Gold Miners: Update # 3 - The Good, The Bad & The Ugly
June 10, 2009
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Though it is often hard to keep up with entire world of gold miners,it is important, however, to pay close attention (dig for news at least twice a weak). Well this really isn't a post with any negativity, due to the great execution the industry as a whole has had of late (barring a few minor setbacks inherent in the industry).
Yamana Gold - Recent financing has been in the works via recent deals with other miners. They have sold minority stakes in San Andreas, San Francisco & Sao Vicente. The San Andreas which includes an upfront payment of 200 million, 90 million in cash 75 million in deferred cash payments(the latter expected to close by the end of the month with the rest expected to close by year end). In addition Yamana will recieve up to 40 million in royalty payments by 2012 (expected to by paid in Aura common shares at a $ .40 issuance price. This being said, I gather Yamana has stumbled upon a superior mine, thus the aforementioned financing wans;t likely done for the sole purpose of paying back oustanding debt. In any case, the fiancial strength of the company is now considerable stronger, and one of the top amongonst the mid-tier group. On a last note, I have raised my personal production target to 2.1-2.2 m/oz by mid year 2012. Additionally, should the aquisition scenario play out like i think, 2014-2015 will illustrate Yamana's ability to reach the 2.5-2.8 m/oz range (depending on the size of the aquisition).The current 20m oz of P&P reserves is likely to drastically increase for another consecutive year, most likely through the gem Penaquito.
Jaguar Mining - In my opinion, with the exception for Sino Gold and a few others, JAG and RBI are far and away best in class. Jaguar reported a 6 fold increases in profits and now expected to reach 600k/per annum. I believe 700-750k of production is easily achievable by 2014 soley through organic growth. But I believe this emergin Junior will make some type of aquisition (due to the fiancial strength of this company, which now after the first quarter is nearly debt free with numerous undrawn credit facilities).
Agnico- Eagle - Though a small delay in production, which the market blew out of proportion, I still believe 100% growth is achievable for the next 2 years, with 1.8-2.1 m oz in the works by 2012. Like Yamana it is also well capitalized, making it ripe for picking up small miners. Should this happen, even with a purchase that adds 100k-200k oz per year, I believe AEM will be the next 3m oz producer (with the exception on kinross). I have moved it down a spot, but that will only last as long as they fail to meet my own production expecations. Thats being said, It is still a core holding.
Redback Mining- Reported an mediocre quarter when compared to projected estimates, althoug it slightly beat the consensus. Although I have caught a double in this stock, the most recent strategic moves keep my compelled to this developing story. Before the most recent aquiistion, it was set to grow organically to a significant degree among its peers. 220K/oz in 2008 will jump to 675-725 by 2012. But know with aquisition (financed by equity only) will now increase production starting in 2012, with a target of 1.1-1.3m oz by 2013/2014 (conservativey speaking). But wait it gets better! It is now $80m cash positive with multiple untapped credit facilities. Although it will take a few hundred million in cap-ex to prepare the mine, I believe they are still over-capitalized, thus another aquisition is likely in the near term. Don't be scared by the fact their operations are in Africa, as they aren;t in the politically unfriendly South Africa, but rather West Africa, Ghana & the Congo. By the end of 2010, Redback will have 3 mines in operation, reducing mining risk. By 2012 they will 4 mines operating barring an aquisition.
Royal Gold & Franco Nevada - I like these equities equally, the latter due to the fact they are bigger, more profitable, 65-705 being gold royalties, 25% Oil and gas & 10-15% of Platinium and base metals. They recently executed a 325 million bought deal via issuance of equity, giving them an aggregate 450m in cash in addition to multiple credit facilities, giving them the leg up over royal gold should a bargain arise in the industry. Royal Gold on the other hand is digesting two great aquisitions, which will undoubtably pay off in the near future in addition to increasing their reserve base from the flagship royalties. Gold reserves increased Y/Y by 30% and Silver 16%, making it another quality pick in the PM royalty World. Although these equities have won me over,I still prefer Silver Wheaton, due to the averager mine lifes of their flagship assets. On average they last 20+ years or the life of the mine in some cases. This is especially important in the Penaquito project where I expect reserves to increase several times over. Plus I prefer Silver over Gold, and this the best way to play it (with the exception of Silver Standard Resources).
Lihir Gold - This is such a great story to me, mostly because the market place has yet to take notice of the circumstance. They recently raised production guidance by 250-300k/ oz by 2011-2012. Given their large reserve base and untapped mines, Lihir's turnound is a great story in the industry. Given their past operational problems, it seems to have passes, as over 6 quarters has passed with increasing output. Lihir currenlty has 4 mines in operation, but their flagship mines is one of the best in the world (in terms of mine life and quality of Ore). Mgmt raise 2012 guidance to 1.5m oz, but I think that is ultra conservative in my opinion. I believe 1.7- 2.0 million by 2013 is in the cards. Lihir island alone will will produce 1.2-1.35m oz per year alone. Lihir island, without a shadow of a doubt, will increase the reserve base multiple times over the coming years. That being said, Lihir has one of the best valuations (discounted cash flow, good-geopolitical dynamics and reserve ratio).
Favorite PM Equities ; Personal Ownership
Silver Wheaton: SLW.TO - Full Positions
Yamana Gold: YRI.TO - Full Position
Jaguar Mining: JAG.TO- Adding on Pullbacks
Agnico- Eagle - AEM- Play Throught Options (Accumulate On Pullbacks)
Royal Gold - RGLD.TO - Full Position
Franco-Nevada - FNV.TO- Play Through Warrants
RedBack- RBI.TO- Waitin For Pullback To Add More
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