As some background from the Q3 quarterly statement of Golden Minerals (NYSEMKT:AUMN) and their latest corporate presentation, the company is a junior gold/silver miner, which is ramping up its production now and is expected to become cash flow positive in Q1 2013, i.e. now. After that, in Q3 2013 they expect to reach the production volume of 1.6M to 2M oz of silver equivalent (AgEq) at the cost of around $15/oz, and then by the end of 2014 to reach the production volume of 3.5M to 4M oz of AgEq at the cost of around $7/oz. They have zero debt, zero hedging and more than $50M in cash, which they said is sufficient to fund their production expansion till the end of 2013, at which point they will have enough cash flow to fund further expansion.
I have already written and commented extensively about the price action of AUMN in my previous article published on November 13, where I suggested that the pullback in the price that was happening at that point was a unique buying opportunity. So far, AUMN has rallied 22% since the publication of that article, and I think that it is ready for another leg up now.
Recently, a perfect bull flag has formed in AUMN over the past month and we have reached its apex, which means that a massive move may happen next week as the price breaks out of this flag formation. Given the fact that AUMN has stayed flat since December 11, ignoring the surprising weakness in gold/silver after the QE4 announcement, and the fact that AUMN closed green on Friday despite the drop in SLV/GLD, it seems that it is just looking for an excuse to go higher and the sellers won't be able to keep a lid on AUMN for much longer.
The catalyst for the massive move up next week will probably be the release of production data for Q4 (which the company usually releases within 2 weeks of the quarter's end). Here is the relevant info from their Q3 quarterly statement:
"Production during the first six months was negatively impacted primarily by less than planned mine development primarily due to delays in the arrival of underground mining equipment from Argentina. Equipment from Argentina has now arrived at Velardeña and, together with additional equipment acquired during the second quarter, we now have all mining equipment necessary for our planned production ramp up. Because of the approximately six month delay in mine development, we have continued to mine only in stopes that had been developed and partially mined prior to our September 2011 acquisition of the Velardeña Operations, rather than in newly developed stopes as initially anticipated. This has resulted in lower ore grades provided to the processing plant than planned. Mine operations are no longer constrained by the lack of underground mining equipment and we began to open access to new stopes for mining during the third quarter 2012. Due to the acquisition of additional equipment and the arrival of equipment from Argentina, we are increasing mine development activity. We have accessed non-exploited ore zones in the Santa Juana mining area in the third quarter 2012 and expect to increase ore extraction in non-exploited vein areas during the fourth quarter 2012."
Their gold/silver production in Q3 was 30% higher than in Q2, and the above excerpt suggests that the production in Q4 will be noticeably higher than in Q4. Given the widespread current pessimism about junior miners (Market Vectors Junior Gold Miners ETF (NYSEARCA:GDXJ) is only barely higher now than it was in May 2012, when the ratio of the gold mining index ^HUI to the price of gold was at a 30-year low), I doubt that the expected production growth of Golden Minerals is fully priced into its share price now.
Alternatively, the catalyst will be a rebound in gold/silver, which seem to have made a sold bottom since Christmas. GDXJ has been making higher lows since then, suggesting that the traders are expecting gold/silver to start rallying again soon, since the Fed is printing 85 billion of new $USD every month now, which is devaluing paper currency relative to the price of hard precious metals.
Disclosure: I am long AUMN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.