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speedybure (< 20)

Gold Miners Update: #4

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July 05, 2009 – Comments (0) | RELATED TICKERS: AUY , AEM , JAGGD

I continue to remain extremely bullish on the PM miners as the so called "political elites" continue to solidify my thesis of the coming currency crisis. I have also become more attracted to silver after reading the following passage concerninig the next generation of batteries.

"Everyone who uses laptops or cell-phones these days is at least partially aware of the battery technology everybody uses in those devices. Lithium-ion and lithium-polymer batteries have literally changed the world of portable devices, making them lighter, while also extending useful battery life. They have become the most common type of battery used in consumer rechargeable devices. The alternative comes in the form of silver-oxide or silver-zinc technology. Silver-zinc batteries can run up to 40% longer than the equivalent lithium-ion battery. Over 95% of the primary elements in the battery can be recycled. There are no heavy metals or toxic chemicals in modern silver-zinc batteries. Plus, their water-based chemistry make them free from the risk of thermal runaway, fire, and explosion.  There is little doubt that these batteries are a safer, greener, longer-running choice for laptops and cell-phones. With a little more development, their future looks very bright. The technology has the backing of some heavy hitters, as well. For example, Intel Capital has invested in a silver-zinc battery manufacturer named Zinc Matrix Power (ZMP). 

   Laptop manufacturers are in the process of examining silver-zinc batteries for use. ZMP claims at least one laptop maker already has designs in the queue with an eye toward introduction in their high-end laptops in mid 2009. Eventually, we may even see after-market, drop-in replacement batteries engineered to retrofit older laptops with this safer technology. Expect advertising to tout extended run times and the "green" aspects as major selling points."  

This being said, I have increased my exposure to silver mines and changed my thinking on some of my old picks.

#1 - Silver Wheaton- This still remains my favorite pick especially after the beating it has taken. They have also reduced  their debt load to under 150 million, and expect to see this decline for the next quarter (which has taken place, results announced on the 30th) and possilby in Q3. I think SLW will reduce their debt load to around 100m before tapping another revolving credit facility to finance one or two more royalty purchases. I still think Tech's mine along the silver belt in Alaska is a good fit, and could possibly purchase 50% of the silver mined for anywhere between 10 years and the life of the mine.

Silver Wheaton Valuation 

2)  Yamana Gold for the time being after the sale of their three highest cash cost mines to Aura. This way they focus on their flagship mines and ramp up production in the El Penon miine. This will also allow them to develop Agua Rica faster than their previous forecasts. This also makes them a buyout target especially for seniors, as the aquirer would likely become the No. 1 producer. 

Yamana Valuation 

3) Agnico - Eagle & Jaguar Mining - In a way, I think these two are very similiar. They both have low cash costs relative to their peers, as well as both of them having declining cash costs going forward. Another similiarty is  they both have approx a 35% CAGR in terms of production over the next 5 years. They both are in good financial shape and have their flagship mines in rather safe areas. 

Agnico Valuation

Jaguar Valuation 

4) Silver Standard Resources - Although they have little to show as of yet, they possess the largest resource base in the complex. It will near 2 billion ounces sooner than later, in addition to increasing proven reserves at an unprecendented rate. Not to mention they most likely have the highest long term growth rate among the miners.

5) Lihir Gold - they operate one of the largest mines in the world, which the company is names after which contains high grade ore and little bi-product making it very leverged to gold. The operate in politically safe areas and is very undervalued in general and in relative terms.

X6X) Red Back - I have closed my position in this miner after a nice gain. I did this because the recent aquisition of a large mine in the congo didn't settle well with me.  

7) Kinross Gold - Kinross is cheap enough that even if their Russian Mines are overtaken by the government, the current market price and valuation relative to its peers provide a nice margin of safety. I have gone back and forth with kinross, but the risk/reward is extremely high should things work out.

8) Coeur d'Alene Mines - I have began buying shares in the company, after the verdict concerning the mine in Alaska. I believe estimates for the mine are on the conservative side, as the silver belt is rich.

Coeur d'Alene Mines Valuation 

9) As for the gold royalty companies, which are def higher than #9, derseve a classification of their own. I think Franco Nevada has taken the upper hand for now as it recently raised 400 more million in financing, giving them over half a billion of cash without tapping their credit facilities.  

***Others worth a mention; Aurizon mines, New gold, First Majestic, Centerra and a few others. 

 

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