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speedybure (< 20)

Gold Miners Update #8 ; A Very Lucrative Miner Joins The Emerging Juniors

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August 25, 2009 – Comments (17) | RELATED TICKERS: GLD , SLV , CDE

Having recently written a post concerninig Q2 earnings, this follow up is in regards to a emerging junior miner which is likely to be a multi-bagger or bought out. I also wish to add one junior I overlooked in my last post, which a fellow fool pointed out to me. 

Kirkland Lake Gold - Although it only trades on TSX and Pink sheet, I think those who believe in the precious metal mining story should definitely take a look on this gem. First off, they have had some operational and legal hurdles over the past couple of years, which are now behind them (remeniscent of Coeur d'Alene ey?). They have also already incurred the high cash costs as is typical when beginning a new operation ( Cash Costs as seen in the valuation at the bottom will decline substancially ). They are in perhaps the most mining friendly country in the world with the possible exception of Australia, but why compare apples to apples? Perhaps most importantly, especially during a time where credit is granted to a select few, Kirkland is debt free with 28m in cash excluding the 25m private placement they recently engaged in. This solid financial position is augmented by the fact they have minimal capital requirements for PPE and their effective tax rate will be significantly below the marginal rate = FREE CASH FLOW MACHINE. Okay a bried overview of their operations:

The entire Kirkland portfolio is composed of what previously was thought to be a consortium of run down mines for decades. Kirkland has proven this is not the case at all as they are growing proven reserves and their total resource base at a furious pace. I know the first thought that comes to mind is that this will be short lived - but kirkland's managment has demonstrated their knowledge of mining. Their vice president and head of operationshas over 25 years in the field and has worked in operations for such companies as GoldCorp and their Redlake mine and expansion. 

Macassa Mine: 

The Macassa Mine, an underground gold mine with limited surface mining operations, is located in Kirkland Lake, Ontario. The mineral extraction in the mine is from underground stopes and processing is done on the property.  The company discovered the D zones and other significant zones to the south of the historically productive regions on the Kirkland Lake camp. These zones are collectively known as the South Mine Complex (SMC). Some of the veins within the complex have larger width and superior grades than the main zones. Under the exploration program on the SMC, three of the five holes intersecte considerable gold mineralization. Proven and probable reserves for the SMC are 695,000 tons at a grade of 0.78 oz./t. The measured and indicated reserves 360,000 tons at a grade of 0.66 oz./t, while inferred reserves are 707,000 tons at a grade of 0.79 oz. At the Macassa Mine gold is generally found along breaks or faults, in veins, as quartz-filled fractures, as breccias and as sulphide zones.  Exploration off the break has been limited in the past but new work by Kirkland Lake Gold shows that there are excellent targets.                                        

Lake Shore Mine:

The Lake Shore Mine is located in the center of the Kirkland Lake Camp.  Recent diamond drilling on the bottom level indicates that the ore continues and that the main break is not weakening as The most productive areas in the mine are the Main Break, the North or the No. 2 vein, the South or the No. 1 vein, and the Narrows Break or the No. 3 vein.

Tech Hughes and Wright Hargreaves make up the rest of entire Kirkland property in addition to their 50% interest in a joint venture on 5 properties with Queenston mining. 

Valuation: http://spreadsheets.google.com/ccc?key=0Ag_xY1b8Sl5OdC1WQ0loVHU1REpMcURMMC1aOHlDWHc&hl=en

So My Updates Ranking: 1.0 - Accumulate, 2.0 Buy (2.5-3.0 Buy on Pullbacks), 3.0 (Hold), 4.0 (Sell).

1.0 - Kirkland Lake*, Jaguar Mining*, Coeur d'Alene Mines*, First Majestic Silver***

2.0 - Silver Wheaton*, Yamana Gold*, Silver Standard Resources**, Agnico-Eagle**, Aurizon Mines*,

2.5 -  El Dorado, IamGold, MAG Silver, Newmont Mining, Newcrest Mining*, RedBack

3.0 - Lihir , GoldCorp

4.0- Barrick - Opportunity Cost , GLD - Short the GLD to Buy GDX of a basket of the above

* - ownership of common stock

**- ownership of option

*** - ownership of warrants 

17 Comments – Post Your Own

#1) On August 25, 2009 at 9:47 PM, silverincite (64.20) wrote:

I just stumbled upon a few juniors recently that look very promising: IMPACT Silver (CVE:IPT), Fortuna Silver (CVE:FVI), Lake Shore Gold (TSE:LSG), and Linear Gold (TSE:LRR).

