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speedybure (< 20)

Gold Miners: Update # 3 - The Good, The Bad & The Ugly

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June 10, 2009 – Comments (22) | RELATED TICKERS: SLW , AUY , AEM


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

 

 

 

22 Comments – Post Your Own

#1) On June 10, 2009 at 11:03 AM, goldminingXpert (29.80) wrote:

Thanks. I'll definitely be joining you in some of these names once the summer slump ends.

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#2) On June 10, 2009 at 11:04 AM, XMFSinchiruna (28.01) wrote:

Thanks for an excellent update!

I'm writing up the Yamana asset sales as we speak ... will post here.

Thanks for all you do!

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#3) On June 10, 2009 at 11:11 AM, speedybure (< 20) wrote:

It is my pleasure- You boys ready to make the benchmarks returns over the next couple of years looks like small pickens.

 TMFSinchiruna:  Thanks for all I do? No, thank you for all you! I think its great all the fools you reach, inform and educate. 

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#4) On June 10, 2009 at 11:12 AM, h2ound08 (< 20) wrote:

hey, how does one go about buyin shares in redback, for example?  i saw in some other posts of yours that it trades in canada, can it be bought on the US markets?  maybe a dumb question, but im new to the whole investing thing and still learning.  thanks for all the posts on gold companies, very informative and useful.

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#5) On June 10, 2009 at 11:16 AM, 100ozRound (29.73) wrote:

Red Back trades on the pink sheets as RBIFF.PK if you are so inclined.

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#6) On June 10, 2009 at 11:25 AM, ljdean (< 20) wrote:

So what do you consider a "Full Positon" in a mining company? Do you go with a certain amount of shares or a certain dollar amount? I am trying out the gold stocks with the ETF GDX and am very happy so far!

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#7) On June 10, 2009 at 12:11 PM, speedybure (< 20) wrote:

I use interactive brokers which allows you to trade on every exchange in the world. (those which foreigners are allowed to buy at least). I don't invest in the U.S anymore simply because equities tend to trade closer to their intrinsic value, which makes it a lot less lucrative. i concentrade on Canada, Australia, New Zealand, Japan and honk kong. As per your question, you could buy them on the pink sheets, but i don't adovcate that if you can manage to open an account with etrade for interactive brokers. Pink sheets tricks you in the name. Pink sheets is a new jersey firm who specialized in this, thus they are the market makers and often charge substancial premiums.

 ljdean : When I say full position, I first determine a range for the intrinsic value (using 4 different models) along with the most important part "Qualatative". I will not buy a stock unless there is at least a 40% margin of safety, so the greater the margin of safety the larger part of my portfolio It will account for ceterus perebus of course as the qualatative importance is just as important. I never buy 100% of my position at first, and usually initiate a 30-60% depending on the circumstance. I don't take any off the table until I have returned the amount of my original investment. For example I bought 60-65% in Nov, it has tripled since thus causing me to sell th e amount of my original investment. 

GDX is good way to play it, especially if you are relatively new to the industry. I concentrate on three industries, and have been spending inordinate amount of time researching the mining industry and various companies. By doing this I can outperform the gold bugs index inddx. But I think GDX is still an excellent way to play it and would be compelled to buy it should they take out some companies such as anglo gold ashanti and barrick (the latter because hedging at this point in unneccessary). This is just my opinion but I think silver will outperform gold, but the GDX has little exposure (maybe 4-5%), so if you like gold you should like silver as they serve the same purpose, except silver has increasing industiral use. Just some thoughts, but you have your head in the right place my friend.

-Hope this was of any help

-Cheers 

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#8) On June 10, 2009 at 12:26 PM, speedybure (< 20) wrote:

Additionally, The reason for initiating then adding to positions is simply to dollar cost average your way into a position aka lower your cost basis per share. Up until recently this was very important for mining and agriculture quities, as the miners at least seem to keep putting in higher lows. i apologize if there was any confusion.

h2ound08:       

You may want to check out my valuation models I have published via google docs in my previous posts. Those are the two miners I am most familiar with and have gotten rather good feedback. I would also look at the Jaguar valuation if you interested as I think that has the potential to have the highest return on investment of the mid-junior, emerging junior miners.

Shoot if you have any more questions, I only post in hopes I can help people i.e if you would like to post a valuation on a certain equity or something of that nature. 

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#9) On June 10, 2009 at 12:41 PM, ttboydxb (29.41) wrote:

Great job Speedy! 

 

I have SLW,  JAG, and have been looking closely and had a small nibble at EGI, Entree Gold.  Have you taken a look at them? I also don't advocate using the pink sheets, lost a bit of cash with them on Fortescue Metals (an Aussie Iron Ore play, looks really promising) and opened accounts with etrade for US stuff and ADR's and I use internaxx (an offshore online broker from luxembourg) for international stuff. Got Fortescue on the ASX, andit's much more liquid then the stupid pk ticker.

 

Thanks for the great write up of your positions, I'm thinking of doing one as well soon!

 

Cheers

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#10) On June 10, 2009 at 3:46 PM, speedybure (< 20) wrote:

Sorry, I concentrate an a selelct few emerging juniors, emerging mid-tier & mid-tier miners along with silver wheaton, silver standard resources and first majestic silver.

