Invest in Precious Metal Miners During the Coming Earnings Season

Despite the artificial rebound in the economy, which will likely lead to higher than expected earnings at least for the coming earnings season, there is one industry in particular that should post record profits. I'm not saying money can't be made elsewhere, but if you had to put all your eggs in one basket, it would definitely be in the mining complex, or the precious metal miners to be exact. There are two reasons for this rationale.

As for the gold miners (which I'm slightly more bullish on for earnings season, as opposed to the silver miners), they have averaged a record 3 month (quarterly) market price. This, combined with many miners scrambling to ramp up production on new projects, will easily surpass past revenue records among the miners. Augmenting this fact, are the very low cash costs (and all in costs for that matter), which will undoubtedly help to set record net profits, cash flows and operating margins.

There are three senior producers to look out for: GoldCorp (GG) (as a better executed ramp up at Penaquito could please investors). I'm not so bullish on Newmont (NEM) at the moment (in terms of the coming earnings season, solely due to the few delays thus far at their world class Boddington Mine), but I would look to initiate a position should it pull back to any meaningful degree. I think Kinross (KGC) will likely have the biggest movement to the upside as they continue to ramp up production at a furious pace while keeping their cash costs very low. It has also been held down due to investors' concerns over their Russian mines, but they have t hreeadvanced stage projects in South America, which, if given the go ahead, will add an annual production of approx 1.4-1.6m oz.

The Mid-Tier group should perform well as a whole, especially given the production growth taking place in names such as Agnico-Eagle (AEM), Yamana Gold (AUY) and Lihir (as the turnaround story remains intact). I expect these three to appease investors, especially Agnico-Eagle (AEM) as they boast one of the lowest cash costs in the industry. But on the other hand, it is trading with a rich valuation, especially compared with Yamana, so obviously it could go either way. Yamana's quarter could be a make or break, as many investors including myself were upset at the slow ramp up at El-Penon, which is another small chapter added to their history of underperformance (though to a small degree). My pick though is still on Yamana, due to the cheap valuation, very rich pipeline and potential news that they will move the world class Agua Rico mine ahead in terms of development. Not to mention the fact is has not really kept up with the rest of the miners as gold continues to hover near $1,000.

The Juniors are always my favorite, and my top pick still remains Jaguar (JAG). They have a brilliant record of execution and will likely continue this trend boasting both robust year over year and sequential growth. I estimate they will meet or exceed the current target of 44-46k oz for Q3, while their cash position and long term growth profile make them a more enticing buyout target every day. Though there are numerous junior miners I could go on about, I think RedBack Mining (RBIFF.PK) is another one to watch.

Silver, on the other hand, may look relatively unimpressive in relation to the gold miners, but many exogenous factors should surprise investors as well. For those who have been following the major and emerging silver miners i.e Silver Wheaton (SLW), Coeur d'Alene Mines (CDE), Hecla, Pan American (PAAS), Silver Standard Resources (SSRI) and others, realize this industry has changed substantially from just a year ago. To give some brief examples of this, Silver Wheaton has executed some brilliant acquisitions in addition to the ramp of some cornerstone royalty streams (Penasquito), which has drastically increased their production levels in both the short and long term. They also had a shipment of 800k oz or so of silver that was not recorded in Q2 due to seasonal factors. Depending on the progress at Penaquito, Silver Wheaton could easily surpass the current estimates.

The one standout in my opinion will be Coeur d'Alene Mines, as they drastically increased production year over year with declining cash costs. But this is not why I think the price behavior could be very positive, as this will likely come from upbeat remarks regarding Kenningston and Palmarejo, which will bring CDE back from the doldrums of mediocrity to a top tier silver producer. As for the emerging silver producers, I expect good things from both Silver Standard (like Yamana it has not participated in the robust rally in this industry due to some weather related operational issued seen in Q2) and First Majestic (FRMSF.PK) as they continue to fly under the radar due to small but increasing trading volumes. A conservative yet potentially rewarding to play this (assuming you believe in this story) is to simply buy the Gold Miners Index (GDX) and/or Call Options.

Disclosure; Long GG Leaps, KGC Leaps, AEM Leaps, AUY, JAG, SLW , SSRI, CDE, GDX puts (as a hedge)

Comments

[przem23:]

From junior gold miners, I own Hawthorne Gold (HGC), a high grade pure play in Canada that just started production this fall. It has seasoned management with a successful track record. No debt and grossly undervalued -- definitely worth a look.

Oct 01 08:54 AM

[aesop53:]

I have FRMSF.PK in my portfolio and thank you for the info on others Hyper. I wanted to ask about Fronteer Development Group Inc. (FRG). They have no debt, great management and experience. They're already in my portfolio, but whats your opinion?

