GS Share Fundamentals
Updated November 2020 - We have Peak Gold!
"There is less and less Gold and Silver that can be mined. The production of the miners will decrease and mining costs rise exponentially!"
Coeur Mining (Analyzed 6/1/2020)
Coeur Mining has underperformed since 2006. They have to reach $70 per share just to get back to where the share price traded in 2006. However, they have been aggressive, purchasing Orko Silver, Paramount Gold, and a mine from Gold Corp. Plus, they tend to have a weak balance sheet, which is currently $450 in debt and only $150 million in cash.
If they can clean up their balance sheet, their share price should take off. But they tend to be spenders and not shareholder-friendly. Also, they like to hedge, with almost a third of gold production hedged in 2020. Even with these negatives, it’s a stock you probably have to own because of their leverage to higher gold/silver prices. In 2020, they will produce about 12 million ounces of silver and 350,000 ounces of gold. That is substantial and with rising gold and silver prices, cash flow could reach $1 billion annually at higher gold/silver prices. At 10x cash flow, they could reach a $10 billion market cap. That would make them a potential 5+ bagger from their current $1.5 billion FD market cap. The stock had been surging, rising from $2.48 to $14.94 in 2016, but is now down to $5.95 because of high costs and not a great balance sheet. They are currently producing about 35 million oz of silver equivalent (including gold), with all-in costs (free cash flow) around $16 per oz. So, they are a high-risk investment at low gold and silver prices. However, if gold and silver prices take off, they will benefit big-time. I look for this stock to do well, although they need to find some production growth. They have become mostly a gold producer, with more revenue from gold than silver. However, that could even out if silver outperforms gold. The best thing about this company is that 96% of their revenue is from gold and silver, and very little from base metals.
First Majestic Silver (Analyzed 10/10/2020)
First Majestic Silver is a large silver producer in Mexico. Until recently they were a very strong company with a clean balance sheet and low costs. Now they have $150 million in debt and lost money last quarter (June 30th), although they do have $94 million in cash. Their all-in costs are around $17 per oz (silver equivalent). Hopefully, that will drop when their next quarter financials are released.They will produce 25 million oz of silver equivalent in 2019 (93% of their revenue comes from silver and gold). With this much production, they have huge leverage for higher silver and gold prices. They have 6 producing mines in Mexico.They have the potential to create over $1 billion in free cash flow at $100 silver prices. At a 10x free cash flow valuation, FM should be worth at least $10 billion at $100 silver. That is my expectation as long as Mexico doesn't increase taxes and royalties, and FM hits their production and cost targets. The red flag for this stock is their high all-in costs, but they have one of the best management teams in the business and should survive a downturn. Their other red flag is their resource total. They only have about 170 million oz (silver equivalent) of reserves. That seems like a lot, but they plan to increase production beyond their current 25 million oz (silver equivalent) per year. That is only 7 years of current reserves. Thus, maintaining production could be an issue down the road and could hurt their share price. After all, there are not very many large silver mines left to develop.The good news is they want to become the world's largest silver miner. That is an aggressive goal. They have will need to get lucky with exploration and acquire a few projects. With that aggressiveness, I would expect this company to do well. If they can grow their resources and production, then my future valuation for them (around $10 billion) is too low.1/4/2020: I was informed that FM has a large potential tax liability from their Primero acquisition and the way the silver stream is taxed (from 2010 until current). On their most recent MDA on Sedar.com, they list a potential $185 million tax liability and that it does not include interest and penalties. Ouch. I doubt they will have to pay the entire amount, but the liability appears to be growing because they have not changed their accounting to match what the Mexican tax authority deems appropriate. Currently, they are in negotiations with the Mexican tax authority regarding this liability and it appears they have refused to pay it.
Hecla Mining (Analyzed 1/1/2020)
Hecla Mining is a silver and gold mining company (about 50/50). They used to be a low-cost silver producer, but they have been losing money. Now they have a poor balance sheet with $584 million in debt and only $33 million in cash. A lot of that debt is due in 2021, so there is very high-risk with this stock if they can't roll it over. To matters worse, their large Lucky Friday mine (6 million oz producer) has been down for more than a year due to a labor strike.
2018 and 2019 were terrible years for Hecla. In fact, they almost went bankrupt. Their share price crashed to $1.31 in 2019. If it went under $1, they might not have recovered. Hopefully, their fortunes will turn in 2020. Their Greens Creek mine in Alaska is world-class. That mine alone is probably worth their current market cap. They have huge resources (10 million oz of gold, and 450 million oz of silver). But their all-in costs and balance sheet have been hurting their share price.