Compliments Appreciated

 

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

ttboydxb;

I also have been overweight Australia through the likes of ABB Grain (which recently got bought) , Nufarm  and Incitec Pivot (I have taken my original investment off the table as it rose rather substancially). I am waiting for a pullback to add to Atlas Iron, Felix Resources & labrador Iron Ore Royalty. ABB Grain will trade as ABB Viterra on both the canadian exchange and ASX. Although I had a full position on before the takeover, doubling the market price, it still is one of, if not my favorite australian equity especially with the synnergies that are likely to arise from this merger. I have studied the production -consumption figures worldwide throughout the class 2 decades, and like oil production is rather stagnant while consumption has been increasing. 

What do you like in Canada? I bought up the energy trusts as soon as they were taken out back and slaughtered as they will lose their tax status rather soon. Pennwest and PennGrowth had compelling valuations but the real gem that is critized by the market is the Candian Oil Sands Trust. I thinkt the Synacrude project is worth a significant amount all by its lonesome. Yeh I know the margins are smaller, relatively speaking. But this is moot, as if you hold my conviction about inflation, oil will be over 150-200 by 2011-2012. If I'm right the margins are of little importance especially when you take into account the enormous reserve base of COS. My favorite Equity, however, is Migao - A Potash company growing earninigs in the triple digits for the next several years. Along with a rebound in Potash price, they have laid out the capital to expand capacity 75% in the next 14-16 months.

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#12) On June 11, 2009 at 3:04 AM, ttboydxb (29.41) wrote:

Cools, I'll take a look at some of them!

 

Thx...

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#13) On June 11, 2009 at 10:10 AM, RaceCoach (< 20) wrote:

Yamana is off 10% since the deal with Aura. What are your thoughts?

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#14) On June 11, 2009 at 10:35 AM, speedybure (< 20) wrote:


The comples as a whole is off. That aside, price has nothing to due with value, and it only provides more windows of opportunities for others to initiate a position. Yamana is know aiming for 2.2m oz of production by 2012 as opposed to 2.0 million. The sale of the non care assets will also drive the cost of mining per ounce down even further. Volatility is the name of the game when dealing with PM miners and not for the faint of heart.  Additionally, The 200+ plus in funds plus a future $40million dollar royalty and 70m in Aura stock, should drive down their cost of capital i.e discount rate, boosting valuation. The premier soon to be be senior minors are Yamana and Agnico, which is the sweetspot of the industry, as you know the street loves growth. -Hope this was of any help , Fire away if you have any more questions

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#15) On June 11, 2009 at 1:10 PM, RaceCoach (< 20) wrote:

:)  I was looking for confirmation. I'm with you. I've had a position on Yamana since March, then added again in the mid-April dip. Also holding positions in AGI, ABX and GOLD. Got tired of MAI horizontal chart, sold too early and missed the spike. It is a good time for me to sell GOLD and flip into YRI to get out of the USD exposure of GOLD.  (I am in Canada).  Thoughts?  Cheers!

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#16) On June 11, 2009 at 9:15 PM, RaceCoach (< 20) wrote:

Red Back Mining is not in the Congo.  The Congo has a history of terrible political turmoil and corruption, I would not want to invest in a company that operates in the Congo. RBI, on the other hand, has properties in Ghana, Mauritania and Cote D’ Ivoire (Ivory Coast). This is "good" geography as you implied in your write up.

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#17) On June 11, 2009 at 10:55 PM, speedybure (< 20) wrote:

RaceCoach

They have 3 properties in Ghana, Mauritania and Cote D’ Ivoire, but they just aquired (or made a bid that is likely to go through). They will aquire this from moto gold. Before calling someone out, you should know the facts.

http://www.mining-technology.com/news/news56496.html 

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#18) On June 12, 2009 at 7:19 AM, RaceCoach (< 20) wrote:

This agreement was announed on June 2nd.  My appologies.  I missed it.

Red Back Mining Inc. (RBI CN): The mining firm agreed to acquire Moto Goldmines Ltd. (MGL CN) in a C$513 million ($469 million) all-stock transaction to gain control of the Moto gold project in the Democratic Republic of Congo.

However, you said that Red Back did not operate in any "politically unfriendly" geographies. The Congo has too much bad history, and the deal with Moto puts them into a country which has proven to be both dangerous to operate in, and is politically unfriendly. To say that RBI does not operating in politically unfriendly countries is mis-leading, if you are including the Moto property in their portfolio.

 

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#19) On June 12, 2009 at 9:34 AM, speedybure (< 20) wrote:

Yes you are right but 3 of 4 isn't bad. That Moto mine could be significant in terms of dramatically increasing reserves and production. They are still extremely well financed, so another aquisition, hopefully in a more friendly area will occur. 

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#20) On July 16, 2009 at 4:59 PM, RaceCoach (< 20) wrote:

Now Randgold is uping the anti on Moto. What's your take?

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#21) On July 26, 2009 at 1:44 AM, speedybure (< 20) wrote:

Redback is looking better and better

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#22) On July 26, 2009 at 2:36 AM, whereaminow (61.23) wrote:

speedybure,

What is your evaluation of GRZ if you don't mind. 

David in Qatar 

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