Junior gold mining company Chesapeake Gold [stock_market_widget type="inline" template="generic" color="default" assets="CKG.V" markup="(TSXV: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] has gathered terrific momentum in 2019 thanks to the gold price rally and a move that should help it take advantage of the uptick in precious metals prices. As it turns out, Chesapeake Gold has nearly doubled this year after its latest rally, but will it be able to sustain its momentum in the long run? Or should investors bail out of the stock and book the gains they have already scored? Let’s find out.
Betting on a Development Stage Company Could Be Risky
The favourable gold pricing sentiment has been a boon for Chesapeake Gold stock this year. But the fact that the company is in the development stage means that it won’t be able to take advantage of any increase in gold prices.
That’s because Chesapeake Gold does not have any production yet and its stock price will be dictated by gold and silver prices, with investors hoping that someone would buy out Chesapeake given its asset profile. But is the company’s asset profile strong enough to warrant an acquisition?
Chesapeake Gold’s flagship asset is the Metates mine in Mexico’s Durango state. The company claims that this project houses “one of the largest undeveloped gold-silver-zinc deposits in the Americas.” The latest update from Chesapeake indicates that the mine holds a lot of potential. At the Crisy project that lies to the south of Metates, Chesapeake revealed that it has intercepted impressive grades.
According to the company’s press release:
Another move that Chesapeake has made to boost its finances of late is acquiring a 1% net smelter returns royalty at Metates. The company believes that this move will give it “leverage and optionality during a rising metals cycle.”
Betting on a Buyout Is the Only Pay Off Right Now
The gold price rally might sustain in the coming months thanks to the macroeconomic conditions, but if the precious metal falls upon bad times, Chesapeake Gold’s performance could take a dip.
The company does not have any production to show for, and neither does it have any revenue. But if any senior gold producer gets attracted by the company’s strong grade profile at its assets, then there is a chance that it might be bought out. After all, Chesapeake has a market capitalization of just $140 million, so it can be considered to be a buyout candidate given the favourable gold pricing scenario and the consolidation going on in the industry.
