This post continues the series on Open Pit Gold miners begun here, continuing here and here and now profiling another open pit gold miner that I consider undervalued and hold as a significant part of my portfolio.
Semafo (SMF.TO) is a three-mine, emerging West African open-pit gold miner. Semafo has, after some troubles, successful online brought its third and biggest mine and is producing at an annual rate of 230 K oz/year. Semafo expects to ramp up to 300 K oz/year for 2010. The management is very competent at both proving up resources cost effectively and bringing that gold into production having opened three mines. With its large exploration concessions Semafo has considerable room to grow beyond 2010.
Semafo is located in West Africa which has a long tradition with gold mining. There is political risk, but not like the risk found in Central and Southern Africa. Offsetting this risk is the risk reduction coming from the diversification across multiple mines the relative lack of execution risk. Semafo has no additional mines to open to achieve its 2010 guidance, it just has to ramp up existing mines.
I consider the risk to be roughly a wash with our single mine-references, especially Minefinders which still has startup risk. I have very recently become concerned about political risk in Mexico, especially Northern Mexico (near the USA border) and have been moving some investing money out of Mexico to other places. I bought more Semafo yesterday at $C 1.70.
The updated to today's close valuation table of the mining companies considered below immediately follows:
Being larger than our reference gold miners, Alamos Gold, Western Goldfields and Minefinders, one would expect a higher valuation for Semafo. Being larger, I also consider it to be a better takeover target than any of the reference gold miners. Semafo is clearly superior as far as price to annual oz and price to operating cash flow, the metrics I rate most highly. Overall, I consider Semafo to be more undervalued than any of its peers in the above table, except the much smaller, single-mine Castle Gold (CSG.V). Being a bigger, more liquid company I feel comfortable holding a larger position in Semfo than in Castle Gold.
The chart shows that Semafo has been on quite a tear lately. I think I got in around $C.85, so I've got somewhere around a two-bagger already. Here's what I see in the chart:
- BULLISH: Semafo clearly has broken out of a three year downtrend.
- BULLISH: Semafo has recently crossed over both its 50 and 200 day moving averages.
- BULLISH: The 50 day moving average has just crossed over the 200 day moving average.
- BEARISH: There's some resistance to be dealt with right around its current $1.62 as "bag holders" breath a sigh of relief dump shares that have finally gotten to break-even after being underwater for months.
- BULLISH: After that I don't see much near term resistance as it will be above its 52 week high.
- BEARISH: The RSI and MACD look a little overbought.
Overall, I think Semafo may take a breather here for a bit, provided gold does not resume its upward march. As you may recall, I try to invest in stocks that don't need a metal price rise to occur to allow significant upward repricing and only then in metals that I'm bullish about.
Again, where can you find a commodity stock with a sub-3.0 price to operating cash flow ratio guidance at lower than current commodity prices? Especially one with forecast sales of 240 million dollars and three different mines. If you know of any, leave me a comment.
At this point, I'm pretty comfortable with the Semafo portion of my portfolio.
Of course, everyone should do their own due-diligence and make their own investment decisions. All of the above material comes from my own amateurish reading of the company website and related financial documents. As you know, I am a software engineer, not a financial advisor.