Here's my input to Toby Hansen's widely admired, quarterly news letter. You can get a copy delayed by a week or so on this web site or directly by emailing a request to: [email protected].
There may not be a tonne of new information my inputs here (I'm sure Toby will have quite a lot of new material), but at least the tables here are up-to-date.
I maintain a universe of Jr gold producers (and near producers) that I follow. These companies appear to be the most undervalued companies I can find. You can find profiles of these companies and their comparative valuation at my web site, www.worldofwallstreet.us. This piece provides all comparisons based on 3/20/2009 closing prices.
The key metrics I use to compare these companies are, estimated for 2010:
* Price to operating cash flow at $800 / oz gold.
* Price to annual oz produced
* Price to oz of gold in the ground (proven/probable, measured and indicated and measured, indicated and inferred).
First we consider a set of companies, that I consider to be useful for comparing my top-pick candidates against. Alamos Gold (AGI.TO) is a well-run, consistent performer held by an investor I highly admire. Minefinders (MFL.TO) is a recently in-production top-pick of Jim Puplava and John Goody (www.goldstockanalyst.com). Capital Gold (CGC.TO) and Western Goldfields (WGW) are probably the best references for comparison as they were recently acquired and are still trading (prior to their takeover closing). Their prices and resulting metrics thus provide a good reference for valuing a similar company. The table that follows provides my summary of the reference companies.
The next table provides my current top-picks (Castle Gold Corp, Gold Resource Corp, Semafo, Troy Resources). As you can see, they are all very undervalued in terms of estimated price-to-operating cash. As a top pick, each company has management I have confidence in. It must also be able to stand a significant downturn in the price of gold (say $650 / oz) and not be in danger of “going to zero”.
Castle Gold (CSG.V) is one of my top picks at this time. It is a profitable, producer with a long-life, profitable and still ramping up heap-leach mine in one of the safer parts of Mexico. It also has a short mine life cash-flow generator in Guatemala that is scheduled to be closed in the second half of 2009. The path to ramping up to the estimated 2010 production of 50K oz / year probably consists of nothing more than letting out a contract to a higher-capacity mine subcontractor. Announcement of this deal is due any week now. There may be a small amount of financing needed as well.
As you can see, it is by far the most undervalued, in terms of estimated 2010 price to operating cash flow, of any of the miners appearing in this piece’s first tow tables.
Castle Gold has already begun to address its main weakness: Its production is too small for it to ever “grow up” to a mid-tier company. This is being addressed by forming a committee to consider mergers with larger companies.
Castle Gold is thus the most undervalued debt-free company I know of in terms of 2010 price to operating-cash flow and has the twin catalysts of announcements of increased production and being a takeover candidate in the very short-term. This is, overall, the best short-term play I know of.
Lookout though, because it is very illiquid. That is, any sudden increase in buying will push the stock price higher.
For what its worth, the table that follows provides the “speculative buy” companies I like and hold as of 3/22/2009. Each of these has more upside than my “top picks” but also higher risk.The companies are: Dynasty Metals And Mining, New Guinea Gold Corp, Oceana Gold Corp and La Mancha Resources.
Finally, here’s a table of Jr gold producer that I have held in the past but do not any longer either because they are not as undervalued as others or because I no longer have confidence in their management.The companies are CGA Mining Corp, Metanor Resources and B2Gold Corp.