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speedybure (< 20)

Gold Miners Update #5 - The Clock is Ticking...

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July 21, 2009 – Comments (3) | RELATED TICKERS: SLW , AUY , AEM

I was very impressed with the performence of the HUI ( gold mining Index) thus far through July which usually marks the end of the summer doldrums for precious metals and thus the mining companies. 

 

From my perspective, the next two quarters will give us a small taste for what lies ahead for the precious metals miners. In other words, these miners are ready to outperform every industry class for the next sveveral years. Although I like Oil, the mining industry goes overlooked by the masses leaving them at extremely attractive levels. For those of you who read this, I don't wish to start a debate among which industry has the most potenial or will be the most lucrative, but which to make my last in depth post concerning the miners.  I also deem an industry worth discussing before any significant price movements have taken place because at that point everyone could declare their amazing foresight they posess. I want the following to be all inclusive as in my favorite miners by class.Obviously not everyone will agree with me, but that is the point, meaninig it is often better to hear everyones inputs rather than be closed to new idead or ones you may have overlooked.

Seniors)

It is rather tough to rank my faovirte miners, but to me a few stand out from the rest.

Personally I would only consider investing in Newmont ( Thanks to their Boddington mine, which I plan to visit shortly while I am out here finishing up my postgraduste degrees), especially given their purchase for the remaining share they didn't own. This is the type of world class mine that always beats any expectations both in peak production levels, mine life and ore quality. Like Newmont Goldcorp's announcement of their recent development for what I believe will be a flagship mine for years to come, The Penasquito (more on that later). If you take a closer look into Goldcorp, you will find a well laid out strategic vision with a host of potentially huge blockbusters in the early stages of both exploration and development. Finally, I have to mention Kinross despite the mixed feeling I may have concerning their russian operations. It's hard to ignore a company that has incredible upside potential.

Mid-Tier-Yes I am back to talking about 2 of my 4 favorites among the entire complex. But this post wouldn't be worth writing absent these two standouts.

1) After much debate, I have to place Yamana Gold at the top of my list due to a combination of a more favorable valuation (Agnico trades with a premium which is well deserved), and Yamana's diverse portfolio (both producing , advanced stage developement and mid to latter stage pipeline). To put this into perspective below are a list of Yamana's flagship mines in various stages in the portfolio.

Producing in K of ounces for 2010-2012 in GEO

A) Chapada (175k, 200k, 200K+) El Penon (480k, 520k, 570-600k) Gualcamayo (210k, 225k, 250k+) Jacobina (125k, 140k, 175k+) + 3 others, which I skip trying to entirely bore you to death.

Advanced Stage - Forecasts for the 3 years following commencment of production

B) Santa Luz (100k, 125k, 150k) Mercedes (125k, 160k, 185-200k) Pilar (75k, 125k, 150-160k) + 1 other

Mid-Stage Development projects - * roough estimates to what will likely be the next flagship

Expected 23 year mine life*Agua Rica ( 125k, 400k, 600k) Jeronimo ( 85k, 140k, 200k) La Pepa (75k, 150k, 300k)

A close second is Agnico- Eagle and like Yamana, has a great portfolio in various stages of the pipeline. Below is a quick break-down of their diverse set of mines that unlike Yamana encumbers those located in north america. Agnico strategies includes many extension projects, whic makes sense when dealing with these type of quality mines. 

The following incorporates their respective extension projects for 2010-2012

Kittilia (170k, 220k, 340-375k) Laronde (325k, 360k, 385-400k) Lapa Mine ( 140k, 155k, 170k) Goldex ( 175k, 220k 250k) Pinos Altos ( 240k, 285k, 310k) Meadowbank (250k, 400-425k, 480-520k) 

Junior Miners - Redback is back in the mix replacing a possible position for randgold as of a few days ago when Rangold made a counter bid which Moto mines has declared more favorable for their mines located in the Congo. Redback, which has been one of my favorite Juniors the first half of the year. This subsequently changed when they made a bid for moto, which in effect would have increased their float by 50%. This wasn't appealing for a mine located in the Congo, especially when along with Jaguar, would have already sported the greatest growth in production among juniors who will produce over 500k oz by 2011 to 2012.

Jaguar - This is far and away my favorite junior pick, which get far less respect than it derserves. I have not seen a junior who possess a 6 year cumulative average growth rate in production (135k oz in 2009, to 210k in 2010, 375k in '11, 490 '12, 580-620 '13). They two, like Yamana have high quality, long lived mines in brazil, not to mention they are net-cash positive. Another reason, why this looks like the premier junior to own, is a combination of rather low to intermediate cash costs (but low compared to its peers) and the fact they only need a capital outlays well under 100m a year during this phase of abnormal growth. Unlike a typical junior, Jaguar will be a hige free cash flow generator. 

As far a silver miners go, Here is a list of my favorite #1-5, which I will discuss in much greater detail over the coming days.

1) Silver Wheaton - They will generate much higher free cash flow as a % of revenue than any other silver miner ( Remember they don't pay income tax and they don't need to spend 1 dime on capital reinvestment)

2) Silver Standard - It is no question they have the largest silver resource base among its peers ( no matter if it has been offcially declared as it is just a matter of time). It takes no genius to forecast they will be adding proven reserves like no ones business over the coming quarter and years. I rank this second only due to the fact that there is and continue to be rather large capital requirments over the next couple of year therefore temporarily halting the ability to generate the kind of free cash flow SLW will.

3) First Majestic - Great company

4) Couer' d'Alene

5)  MAG

 

 

 

 

3 Comments – Post Your Own

#1) On July 21, 2009 at 7:04 AM, XMFSinchiruna (27.95) wrote:

Speedy,

Awesome post as always. I own all of the silver producers you mentioned except First Majestic .. thanks for reminding me to go back and look at them again. :)

And Redback Mining has also slipped off my radar in recent years. I'll take a fresh look there as well.

I really appreciate the work you do here, and hope you know that for every one reader who thanks you for a post, another 20-50 or more read it and learn from it in silence. :)

Fool on!

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#2) On July 21, 2009 at 7:22 AM, ATH001 (< 20) wrote:

Speedy,

I echo TMF Sinchiruna's sentiments, thanks for yr valuable thoughts.

Being from a gold producing country, we do not pay much attention to silver, and it was only thanks to a number of posts by Sinchi that I decided to look into silver. SLW was a great investment, for which I have yet to thank him.

Would like to ask you if you would be buying into the silver miners at these levels, or are you holding back to buy at a lower level?

Thanks again

Luis in Africa

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#3) On July 21, 2009 at 6:45 PM, speedybure (< 20) wrote:

ATH001 

I would be buying silver hand over first and still am doing so both in the equities and futures markets. 99% don't realize silver is one the metals of the future, as it increasieasingly  being used in a number of mediums. Here is an exceprt from an article I read:

"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." 

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