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speedybure (< 20)

Best(Favorite) Gold Miners By Class

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10

April 14, 2009 – Comments (10) | RELATED TICKERS: AUY , AEM , KGC


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. 

Mid-Tier  1)

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.  

 Junior- 

 

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         

10 Comments – Post Your Own

#1) On April 14, 2009 at 3:04 PM, shrike2k6 (< 20) wrote:

Just to be sure, which Newmont are you referring to (which ticker)?

Thanks, and nice summary!

Mike

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#2) On April 14, 2009 at 3:19 PM, speedybure (< 20) wrote:

NEM is the ticker, I havn't adjusted the reserve ratio not production per share(of enterprise value) for 2009-2010. Aside from the royalty companies I reguard newmont as the safest (political) of the largest miners. the last reserve number was at 85 million ounces but i expect that to increase substancially in 2009 and possibly 2010. I expect them to ramp of production to 100% as the gold price increases.

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#3) On April 14, 2009 at 4:08 PM, XMFSinchiruna (27.97) wrote:

speedy... you've done it again. Great post!

I agree with most of what you've said here, but permit me to discuss just a few things.

You got me thinking about what consitutes a major versus mid-tier miners...

Now, I'm sure there's no explicit set of guidelines for classifying the miners in this way, but Agnico-Eagle and Yamana are pretty universally referred to as mid-tier (or 'intermediate') miners themselves. Kinross and Goldcorp too, though I would argue that 40+ million ounces of proven and probable reserves means that they can now safely be considered in the same company as the very small group of majors (consisting of Barrick, Newmont, and Newcrest).

For my part, I will begin to cease referring to Kinross and Goldcorp as intermediates and start referring to them as majors. I had always lumped GG in with the majors in my mind, but referred to it as an intermediate simply because the classification was so widely applied to the company by others. Now that Kinross has grown itself through some bold acquisitions to the same scale as GG, I am happy to suggest that we now have 5 gold majors mining primarily for gold. Of course, if we widen the scope further, non-primary gold producers like Freeport-McMoRan have to be included as well.

Agnico and Yamana, though, continue to exhibit the best characteristics of intermediates. They have forecast substantial organic growth as they grow into their respective footprints, and will have massive amounts of free cash flow in the coming years with which to potentially grow into majors themselves. Both are very inwardly focused for now, and yet I believe both have attained a scale that makes them very unlikely to be bought out by a larger fish from this stage forward. Ultimately, I believe they will each grow into awesome major gold miners themselves, but not until they have realized the full potential of their existing resources.

Kinross is amazing, but I have been reducing my exposure in recent months because of the company's geographical misfortune... it has exposure to Ecuador in addition to Russia (I believe either nation could move to nationalize gold assets as the mother of all currency crises plays out). I am also vehemently opposed to Kinross' decision to purchase diamond assets... unless the property has gold-bearing ores they're not telling us about. :)

Yamana and Agnico-Eagle are essentially tied for my personal #1 spot among gold miners, but I chose AEM as my top pick for 2009 because that growth rate is simply unrivaled and no miner of its scale boasts as safe a geographical profile.

I don't presently own any of the majors I mention above, but if I had extra capital sitting around I'd be picking up some Newmont and Goldcorp. Speedy is right to point out the huge significance of Newmont's Boddington mine, the acquisition of which was the gold purchase heard round the world. Goldcorp is a gold mine, and the incredible wealth of Penasquito is one reason why Silver Wheaton is so very attractrive on the silver side.

I am not able to mention some of my favorite gold-mining juniors because I have been trading shares recently, but I like both of speedy's choices above. Of the others I can mention, I like (and own in real life) Fronteer Development, Minefinders, NovaGold Resources (because ultimately both flagship mines will be brought to production), New Gold, and the speculative pair (GSS and NXG).

I won't get into exploration stage juniors here, again because recent trading activity bars me from mentioning several of my favorite names. :)

 

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#4) On April 14, 2009 at 4:27 PM, speedybure (< 20) wrote:

I agree with you on kinross for the most part. I own warrants for 2011 and 2013, to negate the risks you mentioned. I have become more comfortable with Russia simply because they have had good relationships in the past and their declaration to increase gold to 10% of reserves. They may realize buying it from kinross is actually cheaper due to the inefficiency of government, in addition to avoiding a potetial conflict with canada/US. But who knows, anything can happen, especially with those comies!

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#5) On April 14, 2009 at 6:50 PM, XMFSinchiruna (27.97) wrote:

speedybure

Russia's willingness to take part via Rusoro in Venezuela's ongoing nationalization and looming redistribution of gold assets owned by Canadian miners like Crystallex is enough to give me the chills with respect to Russia's stance on potential nationalization.

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#6) On April 15, 2009 at 3:56 AM, KamranatUCLA (29.20) wrote:

I recommended this post but I still don't believe in Gold as an asset protection device in case of a inflation or hyper inflation.

