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Shares of Gran Colombia Gold (GCM:TSX) which came under severe pressure last year on the back of a dramatically dropping gold price and questions about their solvency, are up over 127% in February as the street feels the short squeeze.  Investors gained confidence in gold and gold equities in the early months of 2014 and caught some shorts offside.  It looks like shorts of Gran Colombia have been forced to cover in February as the gold equities look strong and the company restructures costs.

Gran Colombia is targeting a $400 per ounce reducton in all-in sustaining costs in 2014 (Photo: Gran Colombia Gold)

Gran Colombia is targeting a $400 per ounce reducton in all-in sustaining costs in 2014 (Photo: Gran Colombia Gold)

On February 3rd, the company announced a management shuffle which saw the company appoint long-time Latin American resource sector veteran Lombardo Paredes Arenas takeover as CEO.  The company announced plans to restructure operations at its Segovia gold mine in Segovia-Remedios mining district of Colombia.  The focus is on lower all-in sustaining costs from the 2013 average of over $1,300 per ounce to below $950 per ounce in 2014.  To achieve this, the company is focusing on the highest grade  The company will pay roughly $200 per ounce related to its gold-silver linked debt facility.

The company holds the Segovia underground mine and the Marmato development project.  Segovia is the 7th highest grade producing gold mine in the world and hosts 413,000 ounces at 16g/t gold in M&I resources and another 1.4 million at 11g/t gold in inferred.  Using $40 per M&I ounce and $20 per inferred ounce (mid-low end of recent gold transactions), the value of Segovia $44.32 million or $2.90 per share (currently at $2.17 and this doesn’t give any value to their other assets).

Recall Hochschild acquired Andina Minerals and their 6.6 million ounce Volcan deposit for $103 million or $15.61 per ounce of gold in the ground.

The Marmato project hosts the 18th largest undeveloped gold deposit in the world with over 14 million ounces (12.6 million in M&I) at 0.90g/t gold.  If you apply a low end metric to the insitu gold value of Marmato, say $10 per M&I ounce, that equates to a value of $126 million for Marmato or $8.25 per share.

Please read Gran Colombia Gold’s Cautionary Statement Regarding Forward-Looking Statements’s carefully.