This is a company with huge leverage for higher silver prices. They have several development projects. In the long term, they could easily double silver production. They have two large silver projects in Montana that are being permitted. And they recently acquired Klondex Mines that has big potential in Nevada for increasing gold production. For some odd reason, they don't even include their Montana projects (Montanore and Rock Creek) in their current presentation. They just need to survive these low precious metals prices. I'm concerned with more share dilution. If gold and silver prices don't rise in 2020, they could have trouble rolling over their debt that is due in 2021. If they get their debt under control, they have significant upside potential. In 2020, they will produce about 10 to 11 million oz of silver and 250,000 oz of gold. If Lucky Friday resumes production, that would increase silver production another 4 to 5 million oz. Until they can show some free cash flow, we won't know their all-in costs. My guess is they might make a small profit in Q4 2019. The first two quarters of 2020 will be important for their performance, along with the price of silver.
They have debt issues, so they are on a tight leash. If their share price drops below $2, then they are losing their top pick status. But if the silver price remains above $17, they should be okay. They have huge resources and excellent long-life mines. This should be a 5 bagger if silver prices trend. They have two large silver projects to build in Montana.
There are few mid-tier producers with their resources and pipeline of projects. As a high-risk speculation bet on higher silver prices, it looks pretty good. However, management has been a poor performer. Let me explain why I give them such a poor grade:
- Their current company presentation is from October and it is now January. Quality companies keep their presentations up to date.
- On page 4 of their current presentation, they give their performance for 2018! Who cares about 2018? I want to know about 2019.
- The current presentation claims that they are a low-cost producer with high margins. In fact, they lost money for the first three quarters of 2019.
- The current presentation does not mention their two large Montana projects, which are both worth $1 billion in my opinion at higher silver prices. Plus, the resources for these two projects are excluded from the presentation. Why?
- If they are a low-cost producer, then why are the hedging production using a put option?6) How did they allow debt to reach $584 million, and large debt payment in 2021 to become due?7) They say that their objective is to reduce the Debt to EBITDA Ratio to 2.5. However, why don't they have an objective to reduce debt to zero, and use it only to build mines, and pay back the debt quickly?
- They want to pay a dividend, yet they have a huge debt. Why even have a dividend policy until the debt is paid off?
- Hecla has acquired a lot of companies in recent years, including Mines Management, Revett Mining, and Klondex Mines. Instead of growing production methodically and accretive, they have blown up their balance sheet.
- My only conclusion after following this company for 15 years is that they are not shareholder focused. That said, this is one of my largest holdings.
IAMGold (Analyzed 5/3/2020)
IAMGold Corp is a large mid-tier producer, with production at 750,000 oz. They have 4 operating mines in Suriname (northern South America), Canada (Quebec), Mali, and Burkina Faso. They are currently building a large gold mine in Ontario (Cote with 7 million oz), and are spending millions on exploration and advancing properties. I consider this a growth stock. Their cash costs are currently about $900 per oz (forecasted to go down), with all-in costs (free cash flow) around $1300 per oz. That gives them around $200 million in free cash flow at $1500 gold.
They also have two additional development stocks in West Africa. Boto (Senegal) is 1.5 million oz at 1.8 gpt and Sibanye (Mali) is 1 million oz at 1.7 gpt. Plus, they have a few more exploration plays that could become mines. They are giving guidance to reach 1.2 million oz of production in 2022, with all-in costs (free cash flow) of $1100 per oz. These numbers seem optimistic. I'm expecting 1 million oz at $1200 per oz.
Their balance sheet is okay with $864 million in cash and $404 million in debt. With an FD market cap of $1.7 billion, this stock is undervalued. It’s a good income investment for future dividends. In fact, this stock has 5 bagger potential in the long term at higher gold prices. If that happens, your dividend could be around 5% in the future if you invest today. They were valued at $23 a share in 2011. I expect them to be a high-flyer again.
Their only red flag is the location of some of their producing mines in West Africa (Mali and Burkina Faso). While both of these countries are safe today, they do have long term political risk. You could consider their debt a red flag, but as long as they do not add any more debt, their balance sheet is pretty strong for the size of the company. Plus, with their cash flow they should clean up their debt.
