The recent acquisition of Capital Gold Corporation by Gammon Gold and the recent merger of Western Goldfields with New Gold provides fresh reference data points for valuing Jr Gold producers. The results is that three very comparable producers (Capital Gold, Western Goldfields and Minefinders) now have very comparablel valuations based on estimated 2010 price to operating cash flow at $800 gold and price to Measured, Indicated and Inferred oz of gold. This makes these two metrics probably the best metrics for valuing Jr producing and near-production gold miners with decent mine life.
Its fortunate that Capital Gold released its quarterly financials within a couple days of the takeover announcement as it allows us to get a clear look at what was bought and thus have a clear comparison with other Jr gold mining companies.Here's some of the things I just gathered from their financials:
- 53 K annual oz/year.
- $386 Operating Cost (Less Depreciation) Per Oz. This is from the Income statement. It includes $79/ oz G&A and $31 / oz Exploration.
- $251 Per Oz. This is what the earnings announcement for cash cost. I don't see how you cannot include G&A at least as a valid expense as you surely can't cut it to zero during hard times.
- 10.7 Fully Diluted P/E annualized from previous quarter at $856 gold.
- 5.4 Price / Operating Cash Flow (Not Including Depreciation) annualized from previous quarter at $856 gold.
The table that follows provides the four reference gold miners I use as a basis for comparison with other Jr gold producers and near producers. As you can see, the latter three are valued nearly identically when considering estimated 2010 price to operating cash flow at $800 gold and price to Measured, Indicated and Inferred oz in the ground. These two metrics thus provide a very good basis for evaluating other Jr producers and near producers.
The table below provides the Jr producer miners that I currently like enough to hold shares. They appear roughly in order beginning with the ones I would buy first if I had no previous holdings. As an example, Castle Gold would have to nearly triple to have the same price to operating cash flow as the three reference miners and would have to almost double to have the same price to M&I&I oz ratio. I think you'll see that all of the miners in the table below are very attractive compared to the reference stocks in terms or one or both of those metrics.
Castle Gold Corporation and Semafo are the most undervalued Jr producers I know of.
Gold Resource Corporation and Dynasty Metals And Mining are companies going into production in the new few months that I like. They both have significantly better rocks (higher grade) than just about all other Jr producing or near producing miners.
SanGold Corporation (not in table) is another Jr producer with superior rocks. I don't like SanGold because its a soap opera. It has continual basher and pumper posts on its Stockhouse board. The amount of great rocks has yet to be delineated. It is pumped by most of the gold stock picker news letters. It is called "the next red lake", that is, great Canadian gold mine. All of these leave me with the impression that it cannot be undervalued having gotten all that attention. I could be wrong, but that's my take right now.
Troy Resources is a mining company transitioning from one mine to another which is still ramping up. The competence and shareholder friendliness of its management (which awards stockholders decent dividends) makes up, in my mind, for the relatively high cost per oz of gold in the ground.
La Mancha Resources, Oceana Gold and B2Gold are three high-cash cost producers that I consider more risky than the rest but which have certain attributes which make them, in my mind, worth holding. They are first to be dropped should I get quesy about the outlook for the price of gold.
Finally, New Guinea Gold is basically a gold exploration company with what looks like a really superior exploration project that is supposed to be funding that project's exploration with a short mine life open pit heap leach operation. I have previously discussed New Guinea Gold multiple times and expect to discuss it again in an upcoming article.
The table below provides my profile of two Jr producers / near producers that I used to own but no longer do.
I liked CGA mining as a takeover target even though it is not as undervalued as the others. A big institution just sold its position. As a big insider, I think that stockholder understands what CGA mining's plans are and the stockholder's selling its position means that CGA Mining is not planning on being a takeover target (at a premium) any time soon. Metanor's latest private placement caused me to lose confidence in its management. I don't invest in stocks whose management I don't have confidence in.
That's my current take on the stocks I know the best. Let me know what you think and whether there's some others that are worthy of due diligence.
P.S, This is not a recommendation to buy or sell any of the above stocks. It just provides one way of looking at the above stocks.