production.   Large blue sky potential with similarities to Agnico-Eagle's flagship LaRonde Mine when it was young Metanor's Bachelor Lake is a very rich underground mine with grades upwards of 26 g/t gold with an average grade of 7.38 g/t gold (fully diluted using long hole). MTO is currently in the midst program aimed at building on the established resource and mine life. The Bachelor Lake Mining Camp is known for both its precious metals and polymetallic potential, MTO.V has blue sky potential on both fronts. The Bachelor Lake property is located directly to the west of the former Coniagas Mine and the Bachelor Lake operation as it sits now shares similarities to a young Agnico-Eagle LaRonde Mine -- Since 1988, LaRonde has been Agnico-Eagle’s flagship operation, producing more than 4 million ounces of gold as well as valuable byproducts. The mine still has 4.8 million ounces of gold in proven and probable reserves (35 million tonnes at 4.3 g/t) – among the largest gold reserves operating in Canada. However LaRonde started out too as a 1200TPD operation like Metanor's Bachelor Lake and just kept growing. The shaft at the Bachelor Lake Gold Mine has been sunk to 2,400 feet so as to access known resources at that level, however it is believed the gold runs much deeper and Metanor is in a position to identify 1.5+ million ounces going forward. The two main veins at the Bachelor Lake Gold Mine run parallel and are 75 feet apart at an 80 degree angle. Greenstone belts run deep, there are mines at 8,000 – 10,000+ feet such as area miners Aur Resources (now Teck Cominco), Agnico-Eagle and Sigma. The gold grade at the Bachelor Lake property increases at depth and the strike is open in all directions at the 2,400 foot mark.    Metanor's infrastructure is valued (estimated replacement value) between CDN$150M - $200M, is fully paid, fully permitted, fully functional with proven production capabilities (having poured >40K oz gold from interim sourced ore with ~95% recovery). The intrinsic value of Metanor’s known resources (~1.6M oz gold in all categories on all its properties) and infrastructure are several times the company’s current market capitalization. As MTO.V enters gold production the reality of the infrastructure and resource value, cash flow growth, and clear ability to add ounces should lead to share price appreciation.    Sprott Asset Management has taken an equity position in MTO.V and for good reason; with two projects of significance that together many believe will take Metanor Resources to mid-tier producer status (between 150,000 oz - 200,000 oz Gold per annum) within 2.5 years, the time to pay attention is now while MTO.V is trading at a fraction of its infrastructure value (close to book value) and entering gold production. With strong cash flow growth, strong organic resource growth, and sitting geographically as the only mill located within 200 km in a gold rich district, MTO with 201.7M shares outstanding (~257M fully diluted) the share price appears destined higher. ##   Related Research Links:  - SEDAR Filings for Metanor Resources Inc.: SEDAR URL  - Recent Analysts Report (C$0.95 price target): Report  - Metanor Resources Inc. Corporate Website: http://www.metanor.ca/en  - Recent article: http://miningmarketwatch.net/mto.htm   ------ ------ ------ ------ ------   Trading Dramatically Below Fair Market Value   A large numbers of gold miners with serious intrinsic value are currently trading below fair market value, some dramatically so.   Intermediate and senior gold producers undervalued Empirical data confirms the undervalued state of affairs and odds are stacked in favour of investors establishing long positions here; the chart seen below measures the stock prices of intermediate and senior gold producers over the last eight years to their Net Asset Value (NAV), based on the weekly closing price of gold. In theory, a gold mining company should be worth more as the underlying commodity rises in price faster than the cost of those sales. The fact is gold has risen significantly in price over the last few years while costs have increased only nominally on a relative basis, thus dramatically increasing the intrinsic value of reasonably well-run gold producers, however the stocks of these gold miners are not reflecting the increased value. Chart of Intermediate & Senior Gold Producers, P/NAV vs. Spot Gold 8 year chart illustrates the divergence from historic valuations   Figure 1. Intermediate & Senior Gold Producers, P/NAV vs. Spot Gold Source Bloomberg and Market Equities Research Group estimates (as of Nov. 20, 2011). Net Asset Value = 5% book gold/spot gold of intermediate and senior gold producers index (see index candidates here). Price to Net Asset Value ratio shows the company's share price to the net asset value per share.   