MAG Silver (Analyzed 11/14/2020)
MAG Silver has an excellent silver project in Mexico. Their Juanicipio project is a JV with Fresnillo and they have a 44% interest. Production should begin in Q4 2020 and it has a 19-year mine life (likely to be increased). Mag's share will be about 5 million oz of annual silver production (more the first 5 years) at close to zero cash costs. At $16 silver, they will have about $70 million in free cash flow. At $50 silver they will have $200 million in cash flow. The zero costs are from offsets in gold, zinc, and lead. Juanicipio is very high grade (10 to 15 opt) and a high silver recovery rate (94%). The CAPEX is only $300 million and Fresnillo will pay for 56% and is the operator. Mag's remaining share of the CAPEX in 2020 is $126 million and they have $94 million in cash. So, there will be a little bit of dilution in 2020. Juanicipio is growing in size and they already have several additional discoveries. This mine is going to grow in size. They also have an extensive pipeline of projects and are drilling several: Salamandra, Cinco de Mayo, Pozo Seco, Jose Manto, Mojina, and La Esperanza. The odds are good they will build a few more mines. Mag Silver has the potential to be a very large company. This stock has exploded to an FD market cap of $1 billion. That's one of the highest market caps for a non-producer. It seems pricey, but I like it as a combination of an income and growth stock. What are they going to do with all of that cash flow? They likely will have a high dividend. Plus, they could acquire additional producing mines and become a growth stock.The red flag for Mag Silver is they are not building or operating Juanicipio. This means we have no idea if they can build and operate a second mine (or want to). For this reason, my concern (and worst fear) is they will spin-out Juanicipio and remain an exploration company. That would be the easy road for their management team.
Pan American Silver (Analyzed 6/4/2020)
Pan American Silver is one of the largest silver producers. They get about half of their revenue from silver production, about a quarter from gold, and the rest in base metals (zinc, lead, and copper). They recently acquired Tahoe Resources and joined the ranks of silver miners who have diversified into gold.
The combined resources of Pan American and Tahoe are huge. They have about 1.3 billion oz. of silver and 20 million oz. of gold. In 2020, they will produce about 22 million oz. of silver and 500,000 oz of gold. Plus, this does not include their Escobal mine in Guatemala that has had political issues. If Escobal resumes production, that adds 20 million oz of annual silver production at low cash costs.
I tried to inform people that this stock was a bargain under $15 (it was my favorite stock under $15). Now it has broken out to $27 and is not so cheap. I’m still expecting to see it reach triple digits, although that will require much higher gold/silver prices and Escobal back in production.
In addition to being a bit pricey, it has a few other red flags. They mine in Guatemala, Bolivia, Argentina, and Peru. They also have producing mines in Mexico and Canada. Overall, the location risk is significant. But I have confidence that management can find a way to grow. Also, currently, their all-in (break-even) cost per oz for silver is around $15 to $16. That’s not low. But if Escobal comes back online, their overall costs will be much lower.
Gold production is currently giving them a nice cushion. They have solid cash flow from their expected 500,000 oz of production in 2020, with all-in (break-even) costs around $1200 per oz. Plus, they have a pretty good balance sheet, especially for a company of their size. This is because their Chairman (Ross Beaty) is shareholder-friendly and understands the value of a good balance sheet.
Looking at potential free cash flow, Pan American is a standout. At $100 silver and $2,500 gold, you could get 45 million oz. (if Escobal is re-started) x $50 per oz free cash flow = $2.3 billion in free cash flow. Plus, 500,000 oz. x $800 = $400 million. That is nearly $2.7 billion in annual free cash flow. If they get valued at 10x free cash flow, that will make them a potential $27 billion market cap. The FD market cap is currently $6 billion.
Average Exploration Cost per oz. for Majors.
Gold miners with the lowest AIS Cost. (We excluded royalty and streaming companies such as Royal Gold and Franco-Nevada as well as large gold miners that report only on a cash cost basis, such as Randgold Resources.)
- Barrick Gold (ABX): $745 an ounce.
- Newmont Mining: $970 an ounce.
- Goldcorp (GG): $850 an ounce.
- Agnico Eagle Mines: $875 an ounce.
- AngloGold Ashanti: $1,075 an ounce.
- Kinross Gold: $975 an ounce.
- Gold Fields: $1,020 an ounce.
- Yamana Gold: $900 an ounce.
- B2Gold: $955 an ounce.
- Eldorado Gold (EGO): $860 an ounce.
