Some years back I bought a gold Panda coin on a chain for my wife, who had visited China on a US State Department-sponsored singing tour — she had fallen in love with China. She wore that coin for years, and it is the only gold “investment” we ever made. I think I paid a couple hundred dollars for it. Now that one-ounce coin would be worth considerably more, with gold over $1700 per ounce. So I am tempted to have a look at gold mining companies. When you survey gold mining companies in the smallcap arena, however, it can be daunting. First of all, there are a lot of them, so the sorting process is potentially longer. But mostly the problem is wading through the manic “buy it TODAY” recommendations by a clutch of get-rich-quick websites, many of which have names similar to ours. Those websites tend to have lengthy disclaimers that disclose in very small print that the writers have been paid by such-and-such company to write newsletters, “research” and recommendations. That’s a problem.
Just to be clear, we do NOT make recommendations on buy-sell-hold; we write about companies that seem interesting to us, and we trust YOU to do your own research. And further, we have no relationships with the companies mentioned in this article.
But the gold rush seems genuine, even if there are charlatans scattered here and there. Here is an article from a Barron’s blog that points out why it’s worth doing the work: http://blogs.barrons.com/focusonfunds/2012/01/31/gold-jumps-to-8-week-high-small-cap-miners-silver-soar-in-2012/?mod=BOLBlog. Keeping in mind that the market overall is doing well so far in 2012, apparently gold and silver are doing even better. At least one commentator thinks that the amount of gold being mined may go to alltime highs: http://www.resourceinvestor.com/2012/02/06/junior-gold-producers-the-cycle-turns?ref=hp.
And here is Yahoo! Finance’s equally optimistic take on gold ETFs: http://finance.yahoo.com/news/small-cap-gold-miner-etf-174321992.html. But of course we don’t follow ETFs. We like to look at smallcap equities. So here are a few that we found interesting. It is not a scientific look at the market, and there are probably oodles of companies we did not look at. But perhaps it is a beginning for someone who wants to find out what’s going on.
Actually the first company that caught our attention is a silver-mining company that finds gold as a by-product. Vancouver BC-headquartered Endeavour Silver Corporation (NYSE: EXK; http://www.edrsilver.com ) has Mexican holdings in Durango and Guanajuato. They anticipated producing 3.7 million ounces of silver in 2011, up from 3.3 million in 2010, and something more than 17,000 ounces of gold. EXK also trades in Frankfurt and Toronto. On the NYSE it is priced at about $11.11, vs a 52-week high of $13.10, for a market cap of about $968 million, on average daily volume of about 1.7 million shares. Its general prominence probably means it is well-watched, and here are two very recent SeekingAlpha articles: http://seekingalpha.com/article/337511-endeavour-silver-corporation-looking-to-8-consecutive-years-of-growth?source=yahoo and http://seekingalpha.com/article/353071-ride-the-silver-wave-with-endeavour-silver. But, like I said, it is only a gold miner as a byproduct.
Medusa Mining Ltd is based in Como, Western Australia (ASX: MML; http://www.medusamining.com.au). It is guiding investors that it will produce about 75,000 ounces of gold in its Philippine operations in its fiscal year ending June 2012. Simple math would put that at a value of about $130 million. They believe they can be producing 400,000 ounces per year by 2015. According to their most recent quarterly report (http://finance.yahoo.com/news/Medusa-Mining-Limited-iw-1808045800.html?x=0), they have about $80 million in cash and bullion on hand, and they pay a cash dividend of about $0.05 per share. Shares sell for $6.01 on the ASX, with average daily volume over 1.1 million shares for a market cap of about $1.1 billion. Interestingly for a fast-growing company, the company’s PE is only about 10. Feb 13 update: http://seekingalpha.com/article/360891-medusa-mining-producing-gold-for-230-an-ounce.
Toronto-based McEwen Mining (NYSE: MUX; http://www.usgold.com) is a heavily traded gold, silver & precious metals company with operations in Nevada and Mexico. It is an amalgamation of several companies, most notably US Gold (see the domain name), and it has been trading more than 3 million shares a day on the NYSE, closing recently at $5.33 for a market cap of about $750 million. They are looking at revenue of $500 million in 2015, according to this SeekingAlpha enthusiast:
If you want to look smaller and earlier-stage, PanTerra Gold Ltd might be interesting. Headquartered in New South Wales, Australia, the company’s shares trade on the ASX under ticker PGI. The company is in process of acquiring a Vancouver BC gold miner, Novus Gold (http://seekingalpha.com/instablog/485861-proactive-investor/256244-panterra-gold-moves-closer-to-acquiring-novus-gold-corp-of-canada). Its principal gold field is in the Dominican Republic, in the mountains not far from the border with Haiti. Shares trade on the ASX at about $0.17, and the volume is about 1.4 million shares per day. It seems likely that the shares will be co-listed on the TSX shortly, with the acquisition of Novus. PanTerra is mostly pre-production, but its assays and leases are strong. It also has interests in Ecuador. Clearly a good bit riskier than Medusa, but that is obviously factored into the lower price.
Concord NH-based Jaguar Mining Inc (NYSE: JAG; http://www.jaguarmining.com) produced a record 156,000 ounces of gold in 2011, according to their preliminary 2011 report (http://finance.yahoo.com/news/Jaguar-Mining-Provides-Fourth-cnw-1489949933.html?x=0), up 13% from 2010. Its mines are in Brazil. There have been offers of a buyout by China Shandong Gold, and speculators have been circling the company’s shares (http://finance.yahoo.com/news/Buyers-pouncing-Jaguar-Mining-optmonster-1631920360.html?x=0). That’s good news for people whose blood pressure is under control, and many investors like the idea of an early exit. The Shandong offer in November was for $9.30. Currently shares are trading at $6.82 on volume of about 240,000 shares per day, for a market cap of about $576 million. The shares also trade on the TSX.
Halifax-headquartered Brigus Gold Corp (Amex: BRD; http://www.brigusgold.com) operates mines in Ontario and in the Dominican Republic. In the ramp-up phase, Brigus anticipated that it would produce about 14,000 ounces of gold in the 4th calendar quarter of 2011 (http://www.snl.com/Cache/1500038488.PDF?D=&O=PDF&IID=4288058&Y=&T=&FID=1500038488). That would be down from 2010 levels, due to apparent problems in the underground mine. Management believes it will be able to remedy the problems. Shares are selling for about $1.10, vs a 52-week high of $1.99, on average daily volume of about 850,000 shares. Market cap is about $216 million.
Finally, if you fancy early-stage opportunities, have a look at Saskatoon-based Golden Band Resources (TXV: GBN and OTCQX: GBRIF; http://www.goldenbandresources.com). Their claims are in northern Saskatchewan, giving them the distinction of being one of the only gold mining companies we could find whose headquarters were anywhere near their claims and operations. They call themselves Saskatchewan’s newest gold producer. With a gold sales figure of about $35 million for the six months ended October 31, 2011, the company is profitable by a whisker at $0.01, but its balance sheet at Halloween was upside down, with liabilities far higher than assets (they subsequently raised another $9 million in debt).
“All that glisters is not gold,” as Portia says in The Merchant of Venice. Gold mining is interesting, the price of gold is high and shows no sign of crashing — just do your homework, and remember that there are probably hundreds of these companies. Most of them are on the up-and-up, but you owe it to yourself to learn as much as you can before spinning the wheel.