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speedybure (< 20)




May 26, 2009 – Comments (8) | RELATED TICKERS: SLW , AUY , RGLD



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. 



8 Comments – Post Your Own

#1) On May 26, 2009 at 4:12 PM, RFID (78.50) wrote:

Given the size of the company, it is very possible Migao will be taken out in next couple of years. And I won't sell mine unless they pay $20 to $25.  Another Agri Canadian listed stock you want look at is AGT.UN. It is trading at P/E of 4.5 and growing as fast as Migao. It is unloved because it is an income trust. However, I expect them to be converted into a Corp in the next year or so.

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#2) On May 26, 2009 at 4:51 PM, speedybure (< 20) wrote:


 What do you think about the Viterra Bid for ABB Grain. I currently own ABB Grain and caught a double after the bid was announced. In case you are unfamiliar with, it currently has 55-60% of the market share of grain pooling, handling, marketing, etc in Australia. This merger would negate the environmental risk to a degree( bad weather in Canada and droughts in Australia). ABB emerged as the top dog when the grain monopoloy (australian wheat board was broken up a while back). 

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#3) On May 26, 2009 at 8:52 PM, RFID (78.50) wrote:


Yes, I've heard the news about VT/ABB. My understanding is Viterra (VT) business is base on volume of grain they handle,  so commodity price don't affect them much.  You have a good point of the environment risk. This is going to be an agriculture bluechip, very good long term hold and potentially a monopoly. I also expect to see more agriculture funds as the market heats up. The funds will be going after the larger Caps like VT, they can't buy too much of MGO or AGT.UN. Did you sell you ABB? if not what is your plan?

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#4) On May 26, 2009 at 9:40 PM, speedybure (< 20) wrote:

Thus far, I have sold about 75% of my ABB position and initiated a position in VT. VT had got knocked a bit, due to the usual price action of the aquirer. I plan on liquidating the rest of ABB over 9 A$ and buying Nufarm (produces crop protection chemicals in Australia), and adding to my position in China Blue Chem (a spin off of CNOOC). I'm Just learninig about VT's operations in depth, but although you are right concerninig volumes being a vital part of their business, from my understanding they are engaged in the manufacturing and exportation of grain and malt. This being the case, the commoditty price has a rather significant effect on operating margins, or at least they will now with the takeover over of ABB. 

ABB for example makes contracts with farmers going out several years, setting an agreed upon purchase price for the grain, thus the margin is the difference of the purchase price and the sale price. These are known as "grain pools" or "wheat pooling". I know Vt engages in the same activity but I'm not sure to what degree. 

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#5) On May 26, 2009 at 10:35 PM, speedybure (< 20) wrote:


I'm glad to see there are a few people that take an interest in international stocks ex-ADR's. The valuations are ridiculous, especially when compared to those traded in the U.S. I currently hold no positions on U,S exchanges although there are a few rare opportunities in untapped markets (mainly the precious metal miners). What other foreign equities have caught you eye? I've been focusing mainly on those in Canada, Australia, New Zealand & Hong Kong and have found incredible bargains, so I was just wondering your research in this regard. 

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#6) On May 27, 2009 at 1:10 PM, RFID (78.50) wrote:

I am mostly into Canadian Micro Caps and U.S. Mega Caps.  There are many dirt cheap companies in Canada's income trust sector. SSI.UN is trading at P/E of 3, it is too small for the big players.  I also own EIF.UN and of course MGO.. It may be a bit late, but I would go for Microcap caps as there are many beaten ups really badly. Some have dropped more than 80%.  I wouldn't be suprised if you can pick up a few five and even ten baggers.


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#7) On May 27, 2009 at 3:25 PM, speedybure (< 20) wrote:

I agree with you 100%, I managed to avoid the crash for the most part (I had 25% in PM International) and got extremely lucky with market timing as I put about 80% of my capital to work in Nov. My portfolio is solely resource based, owning miners, oil & agriculture. I have about 40-45% weighted in Gold and Silver Miners (Price appreciation is the reason for is becoming a significant portion of my portfolio) but I am drawn to them because they are ignored for the most part my the market. I know the risk and therefore prefer royalty companies such as Silver Wheaton, Royal Gold & Franco Nevada. I also own a few other actual mining stocks agnico-eagle, yamana, jaguar, redback, and GDX Jan 2011 calls. I don't know if you in my camp, which i think unprecendented inflation in on the horizon therefore my interest in these emerging industries. 

Here are a few of my canadian holdings: let me know your thoughts should you have any.

1) Migao- Of Course - I'm guessing BHP or Potash may the bidders eventually.

2) Hangfeng Evergreen

3) Viterra

4) canadian oil sands - i think this is a great play in oil due to the ignorance of the market. The margin story behind the sands is accurate, but it will not matter when oil goes back to and through its old highs, whether it be inflation or supply-demand. The extremely large reserve base goes ignored due to the focus on lower operating margins, especially with the current synacrude project which they have about a 35% interest in.

5) Pennwest and PenGrowth- I scooped these babies up as they were unfairly punished due to the tax status being stripped going forward.

Should you choose to look elswhere: I found even great deals on honk kong and australia. Some ideas are China-Bluechem and China agribusiness & Chaoda

Also what do you think of potash one? Buyout? I can't focus on more than 10 equities due to the time required.  

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#8) On May 28, 2009 at 10:59 PM, RFID (78.50) wrote:

I did look into Hangfeng Evergreen (HF) and the Oil Sand Trust(COS.UN). That was two and a half years ago, and they were EXPENSIVE then. Now the price has come down and I am also looking into buying COS.Un.  It is a bit ahead itself now but long term Oil Sand's future will be bright.

I am not sure about Potash One. I am trying limit my commodity exposure to 50% or less. Potash junior seems to be a bit too much risk for my taste

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