All of these gold miners have done a good job of reducing their costs over the past five years as gold prices have retreated from nearly $1,900 an ounce back in 2011. If gold were to remain near $1,300 an ounce, all 10 of these mid- and large-cap gold-mining stocks would be healthfully profitable.
The picture below clearly shows that PROFIT made by Miners will GEYSER as soon as Gold initiates the next upleg. Note that profits will jump even when we only have a small price increase of Gold over the next months.
1. Barrick Gold
Far and away the most cost-efficient large miner is Barrick Gold, with a midpoint of its 2017 AISC forecast of $745 per ounce. Barrick wound up lowering its AISC forecast on three separate occasions in 2017, leaving this Fool to believe that the company could indeed be a bit conservative with its cost guidance.
Barrick Gold has two major factors working in its favor. First, it's really taken the time to focus on reducing its capital expenditures and debt. At the end of 2014, the company had $13.1 billion in debt, but by the end of 2016, Barrick had reduced its total debt to $7.9 billion. By 2018, Barrick anticipates reducing its debt to just $5 billion, which means lower interest expenses and more flexibility should it feel the need to acquire new properties. As a bonus, less than $200 million of its remaining debt matures before 2019.
In terms of capital expenditures, Barrick came in under target in 2016 at $1.12 billion, and the company has lowered its capital expenditures by about $225 million in 2017 and 2018 from its initial guidance. This, too, can have a positive impact on AISC.
The other factor working in its favor is the potential for organic mine expansion. For example, the Goldrush mine in Nevada is expected to add an estimated 440,000 ounces of gold a year by 2021. Meanwhile, Turquoise Ridge is expected to see an expansion of its underground mine. These are just two of many examples where Barrick can boost its output without affecting its AISC all that much.
For those of you who regularly follow gold stocks, seeing Goldcorp among the most cost-efficient miners should come as no surprise. Goldcorp has long had a focus on boosting efficiency, being prudent with its capital expenditures, and utilizing its byproducts to offset its gold-mining costs.
Last year, Goldcorp wound up lowering its AISC to $856 an ounce, which was notably lower than the $894 reported in 2015. Goldcorp has managed this about-face by focusing on its most promising projects and looking for ways to reduce its costs organically. For instance, it's been analyzing its properties in an effort to save $250 million annually in cost savings by 2018. Thus far it's identified about $150 million in savings and wound up realizing $100 million in annual savings last year.
At the same time, Goldcorp is focused on ramping up production at Cerro Negro in Argentina and Eleonore in Quebec. After producing 382,000 gold ounces at Cerro Negro last year, Goldcorp is targeting an additional 28,000 ounces in 2017, largely a result of development rate improvements. At Eleonore, production is estimated to grow by a double-digit percentage to 315,000 gold ounces from 278,000 in 2016, as the company continues to ramp up operations. Full production isn't even expected at Eleonore until sometime in 2018.
Significant byproduct recoveries at Musselwhite, Eleonore, Penasquito, Red Lake, and Cerro Negro have also been instrumental in keeping Goldcorp's costs down. I'd expect it to remain a low-cost leader within the industry.
3. Eldorado Gold
Eldorado Gold is another mining company that surprised Wall Street last year by producing an AISC of $900 an ounce versus its original AISC guidance of $940 to $980 an ounce.
What we're seeing right now is a major transformation underway with Eldorado Gold. The company disposed of its non-core assets in China last year, selling its 82% stake in Jinfeng, and closing its sales on both White Mountain and Tanjianshan in November. The sale better helps Eldorado Gold focus on its core mines in Greece and Turkey, as well as prepare for the start of commercial production at Skouries in Greece by 2019.
Gold and copper mine Skouries has the potential to be a real game-changer for Eldorado. After multiple delays, construction of the mine is underway and, at least for now, on track. The company expects to spend $170 million to $200 million on capital expenditures at Skouries this year, which is lower than it forecast back in September. The company attributes the flexibility of its capital plan and ongoing cost initiatives for helping to push its spending below budget.
Once online, Skouries is expected to have an estimated 25-year lifespan that'll wind up producing more than 3 million ounces of gold and close to 1.5 billion ounces of copper. In fact, the copper byproduct during the first nine years of the mine is expected to push its sustaining and operating cash costs into the negative.
Most importantly, Eldorado ended 2016 with $883.2 million in cash and cash equivalents following the divestiture of its non-core assets. In just one year's time, it went from a $300 million net debt position to more than a $290 million net cash position. This added flexibility should be a good thing for the company and shareholders.