Oct 01 09:57 AM

[Randel:]

Have you looked at Eldorado Gold? EGO Small , low cost producer. Of all the gold miners ,it is number one in profits and number two in five year projected growth rate. I bought it yesterday. I'd appreciate your input.

Oct 01 10:03 AM

[sliman:]

HBMFF HBM.TO Over $5 in cash, large gold discovery plus profitable zinc/copper mine. Do your own DD.

Oct 01 10:09 AM

[HBWOW:]

No mention of ABX ?
Your thoughts on this large miner, please.

Oct 01 10:11 AM

[Vuke:]

A few emerging stories to look at as well. Detour Gold and Osisko are looking very good in Canada, both with a large resource and growing.

A very interesting (and inexpensive) scenario is appearing in Burkina Faso where Volta (TSX:VTR) is partnering with Randgold on a relatively low cost production story while also developing what may be a very large copper/gold porphory type deposit. From an asset base perspective this one looks to have reached a tipping point.

Oct 01 11:33 AM

[Original Sc...:]

I am a gold bug / bull, however I find the author's article a bit optimistic. One must be very carreful when looking at miners. I especially find the following to be misleading:
"Augmenting this fact, are the very low cash costs (and all in costs for that matter), which will undoubtedly help to set record net profits, cash flows and operating margins."
It is my experience that cash is very hard to come by in today's "money-for-banks-only" environment.
Small business and and miners are being starved of cash availability. There is a lot of share dilution and opressive financial conditions placed on miners trying to take advantage of the rise in precious metal prices.
If you are going to invest in this sector, you best take a very good look at cash flow, and general business fundamentals before you select a stock.

Oct 01 12:25 PM

[Original Sc...:]

ABX has been a toxic cesspool of derivatives and low price hedges that are now $ Bil's under. If and when ABX has 0 hedges on their books then look I will look at them again.

Oct 01 12:28 PM

[Hyperinflation:]

El-Dorado is certainly a good company, especially after acquiring Sino. Their growth will come somewhat at a cost i.e high cap-ex for a few years = lower free cash flow, but definitely moving up the food chain. It's also a great way to play China. I didn't intentionally skip EGO, but I could've made comments on more than a dozen others and I don't think anyone would want to read something that long.



On Oct 01 10:03 AM Randel wrote:

> Have you looked at Eldorado Gold? EGO Small , low cost producer.
> Of all the gold miners ,it is number one in profits and number two
> in five year projected growth rate. I bought it yesterday. I'd appreciate
> your input.

Oct 01 06:45 PM

[Joe Bruin:]

Disclosure: I own EGO.

El Dorado Gold is a great company. Do your research on this company. You won't be disappointed. The Chinese mines will increase production costs but those costs are in line with industry standards. It gives them a nice foot print into China which is loaded with gold. China is the #1 gold producer and it is very fragmented. I think EGO could be a dominant player in China as they have experience in operating a mine in China.

Listen to the Denver Gold Summit presentation that EGO gave. You will learn some valuable items. Listen very carefully as the CEO talks about the sister volcano next to their Turkey mine. I think this mine has the potential to be another huge, low cost producer. It's amazing that no one talks about it.

Oct 01 08:32 PM

[PutneyHillYank:]

Yes First Majestic a great buy today and EGO is always a sweet play, as well as VGZ a sweet trading vehicle. I have often touted Hudbay but man it just jumped so fast I took way early profits. On the wild side AGXM a rare earth play outa Argentina is retreating and can be bought even now but it could go lower. Its all good really but I love that Indium play

Oct 01 10:45 PM

[PutneyHillYank:]

Oh yeah remember I own tons of BGZ and TZA so I just cash those in and buy what I want

Oct 01 10:51 PM

[jay brebner:]

anybody else own or care to comment on PAL? dropped recently on dilution but they are activating mines this quarter after "maintenance".

Oct 02 10:13 AM

[T.Stamps:]

Good article. Does GDX cover large, medium and small
companies? A full spectrum.

Oct 02 11:05 AM

[Hyperinflation:]

I like Barrick much much better now that they decided to remove their abundance of gold hedges. I don't think the end of month quarterly results will be anything special precisely due to the fact that they had these hedges on basically the entire quarter. But you also have to take into account growth for Barrick which will be harder and harder to come by as even such world class mines such as Pascua-Luma will likely not add to production growth but rather act to replace production that is going or will soon be going offline.


On Oct 01 10:11 AM HBWOW wrote:

> No mention of ABX ?
> Your thoughts on this large miner, please.

Oct 04 05:58 PM

[Hyperinflation:]

I agree EGO is a great company, it just comes down to opportunity cost at this point. I have yet to do enough research on the Sino aquisition or Sino is general to evaluate the aquisition. I know that this will propel them past the 1m oz production mark and perhaps much further, and I do like it as a great way to play China. The One concern I have ( due to the fact I have not read the feasibility studies on Sino's mines ) is that although China is currently the largest producer ( not to be confused with having the largest reserve base ) is the fact that most mines have tended to have much shorter lives as deposits are smaller than average. That being said, I can't give any sort of qualified opinion until I look much further into this.