Junior gold exploration mining companies undervalued The decimation of market valuations relative to increased intrinsic value has been even more sever for gold exploration junior mining companies that have found gold deposits of significance but have no benefit of cash-flow from production. The GLDX Exchange Trade Fund has only been around just over a year now, the ETF is a basket of pure gold exploration companies. The GLDX's chart reflects the collective carnage of its 27 constituents and is emblematic of the malaise characteristic to the entire junior gold exploration sector:   Comparison of Global X Gold Explorers ETF (GLDX) since its inception in November 2010 vs. SPDR Gold Trust  (GLD): SPDR Gold Trust share price tracks the price of physical gold close to 1/10 the spot price. Note how even though the commodity (seen via GLD line in red) rises and holds its value the gold explorers (seen via GLDX in blue below) with sizeable and growing gold deposits have dropped -- serious divergence.    Click to enlarge with current data   Figure 2. Comparison Chart of Global X Gold Explorers ETF (GLDX) since its inception in November 2010 vs. SPDR Gold Trust (GLD) Chart Source Yahoo Finance, Global X Gold Explorers ETF holdings: CONTINENTAL GOLD LTD 7.88%, NOVAGOLD RESOURCES INC 6.54%, GUYANA GOLDFIELDS INC 6.51%, CHINA PRECIOUS METAL 5.98%, CHESAPEAKE GOLD 5.74%, RUBICON MINERALS CORP 5.33%, SEABRIDGE GOLD INC 4.99%, SABINA RES 4.31%, EXTORRE GOLD MINES LTD 4.30%, AMPELLA MINING LTD 4.19%, RAINY RIVER RESOURCES LTD 4.10%, GRYPHON MINERALS LTD 3.99%, INTL TOWER HILL MINES LTD 4.97%, TRELAWNEY MINING & EXPLOR 3.84%, EXETER RESOURCE CORP 3.59%, KEEGAN RESOURCES INC 3.14%, LEVON RESOURCES LTD 2.82%, LYDIAN INTERNATIONAL LTD 2.64%, GOLD CANYON RES 2.56%, NEWSTRIKE CAPITAL INC 2.41%, CANACO RESOURCES INC 2.32%, KAMINAK GOLD CORP-A 2.22%, ATAC RESOURCES LTD 1.88%, VOLTA RESOURCES INC 1.69%, AURYX GOLD CORP 1.57%, ECO ORO MINERALS CORP 1.20%, TIGRAY RESOURCES INC 0.33%, CASH 0.01%.   Gold trend and pullbacks in context Besides the conspiracy theorists views of willful suppression, the recent correction in gold appears for the most part the result of the near 2,000-point decline in the Dow Jones Industrial average in July and August which resulted in the need for liquidity (large investors and institutions having to raise cash to cover losses and margin issued in other investments). The pull back is also natural profit taking after rising so much over the last while. Pull backs are healthy and necessary for credible and sustained moves higher anyways. Much of our confidence is rooted in the fundamental factors that will, over the long run, continue to drive precious metals prices higher, along with quality companies mining them. With growing concerns about unserviceable sovereign debt, gold's attractiveness will continue, similarly to how it has over the past decade, with natural pullbacks along the way.    Figure 3. (above) Price of Gold Gold is still in a long term bull trend. Above is a ~10 year chart of the commodity’s spot price with pull backs greater than 15% highlighted along with the percentage recovery over the three months following the bottom.   Take advantage of gold mining sector bargains while they present themselves Many gold investors originally bought precious metals and the related mining companies as protection against exactly the type of financial crises unfolding/developing now. In a logical world, the price of precious metals and related companies should be soaring based upon current conditions and developments. Astute investors will recognize irrational moves and the divergence occurring now as opportunity. The underlying fundamentals and reasons for astute investors gravitating towards precious metals to begin with have not diminished, the odds are now more in their favour and history has taught us fundamentals always wins over irrationality in the end. For every seller now there is a buyer and there will come a time when gold miners with serious intrinsic value and production potential bust loose to the upside with strong hands (including those buying now) in control.