Gold mining companies of South Africa.
- I have made quite a bit of money in the past on some of the old gold bug favorites like Harmony Gold (HMY), Goldfields (GFI), Caledonia Mining (CMCL), Sibanye (SBGL) and Durban Deep. It is now known as DRD Gold (DRD) which has transformed itself into a tailings miner, a shadow of its former self, with all those operations still mired in South Africa.
- Many South African miners are currently reinvesting for the future, which means desperately trying to get out of South Africa as fast as possible.
- AngloGold Ashanti (AU) is quietly trying to divest all South African properties.
- Goldfields (GFI) is another example, now has its largest production coming out of Australia, but the majority of its reserves are in South Africa. They are probably one of the miners that will survive the new mining charter turmoil, but at what cost to them and the others is an unknown.
- The BLACKS alias the South African government is trying to push a mining charter which is a form of affirmative action on steroids mandating black ownership of all mines to 30%. The charter was passed but the push back was severe and so hurtful to the industry so it has since been put on hold for the time being. I doubt the desire for the mandate will ever go away leaving an unknown factor to contend with that non-South African miners simply do not have. [What happens in Zimbabwe doesn't stay in Zimbabwe but also happens in South-Africa 10-15 years later...and I KNOW what I am talking about!]
- There are better ways than a foolish mandate to share the wealth besides bankrupting the whole industry, and better places to put hard-earned capital. Therefore exposure to South Africa puts you off my list of companies I want to own. If you own any them now, better convert these into Non-South-African.
The Gold and Silver sector keeps consolidating its HUGE 2015-2016 bottom...a lifetime opportunity! [November 2016]
|click to enlarge|
November 2015 book values:
- Coeur D'Alene Mines Corporation's book value per share for the quarter that ended in Sep. 2015 was AUD 11.24 or US$ 7.85. The current market price is $ 2.50.
- Yamana is the cheapest. At $ 1.80 you buy a value of $ 6.66.
- Franco Nevada is the most expensive one: $47 buys only $21 of tangible value.
This is what happened during the Great Depression (1929 - 1939). Homestake went up from $ 50 to $ 500!
From 1929 to 1939, Homestake Mining, which you might think of as a proxy for senior [gold] mining stocks, rose from $80 per share in October 1929 to $495 per share in December 1935, which was 519% and it paid large annual cash dividends while gold was only increased from $20/oz to $35/oz in 1933 by government decree. In 1924 dividend was $7 in 1935 dividend was $56 or more than the market value of the stock in 1924.
This is what happened in the 1970s-1980s: check the last column for the share price gain in % - These are historic yields...they show how interesting Gold and Silver shares can get...up to 14% yield...
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This is the beginning of what is to happen from 2009 to 2019. Check the last columns
Note: Gold & Silver mines are cheap as chips...
Agnico Eagle Mines Ltd. (AEM): AEM is a Canadian company engaged in the production, development, and exploration of gold in Canada, the U.S., Finland, and Mexico. Guru funds together added a net $55 million in Q4 to their $177 million prior quarter position in the company and taken together guru funds hold 4.0% of the outstanding shares. The top buyers were Arnhold & S Bleichroeder Advisers ($78 million), also the top holders at $156 million.
AEM shares have been slashed by nearly 50% over the past year, while earnings have continued to rise from 69c in 2009 to $1.97 in 2011, and projected by analysts to rise to $2.42 by 2013 at a respectable annual growth rate of 10.8%. As a result, its shares are undervalued, trading at 14-15 forward P/E and 1.7 P/B compared to averages of 20.5 and 4.7 for its peers in the gold mining group.
Aurico Gold Inc. (AUQ): AUQ, formerly known as Gammon Gold, is a Canadian company engaged in the exploration and development of gold and silver mining properties in Mexico. Guru funds together added a net $5 million in Q4 to their $48 million prior quarter position in the company and taken together guru funds hold 2.1% of the outstanding shares. The top buyer was Dreman Value Management ($8 million), and the top holders were Dreman ($29 million) and guru Charles Royce's small-cap focused mutual fund company Royce & Associates ($19 million).
AUQ reported a good Q4 at the end of March, beating earnings estimates (31c v/s 14c), with revenues higher year-over-year by 118% to $154.8 million. Also, at the end of March, the company guided production targets, cash costs, and capital expenditures for 2012 through 2014. The shares have been flat since the report, and trade at a current 9.0 P/E and 1.1 P/B, compared to averages of 17.3 and 1.9 for its peers in the gold mining group.
