Ten Sixty Four (X64 AU)

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Here’s an oddball stock: Ten Sixty Four is an ASX-listed micro-cap gold miner with most of its assets in the Philippines. Its prized possession is the Co-O gold mine, the second-largest in the Philippines.

The company was listed on the ASX in 2003. Shortly after that, it merged with the Philippine private company Philsaga, the then-owner of the Co-O gold mine. Production ramped up through improved mining techniques, and today, the mine output is about 95,000 ounces of gold per year.

While the reserve life is low at just 3-4 years, the Co-O mine has an exceptional average grade of 10g/tonne. According to the company:

“The Co-O mine has continued to prove its robust ability to replenish the ore reserve after mine depletion, while its exploration potential is still open at depth.”

Over the past five years, Co-O’s total reserves have stayed flat, meaning that even though production continued at the 95,000oz/year rate, the mine’s reported reserves have not depleted. By the third quarter of 2024, the company plans to increase the mine depth from level 8 to 14. It seems like the company has literally - and figuratively - only scratched the surface of the Co-O gold mine.

The stock has more or less stayed flat since the 2011-2015 bear market for gold mining stocks. Since COVID-19, the macroeconomic environment for gold mining stocks seems to be improving:

• Unprecedented money creation has caused the US M2 money supply to grow by over 40% since early 2020. Real US Treasury yields have gone sharply negative.
• Speculators have deserted gold in favour of much more volatile cryptocurrencies. It’s possible that gold will one day regain favour among speculators.

Ten Sixty Four’s former CEO, Andrew Teo, was exceptionally conservative, building up a significant cash position on the balance sheet and avoiding expensive hedging. But the absence of growth and the lack of a dividend turned investors away.

In 2021-2022, the company received a new Executive Chairman in Jeff McGlinn and a new CEO in Ryan Welker. McGlinn seems to have a decent reputation, having built up leading mining service provider NRW Holdings from scratch, making himself a fortune.

On 4 May 2022, the company renamed itself from “Medusa Mining” to "Ten Sixty Four” after acquiring Ryan Welker’s company with the same name. The new management team is looking to grow the company via M&A opportunities, specifically underperforming assets in investor-friendly emerging markets. They’re looking for assets that trade at similar discounts as Ten Sixty Four itself. Improved investor communication is also on the agenda. Lastly, the company has just started paying out a dividend - the first in almost a decade.

Ten Sixty Four today has a market cap of US$128 million, with net cash of US$72 million and trailing twelve month EBITDA of US$97 million. While exploration companies tend to trade at low multiples, Ten Sixty Four sits on a producing mine with some remaining potential. And I haven’t found any evidence that the senior management team are crooks, either.

Jeff McGlinn purchased about US$100,000 worth of shares in March on the open market. Ryan Welker has been issued two million options to subscribe at an exercise price of AU$1.3 per share, a +73% premium to Ten Sixty Four’s latest share price of AU$0.75. The options vest in 2025 and expire in 2026.

More information on Ten Sixty Four’s predecessor, Medusa Mining, can be found on the Cyclical Value Investing Substack here and on Tim Staermose’s Global Value Hunter website here.

This report is only for informational purposes only and should not be seen as an investment recommendation. Investing in micro-cap gold miners carries significant risks. Always consult your financial adviser before buying a stock.

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