We don't live in 1890 or 1920 or even 1970. Things have changed. Even fewer people buy gold rings these days. People are not interested in Gold. Gold has no intrinsic vale that I know of excpet it's the only metal that doesn't corrode. OK, land doesn't corrode either (unless you are near ocean) and land is one of the only things in GAAP and tax accounting that we can't depreciate. You can never depreciate the value of land for taxes or any accounting even today as land prices have fallen.

I want to get to this point that what we thought in the past as secure asset doesn't mean it works in 2009. Like I said in my previous example, what's more precious than land and even land prices have dropped.

So just to think that with hyper inflation gold prices will sky rocket..??? hmmmm I don't think so.

And like I said in my previous post. When gold prices go up it doesn't mean you can make profits in gold mining companies.

Before gold prices go up-trust me on this- oil prices will rise. With rising oil prices these companies will tell you that it will cost them a lot more to extract gold...like I said before these companies like oil companies always have an excuse not to pay investors.

So I guess you have to buy the physical gold and hold on to it. You have to buy a big safe and all or else people can just take yoru gold (so not very secure mean of investing).

I mean come on...you guys are creative...can we invest in something more fool-proof and more secure.

I think the author was right before when he said Euro will be an stable money. So ok I will buy some Euro and Canadian money and Austrailian money also look very attracktive to me.

But again those 2 countries are like America's bitches...so...Man I just don't know what to put my money into and it's getting frustrating.

I think I would just but some municipal bonds so at least I wont pay taxes. 

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#7) On April 15, 2009 at 9:32 AM, CanZen (44.74) wrote:

Jim Welsh's comments on Gold

http://welshmoneymanagement.com/images/TheFinancialCommentator3-09.pdf 

GOLD

In the short run, perception can trump longer term fundamentals. In late 1999, technology stocks were over valued, but the perception of the New Paradigm was enough to push them higher toward absurdity. If enough investors believe that inflation is coming soon, gold can run higher, even if I’m right that investors are wrong about how soon the increase in the money supply will lead to inflation. Over time inflation has been defined as too much money chasing too few goods. Our problem now is that there is too little money chasing too many goods anywhere in the world, and that dynamic isn’t likely to change anytime soon. Investors can short Gold in a number of ways, depending on risk tolerances. The most conservative way would be to short GLD, which is the ETF tied to gold, or by buying DZZ, which is the 2 to 1 short gold ETF, or by shorting Gold futures, which is the most aggressive. Irrespective of the route, use a print of $1004.50 on June Gold as a stop. I think gold has the potential to drop below $700 in coming months. With gold about 5% below the $1004.50 stop, the risk reward on this trade is about 5 to 1, if gold does indeed fall below $700. Short GLD above $94.50, buy DZZ below $20.70, and short Gold above $960.00.

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#8) On April 15, 2009 at 9:47 AM, XMFSinchiruna (27.97) wrote:

KamranatUCLA

I'm sorry to say that you just seem to be missing the big picture with respect to gold. Your interpretation of the metal's value is incorrect, and attempts by Russia and China to have gold inserted into a new reserve currency basket should give you all the indication you need of this fact. Gold in 2009 serves the very same function it has throughout history, and I will stop there because I seem to recall discussing this point ith you and presenting mountains of evidence several times before.

If you're frustrated by the lack of attractive options for safe investment vehicles, then how about spending a week doing nothing except learning more about gold and the macroeconomic factors that make its future value set in stone.

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#9) On April 15, 2009 at 5:09 PM, speedybure (< 20) wrote:

CanZen 

Posting a money manager link just made me feel sorry to whomever his investors are. TMFSinschiruna as well as myself posted a vast numeber of reasons for the gold bull market. The case for gold has to do with global inflation, and the unprecedented inflation that will occur in the U.S over the next 2-5 years. Inflation is a function of expectations, so timing the large moves up is impossible. China and Russia want increase their reserves from 1 and 2% to 10%. Our problem is exactly the opposite of your statement. There is an extraordinary amount of money (look at any money aggregate, all of which have doubled since 1999 and still does not include many things such as the stimulus which will not be the entire amount but the amount which not covered by tax revenue, and the monetezation of our debt). If higher money aggregates are apparent and there is a negative GDP,industrial production, etc, then there is too much money chasing to few goods).

Adding to my comment of welsh money managment, listen to jim rogers or peter schiff on youtube. The king of commodities predicted the commoditty boom and schiff predicted the housing bust. In the words of jim rogers, not exact quote but "when gold goes down I buy more, when gold goes up I buy more." 

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#10) On April 16, 2009 at 10:08 PM, CanZen (44.74) wrote:

Thanks SB, I appreciate your feedback.  I agree that the fundamentals are something that is not up for debate, and I appreciate Sinch's argument that it is foolish to time movement in a manipulated market.  But in the shorter term we do have drops in CPI, lower wages, unemployment and trillions in wealth that has vanished in the last year and a half.  The latter point seems to be the crux of the argument - doesn't understanding money supply also require consideration of wealth tied to other assets?  I have to admit I don't have a clear picture one way or the other, but will continue to research and read your and Sinch's excellent posts.

PS - for a money manager you may be more inclined to agree with, you may be interested:

 http://www.sprott.com/pdf/marketsataglance/MAAG.pdf

 

 

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