Coeur d'Alene is selling at the same price as during fall 2009 when the company had no earnings, a lot of debt, and silver selling for $ 15. The share is selling at 20% of book value. (May 2012)
Novagold Resources Inc. (NG), a Canadian company engaged in the exploration and development of gold, silver, and copper in Alaska and British Columbia, in which guru funds together added a net $34 million in Q4 to their $229 million prior quarter position in the company;
Harmony Gold Mining (HMY): HMY is a South African gold mining company. Guru funds together added a net $3 million in Q4 to their $248 million prior quarter position in the company and taken together guru funds hold 5.7% of the outstanding shares. The top buyer was Arnold & S Bleichroeder ($3 million), also the top holder at $234 million. HMY shares have dropped off over 12% YTD, and are down about 30% in the past year, trading at a current 17.0 P/E and 1.1 P/B compared to averages of 17.3 and 1.9 for its peers in the gold mining group, while earnings are projected to explode from 32c in 2011 to 92c in 2013.
International Tower Hills mines (THM): The company recently raised $30MM in cash. Their project has over 14 million ounces of gold. By buying the stock you buy proven gold reserves in the ground for just over $10 an oz. I think this could be the biggest junior exploration mining stock bargain in the market…it’s ridiculous
|Paramount has two primary projects, the San Miguel deposit in Mexico and the Sleeper Mine in Nevada. Between the two projects, ZPG shows some 8.4 million ounces of gold equivalent. That’s about $38 an ounce. That’s pretty cheap especially considering country risk.||Gold Resource Corporation (GORO) is a mining company focused on the production and pursuing the development of select, high-grade gold and silver projects that feature low operating costs and produce high returns on capital. The Company has 100% interest in four potential high-grade gold and silver properties in Mexico's southern state of Oaxaca. The Company has an interest in four properties, the El Aguila property, the Las Margaritas property, the El Rey property, and the Solaga property. All of these properties are in the exploration stage and have no probable reserves. The company is based in Denver, Colorado.|
|More on Paramount...click to enlarge||
McEwen Mining: Robert McEwen. chief owner. No salary. 25% share ownership. McEwen Mining Inc.is pleased to announce the results of its first year of production and for its Fourth Quarter 2012. For the full-year 2012, the Company produced 105,050 gold eq. oz (48,876 gold oz and 2,921,242 silver oz) and in Q4 produced 32,220 gold eq. oz (17,578 gold oz and 761,377 silver oz). Silver production has been converted into gold equivalent ounces (gold eq. oz) based on a 52:1 ratio.
|Hecla Mining Company (HL) is a leading low-cost U.S. silver producer with operating mines in Alaska and Idaho and is a growing gold producer with an operating mine in Quebec, Canada. The Company also has exploration and pre-development properties in five world-class silver and gold mining districts in the U.S., Canada, and Mexico, and an exploration office and investments in early-stage silver exploration projects in Canada. [Coeur is a better choice]
Kinross Gold Corporation (KGC) Founded in 1993, Kinross Gold is a senior gold mining company with a diverse portfolio of mines and projects in the United States, Brazil, Chile, Ghana, Mauritania, and Russia. Headquartered in Toronto, Canada, Kinross employs approximately 9,300 people worldwide. The Company is focused on delivering value through operational excellence, balance sheet strength, disciplined growth, and responsible mining.
Kinross has enjoyed a great track record of late having met or exceeding guidance for 5 consecutive years. In 2016, they generated 465 million in free cash flow and paid off over 200 million in debt last year. They still have around a billion in debt out there that I would like to see continually addressed... Currently, they are at a 4 billion market cap, are a near 3 million ounce producer, with 1.1 billion in cash.
