6 INCREDIBLE QUARTERS IGNORED BY THE MARKET
May 26, 2009
– Comments (8) |
RELATED TICKERS: SLW
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IN A RATHER DISMAL SEASON FOR REAL EARNINIGS (NOT INFLATED DUE TO MARK TO MARKET), THERE WERE 4 OUTSTANDING QUARTERLY RESULTS WHICH WERE FOR THE MOST PART IGNORED BY THE MARKET.
As much as I continue to write new posts concerning Silver Wheaton, Yamana Gold & Royal Gold, at least i can say it wasn't for nothing.
1) Silver Wheaton- Quarter was in-line with analysts expectations, but two key milestones were overlooked as investors and anlysts alike care only for current bottom line results. But looking through the transcipts, it seemed to me, Silver Wheaton had Silver in Transit that should've been recorded in the most recent quarter. Instead I am rather confident, they will beat next quarters esimated production numbers by a rather hefty margin. This is partly due to the late arrival of Silver royalties late in the quarter as well as the closing of the silverstone aquisition. My rough estimate is that Q2 production will increase 4million+ oz over the 1st quarter. This is no small pickins: If the average price is $14 less $4 per ounce of silver purchased, this equates to an additional (4million+ * $10+ = 40 million in net income, remember they pay no income-tax). This is rather substancial for a 2.5 Billion company. I still expect full year production to exceed 18 million ouncs, 24-25 million for 2010, 28-29million for 2011 and 33 million by 2012. This seems rather aggressive at first glance, but previous estimates assume the silverstone aquisition will reamain accreditiveat 4 million oz. I, however, with less than an hour of research think it is more likely than not, the silverstone aquisitions will add 6m oz by 2012. Previous estimates also assume no additional resources will be converted into reserves, which I couldn't disagree more with. The Penaquito Mine alone should be very accreditive, as the quality of this mine is also misunderstood by the market. In, other words not only do I think silver wheaton is a pure silver play but also one that will continually beat current expectations.
Next Up Royal Gold: They recently announced a 30% increase in gold reserves and 16% increase in silver reserves. This should spark analysts upgrades regarding production, but that isn't the only reason. One small royalty RGLD has (high river) recieved a cash offer by russian steelmaker severstal, which is optimistic given the inability for high river to realistically live up to the loan agreement with Royal Gold.
Yamana Gold: A good quarter epsecially if you read the CC trnascipts carefully, as march showed the ramp up in production, which will undoubtably been seen by substancailly high production growth year over year in Q2. They increased reserves and resources earlier in the year and most recently, an offer for a 100% interest in the Nicaraguan unit by Calibre mining. Yamana executing their strategy very efficiently, as I expect the 2m oz production mark to be reached earlier than expected (late 2011, as opposed to 2012 on an annualized basis).
Jaguar Mining; The More research I have done on Jaguar, the more and more compelling it is to me. They recently announced a 6-fold increase in year over year earninigs with the bulk of production growth ahead of it. What surprises me the most is the low production costs (around $400/oz) for a junior miner. Productions's cumulative average growth rate in the base case scenario will be 36% over the next 5 1/2 years. In Reality I expect Jaguar who has nebt debt of 40 million with untapped credit facilities, to surpass 700k a year with solely organic growth. I suspect jaguar is on the prowl to scoop up an aquisition in order to reach the 1m oz per annum mark. Management has displayed steady but efficient production growth over the last 2+ years, in my mind making them the ideal buyout candidate in the Junior mining area.
Finally on the mining front I wish to highlight the turnaround story i first mentioned about a month ago: Lihir Gold. They look as if everything is on tract by yet another successive quarter of production growth ( 320k oz for the quarter ending in March). This is another example of another stellar quarter, ignored by the market. The current estimates are that Lihir will achieve 1.4-1.5 million ounces by 2012. I think Lihir Island in Papua New Guineaalone with achieve this milestone, essentially giving their other 3 on line projects zero value.
Finally I must include my favorite foreign stock MIGAO: It recently announced a 270% increase in earninigs Y/Y, this in the face of Potash prices that are down 40%+ off their highs of 2008 and excluding the much anticipated output capacity increase of 70-80% within 16 months. Although I am not a fan of the old P/E ratio, this is perhaps the first time I have ever seen a company growing earninigs in the triple digits for the next 2-3 years or so, have a single digit multiple. Those unfamiliar with the importance of potash, need only know a few attributes of this wonder fertilizer. It has been shown to produce very high yielding and nutirent rich crops when compared to other fertilizers. It is only really found in Canada and parts of Russia, providing a supply constraint especially going forwad.
The time is still ripe for the pickin as even great quarters have yet to convince the market of miners in general, which I look at as an opportunity.
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