Kinross has an option to acquire 60% of Linear's Mexican property coming up soon.

Lake Shore just started production this year and had some very good drill results (intersected 12.75 g/t gold over 83.40 metres) on their Thunder Creek property which they own 60%.

As always thanks for the update Speedy!

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#2) On August 25, 2009 at 10:25 PM, speedybure (< 20) wrote:

silverincite"

I am familiar with Lake Shore Gold and I am looking into actually, it just takes so long to analyze each of these miners. I actually Kinross will purchase B2GOLD(BTO.TO) , which Kinross has continuously increased their stake. I;m sure they will exercise the option you mentioned above as well as I;m sure they are aware the market penalizes them for their russian operation , as it accounts for a significant  portion of their output. I have also been looking at Anatolia minerals (ANO.TO) - which along with Kirkland has been taking up my extra time. 

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#3) On August 25, 2009 at 10:33 PM, ChrisGraley (30.30) wrote:

Between the 2 of you, I now have a lot of research to do.

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#4) On August 25, 2009 at 10:40 PM, Bays (30.79) wrote:

Speedy,

Thanks for posting your research.  Along with Chris, I will have to take a deeper look into this company.

Rec

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#5) On August 25, 2009 at 10:57 PM, speedybure (< 20) wrote:

I have access to analysts reports that usually cost a fortune. Morgan Stanley never cancelled my capabilities when I quit. So if anyone is interested I would gladly do so, but remember not to take thier analysis as gospel for remember they are the ones who said by all those tech stocks in 2000-01. There is, however, bits and piece of great insights.

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#6) On August 26, 2009 at 12:27 AM, silverincite (64.20) wrote:

I'm looking forward to the completion of First Majestic's construction at the La Encantada mine and improved silver recovery there.

Net of by-product credits, Fortuna Silver's cash cost per ounze of silver, was negative 2.98. They also had record production last quarter. They are currently working on a resource update and pre-feasibility study for their San Jose Project which has nice silver and gold grades.

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#7) On August 26, 2009 at 4:03 AM, speedybure (< 20) wrote:

Yeh, I'm looking forward to that as well. What are your thoughts on SSRI? They have an enormous resource base but they also have a deep pipeline that will consume all or most of the operating cash flow to bring online for years to come. I think the bull market for the precious metals is gearing up and will begin towards the end of the year or the start of 2010 thus companies such as Silver Wheaton, Coeur d'Alene and First Majestic are more appealing to me as SLW requires no cap-ex (unless they purchase another royalty), CDE requires approx 85 million next year and under 50m per annum going forward and First Majestic having little capital requirements as well.

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#8) On August 26, 2009 at 8:31 AM, XMFSinchiruna (27.99) wrote:

silverincite

I own Impact Silver. It's been a long, hard ride since 2005, but I'm not budging. :) Don't overlook Great Panther and Endeavour Silver either. Those latter 2 are my largest junior holdings. Again, they haven't worked well for me so far, but as far as I can see my pain is your gain with entry prices like these. :)

speedybure

SSRI absorbed news of a development delay with surprising resilience in the share price, so I think the market is finally pricing in a larger proportion of the company's massive reserve base. The shares are still drastically undervalued at these levels, and because I see the currency crisis dragging on for several years, we have ample time to wait for the market to price in more of the company's buried treasure. 

 

 

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#9) On August 26, 2009 at 8:45 AM, speedybure (< 20) wrote:

Sinch, 

I don't know about you but Coeur d'Alene seems far more attractive as they are both trading at roughly the same market cap yet CDE will ramp up production quickly with little capital requirments and in a cash flow analysis the NPV of the FCF is far greater with CDE partly due to the time element. Any thoughts? 

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#10) On August 26, 2009 at 11:55 AM, silverincite (64.20) wrote:

Silver Standard has so many mines to get excited about and I particularly like their Snowfield Project, but I think they will continue to need external financing to bring their mines into production.

I will take a look at Great Panther and Endeavour. I have been trying to find a resource estimate for IMPACT's projects with no luck, Sinch have you been able to find anything for them?

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#11) On August 26, 2009 at 4:33 PM, nottheSEC (81.12) wrote:

   A lot of food for though and insight and good post Speedbure. I like Jaguar and where they are heading. Also... 

 Seeking Alpha bought up about 8-10 tiny junior in an article about 4 or 5 months ago and suggested to put them in a "market basket" to minimize risk as your post suggests also.You can plug the symbols on Seeking Alpha and probably see an article or two written about them Of maybe 8-10 I like these 4 and put them in an practice portfolio up 25% .