Goldmines and what it costs to dig for it and what it yields (June 2010)...consider this in relation with the actual price level of Gold and Silver shares in general. Note that profit has almost doubled....Maximum underground exploitation exploitation cost is $ 750.
|ounces mined||gross @ $ 1,250||gross @ $ 1,450||gross@ $ 1,650||gross @ 1750||underground cost
|open mine cost
|250,000 oz||$ 312,500||$ 362,500||$412,500||$437,000||$ 162,500||$ 93,750|
|500,000 oz||$ 625,000||$ 725,000||$ 825,000||$875,000||$ 325,000||$ 187,500|
|1,000,000 oz||$ 1,250,000||$ 1,450,000||$ 1,650,000||$1,750,000||$ 650,000||$ 375,000|
|2,000,000 oz||$ 2,500,000||$ 2,900,000||$ 3,300,000||$3,500,000||$ 1,300,000||$ 750,000|
* 2014 average underground exploitation cost are double or $ 1,200 per troy ounce.
|ounces mined underground||profit @ $ 1,250 underground||profit @ $ 1,450 underground||profit @ $ 1,650 underground||profit @ $ 1,750 underground|
|250,000 ounces||$ 150,000||$ 200,000||$ 250,000||$ 274,500|
|500,000 ounces||$ 300,000||$ 400,000||$ 500,000||$ 550,000|
|1,000,000 ounces||$ 600,000||$ 800,000||$ 1,000,000||$ 1,100,000|
|2,000,000 ounces||$ 1200,000||$ 1,600,000||$ 2,000,000||$ 2,200,000|
Gold miners always mine the marginal gold ore.
|profit @ $ 1,250
|profit @ $ 1,450
|profit @ $ 1,650
|profit @ $ 1,750
|250,000 ounces||$ 218,750||$ 268,750||$ 318,750||$ 343,250|
|500,000 ounces||$ 437,500||$ 631,250||$ 731,250||$781,205|
|1,000,000 ounces||$ 1,250,000||$ 1,356,250||$ 1,556,250||$ 1,656,250|
|2,000,000 ounces||$ 2,500,000||$ 2,806,250||$ 3,206,250||$ 3,406,250|
The charts below show the exponential rise in profits.
We prefer to stay away from those Gold mines who Hedged gold production. Barrick moves to eliminate Gold hedges but seems to have problems in doing so...Barrick has announced that the company is not delivering the gold it has sold forward. The company is raising cash from the sale of the stock so it might deliver cash instead of gold. I don't know if this is a default under the terms of the company's hedge contracts, but it is technically a default because gold was sold for future delivery and the future delivery is not being made.
In theory, Barrick should have to go into the market and buy gold to deliver into its obligations instead of paying cash. Of course, this would blow the gold price sky-high and thus might bankrupt the company in the process. But this is not the end of the story because the counterparty to these hedges, probably JPMorganChase, no doubt also has obligations to deliver to some other entity the gold it was expecting from Barrick -- maybe a central bank. Will the counterparty also be able to settle its obligations in cash or will significant quantities of gold have to be purchased? Barrick may be getting off the hook but this technical default creates a shortage of physical gold.
This is explosive news for the gold market. The run on the Bank of the Gold Cartel is unfolding. Much more gold has been sold than can be delivered. The implications for the gold price are mind-boggling.
Evidence suggests that during the initial stages of a major crisis, gold and gold stocks usually follow the general market. It is only later on, when the recessionary period is well underway, that gold and gold stocks begin to decouple from the rest of the market (look for more info and a longer-term perspective on the subject in our special report "gold and gold stocks within the 40-year cycle.") Following paragraph describes Homestake during and after the Great Depression.
Over the course of the entire '30s, the Dow lost 40%, while Homestake was up 500% all with only a modest adjustment in the gold price from $ 20.67/oz. to $ 35/oz.
When the market crashed in October 1929, Homestake behaved much as the other stocks and declined by 30% while the broader market declined by 50% more. Subsequent to the sell-off in Homestake, holding on to the shares offered a 44% return over the subsequent 2 ½ years, while the Dow continued its fall through to 1932. From the Dow's lows of 1932, both it and Homestake rose 350% in the next 5 years. (scroll down to check upon the yields of Gold mines in the past)
Gold production is South Africa is falling like a stone. Ore concentrations are lower and lower. Only a much higher price of Gold will be able to keep mining profitable.
Our readers were advised in time of these buying opportunities!
May 2009: ASA has broken out of a cup and handle and has a golden cross on the MA, Agnico has a golden cross on the MA, Anglo Gold as a golden cross on the MA and broken out of an accumulation/reversal formation, Coeur d'Alene has a Golden cross on the MA and broke out of a reversal formation. Similar POSITIVE signals can be seen on the charts of Freeport, Gold Corp, Gold Fields, Durban Roodepoort, Kinross, Newmont, Rio Tinto, Pan American Silver, Hecla (triple top breakout - Mister Cramer!), Minefinders, Yamana, Royal Gold, Silver Wheaton ***.
