Find me a better value 'Small Cap' gold producer

Kaiser Reef (ASX: KAU) like many gold producers has taken a leveraged nosedive thanks to a confluence of Macroeconomic and Geopolitical factors affecting the outlook for gold. Despite this, I am of the opinion that the longer-term structural drivers remain in focus and thus the recent pullback presents an opportunity for accumulation at attractive valuations.

Amongst the market chaos, and what feels like my endless search for value in the smaller end of town, Kaiser has represented something increasingly rare: a profitable small-cap miner that actually looks like a business with real near-term production and exploration upside.

Market Cap: $136M.
Cash Balance: $46M.
EV: Approximately $100M.

The tale of a two-sided business.

1. Henty Gold Mine

The operating asset that is generating cashflow and expanding production while beginning to see strong cost benefits on marginal throughput / production uplift.  At a conservative production rate of 30koz p.a. and a Gross Profit Margin of AUD $2,200 an oz, the business is generating $66M in Operating Profit. As the operation expands to around 35koz p.a. this moves up to around $75M assuming no margin benefit (although I expect there will be).

Current Ore Reserves of 199Koz gives the mine a life of 6+ years assuming no inventory expansion. Although given how long Henty has been running it is not my base case.

2. Maldon Goldfield

The unpriced optionality of this historically significant producing goldfield is hard to ignore.

• Existing infrastructure (Porcupine Flat processing facility (PF) and a range of upgraded site services). Nameplate capacity of 200k/oz Currently the mill is underutilised
• Currently undergoing major decline refurbishment to establish an UG drill platform to test two highly prospective, historically producing and underexplored Reefs.
• Low-grade stockpiles on site currently being processed at PF.
• A plethora of targets / historical working areas that are severely underexplored on granted mining leases. One of which is the infamous Nuggety Reef that produced an estimated 301koz at an impressive 187g/t.
• Soon to have multiple operational drill rigs operating on surface and UG.

The kicker is that Maldon should now be close to self-sufficient from low-grade processing at the onsite Porcupine Flat mill (estimated production of between 3koz - 4koz p.a.). That makes it one of the few small-cap miners that is not simply burning cash but adding to cash while developing another belt scale opportunity.

Why it stands out.

It is the combination of these two assets that makes the business exceptionally interesting. Henty provides the production and earnings leverage, while Maldon offers a very underappreciated near-term restart story beyond the current tailings processing.

Kaiser Reef has cashflow, opportunity and optionality in spades. All that remains is delivery, and on that front the management team led by Brad Valiukas appears well positioned to execute.

If that doesn't sound interesting, just remember it's trading on less that 2 x EV/EBIT at today's close.

And did I mention it had over $46 Million in cash?