 ANDPF.PK was .90 now 1.88

 PEZGF.OB was .77 now .71  

 RVSDF.PK was .34 now .37

 SFEG.OB was 1.06 now 1.05

not a suggestion to buy just for your own further due dilly with extreme risk capital or not. All best J

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#12) On August 26, 2009 at 7:04 PM, GeneralDemon (27.62) wrote:

Could you please rank PAAS with regards to your list? Also, is AAUK (now AAUKY.PK) attractive?

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#13) On August 26, 2009 at 10:23 PM, speedybure (< 20) wrote:

Pan American is a great miner but I tend to favor the best of the following: 1) Geopolitical Risk - For example SSRI, SLW & CDE Have a diversified mix of geopolitical risk (SLW being an exception as it does no actual mining). Silver Standard has what will soon be the largest silver resource base in the complex and is located in a variety of places such as mining friendly and politicaly stable. Couer d'alene also has a nicely diversified which includes operations in Mexico as well as Canada, Alaska (FLAGSHIP IN KENNSINGTON) , Australia, etc. That being said Pan American is a nice addition to your portfolio and may outperform the ones I think have the best risk/return profile. I think Coeur d'Alene presents and more favorable valuation with a lower cost of capital. On the other hand I think First Majestic's NPV of their future FCF's are incredible for their current market cap , but they are also focused on Mexico. If First Magestic wasn;t around (maybe Pan will pick them up as think would make sense) I would probably be in PAAS as a play on Mexico and their rich silver mines.

AAUK is good if you know what you are getting into and if you are forecasting a substancial bounce in platinum ( i.e car manufacturing as it is used in catalytic converters). But although I do like some african miners like redback, I don't want to be anywhere around south africa. Should they have a substancial portion of their operations in another country, the valuation is compelling. Again Like PAAS, it is a good addition to a basket of miners but also has the geopolitical factor. I like Redback to play Africa as Ghana is much safer in my opinion.

You also have to realize I probably incorporated some bias in my comments as I tend to favor Mid-tier (the next generation of senior miners) and the emerging juniors both from a valuation and the  potential for catalysts i.e new discovery, buyout offer. For example in gold i like agnico for canada, yamana for south america, jaguar solely for brazil, Kirkland for canada, etc. But who it is anyones guess to which miner will outperform.

Hope my ramblings was of some help 

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#14) On August 26, 2009 at 11:06 PM, GeneralDemon (27.62) wrote:

Very Helpful. I have always tossed a blind eye to any political risk - and have just been lucky so far, I guess. One of my all time best picks was Free State Consolidated - remember them? Wow, what a money machine - consistent 20% divi and a ten bagger over the long haul (everyone stayed away because of the risk).

With that said, I'm going to re-direct some capital to Coeur d'Alene.

Thanks again - this kind of post (like Florida Builder's) is what makes this site so great.  I wish I could give back - well...I think I will try.

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#15) On August 26, 2009 at 11:17 PM, speedybure (< 20) wrote:

On a side note if your interested: I think Silver Wheaton should be a core holding if you belive the PM story. They have royalties that average over 20 years in duration. The will rampt up from 18 SEO this year to 35 in 2012 and likely to 40k per annnum as more inferred ore become proven reserves. Best of all they have a fixed operating cost ( well it increases at a max rate of 1% a year) to purchase each ounce at $4. In other words they aren;t subject to input cost inflation (which we WILL see for the energy component). They also pay no income tax as the Canadian gov't has agreed to this arrangement as long as they reinvest or payout all excess profits= high div yield coming. 

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#16) On August 27, 2009 at 10:51 AM, nottheSEC (81.12) wrote:

Again Speed I am enjoying the discussion on miners.On geopolitical risk-with all due respect- its all too real especially in Venezuela. Chavez has nationalized various businesses most without warning. What do you think he is going to do with gold/silver=money? Also to some extent beware Russia. Always to each his own...My nickle..J

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#17) On September 17, 2009 at 2:38 PM, RaceCoach (< 20) wrote:

Speedy, I know you have never recommended First Quantum, but this news highlights the risk of working in the Congo:

"FM announced that as of September 16, 2009, it has suspended construction at its Kolwezi Project in the DRC. The suspension follows the issuance of an order by the General Prosecutor of Katanga to seal the Kolwezi facilities."

I have previoiusly commented on the Congo exposure of Redback, and continue to avoid that miner for this reason.

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