March 18-19, 2009: Gold and Silver mines breaking the bank: ASA and Agnico up from $ 45 to $ 55; Barrick and Gold Corp. form $ 25 to $ 35; Kinross from $ 15 to $ 19. Hecla is up 20%. Coeur d'Alene by 35%. A lot safer than lousy bonds as these shares represent REAL ASSETS and Gold to be mined. Maybe your time has come to think out of the box? Still, sitting with Bank shares and/or thinking of buying Bank bonds?
February 2009: Newmont is raising $1.2 billion. Freeport is raising $750 million. Kinross raised $400 million two weeks ago. Also two weeks ago RedBack raised about $150 million. Yamana just raised $135 million and borrowed $200 million to stick $335 million in the treasury. Late last year Agnico-Eagle got $300 million from selling some stock after borrowing $300 million in the early fall. These major gold mining companies are planning on raising production levels and increasing their reserves by the acquisition of other gold producing companies and post-discovery resource definition juniors.
January 2009, gold shares are showing the way to Gold....very positive!
December 2008: Coeur d'Alene is a Silver, Gold, and Zinc mine. The weekly chart (not shown here) generated a Buy signal. Similar signals for ASA and Durban Roodepoort. Today many charts show a reversal pattern with positive objectives. In December 2008 several mines show nice uptrends. You have to be blind not to see it...
The physical demand for gold in coin and bullion form is almost unprecedented. In fact, some of the world's largest gold mines (including the US Mint) are having a hard time keeping up with demand. As gold prices move higher, gold equities will recover and when they do I believe it will be a sight to behold. I have seen such moves in the 1970s and 1980's. The price of some Gold shares just doubled overnight... What we see today is the result of the deleveraging and forced liquidations of the financials! Junior stocks are cheap as chips (scroll down)....but the sales are coming to an end...
Most Gold indexes and stocks show huge Positive DIVERGENCES and positive reversal formations. November they have reversed the trend and many Gold and Silver shares went up by 25% to 40% in only days' time.
October 2008: This was an outright SALES period and a fresh opportunity to buy Gold and Silver shares. Over the past week, in the wake of a fractional stronger dollar, weaker oil and commodities, a selling climax of Gold and Silver, we have seen a real slaughtering of already cheap Gold and Silver shares. Indexes like the XAU have fallen back all the way to the bottom of their previous consolidation zone. The open interest for Gold and Silver has fallen as much as the % of bullish advisors. Talking heads and advisors who missed the previous uptrend in Gold, Silver, and Commodities again (they did the same during last correction) are calling the end of the Gold Bubble. Our opinion is that the actual opportunity needs to be used to reposition one's savings: rather 1 Gold mine than 100 Bank stocks in your safe!!!. Similar opportunities were seen in 2003 and 2006.
We are at a point where Junior Gold and Silver stocks have bigger potential than Options!
We have a secular bull market for Gold, Silver, and Oil. This is the time to add to your positions as Gold & silver shares have initiated their next up wave. Today is still an opportunity to buy $Gold and Silver stocks which are cheap as chips. Oct. 2008
Gold companies are (together with Oil co's) the only entities reporting meaningful profits in the marketplace. Gold shares are cheap, cheap, cheap as chips... Oct. 2008
Gold and Silver mine categories
1. The Majors.
The least understood the part about them is their serious short of gold derivative problem, and the balance sheet and price of cover implications thereof. No one will deny that they get the most attention because they have the capitalization required and the brand name that invites institutional buying.
Not much attention is being paid to the fact that they have sold their gold years into the future at prices well under $400. Their calculations on their sales price of the short of gold add in the interest paid to short of physical bullion over the period of the short position into present time calculations as per their risk disclosure filings. Yes, if you sell physical you get paid interest, and if you buy physical on the cuff you pay interest in all the major cash markets. OTC derivative short of gold factors interest, yet to be earned, into the reported sales price going out in time. When they close the transaction before maturity, as is happening now, the debit does not include unearned interest and therefore charges at the real lower sales price. That is why the majors are borrowing their billions. This will limit their gain versus the gold price as it rises.
2. Junior producers
These are entities that have opened production facilities that are modest or not yet at full capacity. In the main, they have the same problem but it is less visible. Recently the trend has been to bury the OTC short of gold derivatives in the loan documentation, but it is still there with somewhat the same effect. What matters is when the loan was made. The more recent it is the higher the short strike price in the OTC derivative and therefore the less the loss the company faces.