Best(Favorite) Gold Miners By Class
Listed Below are the best Senior, Mid-Tier & Junior Miners(production has recently started, not those who in exploration w/o production.) This is according to discount from intrinsic value. Senior Miners) This is a tough group to narrow, but two of the four listed below are being discounted for the wrong reasons. I chose to leave out the biggest producers except for one.
Yamana Gold - This company dissapointed investors last year with some operating concerns, such as holding on to some mined gold (feeling they could get a better price in the future) which they likely sold at a much higher price in Q1. The market also looked at them like a free-port because a rather larger portion of total revenue derived from copper, whose price dropped like a rock in 08. On average copper contributed approxx 28-35% of total revnue for 08. Investors fail to realize it wall to 17-19%, 12-14% in 2009 and 2010. These numbers are before the most recent upgrade in reserves annouced yesterday as well as a higher than expected grade ore(3/1-5g/t) for the Jordino mine, which holds a lot of promise for future increases. Their reserves are now around 20.4m/oz as the drilling at the Jordino mine was much better than expected. Yamana conitinues to increase their reserves, and i think they will continue to do over the coming years. They will also go from 982k ounces to approx 1.2m/oz, 1.46m/oz which is conservative estimates as they don't include the great news released yesterday. the great results from the Jordino Mine also diversifies their portfolio, which will have the moajority of near term production coming from 5 mines. The valuation the market has on yamana provides a great opportunity, and i think there will be much more good news to come in the near future, especially at the Jordino mine and the two mines next to it. In, Short the valuation, gold price, portfolio diversification, and substancial upside potential (reserve wise), make this my top pick ex-royalty companies.
2 or 3) Kinross Gold- As we all know the kinross is trading at a discount due to the significant production that will come from russia in 2009 and 2010. I think this is overblown for a number of reasons, the newest of which was russia's desires to increase their reserves from 1.5-2% to 10%. 52% of the prodution growth this year will come from the Kupol mine in russia. While the mine NAV is approx 2.7b$ or about $4.15 a share, I believe this will decline as kinross has increased their diversification via the purchase of harry winston diamonds (substancial stake), purchase from teck conmico in the latter half of 2008 and the expansion of the Paracuta mine. Kinross has made in my opinion great aquisitions in the past, notably bema gold and Aurelian last July. I suspect they will make another bid for mines either in canada, west africa or australia this year. They also have low cash costs that will delcline for the next two years. I admit there are inherent political risks in Kinross' portfolio but I think brazil and argentina are far safer than the market implies. Russia derserves a discount due to the historical instability but as I mentioned previously, Russia has expressed the desire to accumulate gold, and whot better to sell it to them than kinross especially given their strong relationship that has risen between them.
2 or-3) If i were to have written this three weeks ago, before I researched Newmont's newest mine to come on line in australia, I would have said Agnico-Eagle was my 2 or 3 favorite. But Newmont has an absolute gem in australia which will producing 2m ounces alone by 2010, combined with a 14-18 year mine life and high grade ore. I therefore have a tie between these two, and in reality a three way tie for 2nd with Kinross. Agnico Eagle has run up quite a bit but i think it is worthy of a premium due to the dyamics of this company. The will surpass 1m oz in 2010, making it an incredible growth story. They have great mines that will more likely than not increase their current reserves more than anyone anticipates. TMFsinchura has written about aem, so look through his posts for more info.
The mid-tier group I will mention could also be considered Senior Miners due to the emergence of many miners of late. My top Pick is Lihir Mining, though it will reach break the 1m/oz mark this year, this is a turnaround story in the making, thus some minor operating problems may emerge in 2009. I believe they have subsided for the most part, and have great assets, one of which would fetch a significant premium for shareholders if a bid were to made. To save time here is my previous post on this company.
* lihir island - is expected to produce 775k-840k oz in 2009 and reach 1m/oz yr by 2011. The remaining mine life based on current reserves is 18-20 years. But there sucess with lihir in terms of converting m&i to reserves, leads me to the conclusion they should convert an additional 10m of the 36m oz of net resources to reserves.
*Bonikro mine - 125k 155k oz in 2009 in addition to to other operating mines expected to produce 100-150 combined. The first year of production began in 2008, therefore production will accelerate over the next few years. There are some caveats: the upside could be substancial and it is highly likely the mines not in production in addition to Bonikro wiill lead to a mid to large increase in reserves over the coming years. The downside, however, lies in the fact these mines are located in west africa go obviously political risk may pose a problem.
*A large portion of their assets both producing and exploration lie in a politically safe area of australia or in favorable geopolitical areas. Including the infamous Ballarat mine, which had dissapointed investors expectations, but 2008 showed significant improvement in production and the potential of the mine in general.
In Short, Lihir is trading at a fairly big discount to its peers, yet production will ramp up dramatically up from 2008. The overall risk has declined in operations, both in continuous production of their mines and the transformation of their balance sheet. Cash costs will be between 400-425/oz for the next 4-5 years. It is also a pure play on gold when compared the number 1 miner in australia (newcrest) which gets more or less 80% of total revenue from gold. I mention this in light over the hype going on with teck conmico which is a great story as well.
2) Randgold and Gammon are both attractive but also been written about rather extensively by CAPS members, which I mention in order to avoid this post being inordinately long.
3) Redback Mining- is my favorite mid-tier miner not traded on the NYSE/NDAQ sadly only traded on the pink sheets for those who can only buy on US exchanges. It will produce 250-300k ounces this year and 620-680 by 2011. It has two great, long lived mines. I think it may be a takeover target, or look for aquisitions for itself as it hold interests in a few other mines.
1) Jaguar mining- My top pick among the junior at current valuations, which is rarely mentioned. Production will ramp up from 155k oz in 2008 to nearly 200k in 2009. Production is expected to more double from 2009-2012, at which time the range is currenly between 420-460m oz.
2) Aurizon Mines is a close second, and depending on day to day market valuation, goes back in forth for the best junior in my opinion. It has a 160k oz mine which is 100% owned, and advanced stage mine, and an exploration. it also has a royalty agreement on the the perron and Beaufor mine which produced 258k in 2008, while the Perron mine has yet to begin production. This holds enormous upside potential for this copmany at the current valuation. 3) There are many worth mentioning such as NGD etc, but others have done so in the past.
Favorite Royalty Companies1) Silver Wheaton2) Franco-Nevada- by a slim margin, recent royalty purchases and the best financed of the royalty companies. It is only traded in canada and pink sheets. 2m in cash and m/s 25m shares of newmont and 0 debt. 3) Royal Gold