CASE STUDY: Superior Gold (SUPGF)

December 5, 2021


I should briefly mention a mistake that I made: Hummingbird Resources (HUMRF).  The Boole Microcap Fund established a position in October and November of 2020.  There is no question that the stock was quantitatively very cheap.  You can see my investment thesis at the time here:

HUMRF was in the top 50 stocks on our screen, meaning the top 2% out of more than two thousand companies that we ranked.

However, management has consistently over-promised and under-delivered.  Costs have been much higher than management forecasted and, even worse, they continue to escalate.  Production has usually been lower than forecasted.  The start of production at their main project, the Kouroussa gold mine, has repeatedly been pushed back.  Cash flows and earnings are deteriorating.  Debt is too high.  Debt is not going to come down much if costs continue to escalate.  Finally, their main producing mine is located in Mali, where there is significant political risk.

Looking back, there were four red flags that I missed:

    • Costs had been coming in much higher than management forecasted, and they generally kept increasing;
    • Production was usually lower than forecasted, while new projects kept being delayed;
    • Insider ownership was (and is) only 3%, which means management doesn’t really believe in the company’s potential.
    • The company’s main producing mine is in Mali, which is politically risky.

Of course, if gold prices rise, HUMRF may do very well.  But other gold miners may also do very well if gold prices rise.  If gold prices fall, HUMRF won’t do well at all, whereas some other gold miners will be relatively safe.



Superior Gold  is a Canadian gold producer that owns and operates 100% of the Plutonic Gold operations located in the world-class goldfields of Western Australia.

Superior Gold (SUPGF) has a market cap of $67 million.  With $20.5 million in cash and $11.5 million in debt, the enterprise value (EV), which is market cap plus debt minus cash, is $58 million.

SUPGF appears cheap:

    • EV/EBITDA = 2.80
    • P/E = 6.87
    • P/NAV = 0.42
    • P/CF = 2.91
    • P/S = 0.52

(I use P/NAV instead of P/B because P/NAV is more relevant.)

TL/TA is 60%.  But more than half of the liabilities are for mine rehabilitation, which will happen years in the future.  The lease obligation is $11.3 million.  The long-term debt is zero, while the cash balance is $20.5 million.  Thus, the company’s net debt is low.

The current Piotroski F-Score of Superior Gold is 7, which is good.

Including options, insider ownership is close to 4.5%.  That is worth over $3.5 million.  If the company executes on its plan, insiders could make $5 million to $15 million or more (depending upon gold prices).

The company keeps improving its reserves each quarter.

Moreover, Superior Gold is producing 75,000 ounces of gold a year and it is on its way to producing 100,000 ounces of gold a year.  By expanding to a second mill (which is low cost), SUPGF can produce at least 150,000 ounces of gold a year (and possibly much more if the grade is high enough).

Ultimately, Superior Gold aims to return to mid-tier producer status by producing 200,000+ ounces of gold a year.  Increasing from 150,000 ounces to 200,000+ ounces will likely require smart exploration.

Superior Gold’s main challenge has been high costs.  But the new CEO Chris Jordaan is doing an outstanding job implementing a solid plan to reduce costs.

Intrinsic value scenarios:

    • Low case:  The gold price may decline.  NAV per share is $1.31.  The company may be worth half that, which is $0.65.  That is 20% higher than today’s $0.54.
    • Mid case:  If the gold price stays above $1,500, then the company is probably worth NAV, which is $1.31 per share.  That is over 140% higher than today’s $0.54.
    • High case:  If the gold price exceeds $2,000, then Superior Gold could be worth $3.00 a share or more.  That is over 450% higher than today’s $0.54.



An equal weighted group of micro caps generally far outperforms an equal weighted (or cap-weighted) group of larger stocks over time.  See the historical chart here:

This outperformance increases significantly by focusing on cheap micro caps.  Performance can be further boosted by isolating cheap microcap companies that show improving fundamentals.  We rank microcap stocks based on these and similar criteria.

There are roughly 10-20 positions in the portfolio.  The size of each position is determined by its rank.  Typically the largest position is 15-20% (at cost), while the average position is 8-10% (at cost).  Positions are held for 3 to 5 years unless a stock approaches intrinsic value sooner or an error has been discovered.

The mission of the Boole Fund is to outperform the S&P 500 Index by at least 5% per year (net of fees) over 5-year periods.  We also aim to outpace the Russell Microcap Index by at least 2% per year (net).  The Boole Fund has low fees.


If you are interested in finding out more, please e-mail me or leave a comment.

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Disclosures: Past performance is not a guarantee or a reliable indicator of future results. All investments contain risk and may lose value. This material is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission of Boole Capital, LLC.