On Oct 01 08:32 PM Joe Bruin wrote:

> Disclosure: I own EGO.
>
> El Dorado Gold is a great company. Do your research on this company.
> You won't be disappointed. The Chinese mines will increase production
> costs but those costs are in line with industry standards. It gives
> them a nice foot print into China which is loaded with gold. China
> is the #1 gold producer and it is very fragmented. I think EGO could
> be a dominant player in China as they have experience in operating
> a mine in China.
>
> Listen to the Denver Gold Summit presentation that EGO gave. You
> will learn some valuable items. Listen very carefully as the CEO
> talks about the sister volcano next to their Turkey mine. I think
> this mine has the potential to be another huge, low cost producer.
> It's amazing that no one talks about it.

Oct 04 06:04 PM

[Hyperinflation:]

Number Holding Ticker Shares Market Value % of net assets
1 Barrick Gold Corp ABX 19,065,165 $688,252,456.50 14.11%
2 Goldcorp Inc GG 14,513,361 $553,249,321.32 11.34%
3 Newmont Mining Corp NEM 9,650,732 $406,488,831.84 8.33%
4 Kinross Gold Corp KGC 13,685,738 $279,599,627.34 5.73%
5 AngloGold Ashanti Ltd AU 7,128,743 $276,595,228.40 5.67%
6 Agnico-Eagle Mines Ltd AEM 3,818,342 $243,877,503.54 5.00%
7 Cia de Minas Buenaventura SA BVN 7,246,139 $243,107,963.45 4.98%
8 Gold Fields Ltd GFI 16,593,440 $220,360,883.20 4.52%
9 Yamana Gold Inc AUY 21,521,930 $216,295,396.50 4.44%
10 Lihir Gold Ltd LIHR 8,728,419 $214,806,391.59 4.40%
11 Randgold Resources Ltd GOLD US 3,262,986 $212,811,946.92 4.36%
12 IAMGOLD Corp IAG 15,017,187 $198,977,727.75 4.08%
13 Harmony Gold Mining Co Ltd HMY 17,417,238 $178,178,344.74 3.65%
14 Eldorado Gold Corp EGO 16,321,885 $173,011,981.00 3.55%
15 Silver Wheaton Corp SLW 13,668,712 $164,981,353.84 3.38%
16 PAN American Silver Corp PAAS 3,566,126 $76,814,354.04 1.57%
17 Royal Gold Inc RGLD 1,666,561 $72,145,425.69 1.48%
18 Silver Standard Resources Inc SSRI 2,931,661 $57,313,972.55 1.18%
19 New Gold Inc NGD 15,819,544 $57,108,553.84 1.17%
20 Coeur d'Alene Mines Corp. CDE US 3,082,719 $57,184,437.45 1.17%
21 Gammon Gold Inc GRS 5,085,641 $42,515,958.76 0.87%
22 Seabridge Gold Inc SA 1,533,614 $40,518,081.88 0.83%
23 Hecla Mining Co HL 9,668,836 $39,255,474.16 0.80%
24 Golden Star Resources Ltd GSS 9,668,263 $31,325,172.12 0.64%
25 Northgate Minerals Corp NXG 10,464,865 $27,104,000.35 0.56%
26 Aurizon Mines Ltd AZK 6,493,419 $27,402,228.18 0.56%
27 Minefinders Corp MFN 2,420,895 $22,054,353.45 0.45%
28 Great Basin Gold Ltd GBG 13,634,803 $19,361,420.26 0.40%
29 Cash 17,286,056 $17,286,069.72 0.35%
30 Nevsun Resources Ltd NSU 5,244,976 $10,227,703.20 0.21%
31 Tanzanian Royalty Exploration Corp TRE 3,670,645 $10,094,273.75 0.21%
32 Vista Gold Corp VGZ CN 1,736,589 $3,907,325.25 0.08%
This is about 67% Large Mid-Tier/Senior , 27% Emerging/Mid-Tier Producers and the rest Juniors


On Oct 02 11:05 AM T.Stamps wrote:

> Good article. Does GDX cover large, medium and small
> companies? A full spectrum.

Oct 04 06:09 PM

[Hyperinflation:]

Precious metals miners have had a very easy time accessing financing over the entire course of this recession. Revolving credit facilities have been no trouble to find and equity offerings have been oversubscribed many times. I know Agnico (AEM) and Silver Wheaton (SLW) along with several others have found debt facilities to access if need be, so although credit is hard to come by, there is enough smart money out there that knows where to allocate it efficiently. But on the other hand, it had been much harder for exploration and small juniors to do so, so I do agree with that point to some degree.


On Oct 01 12:25 PM Original Scruffy wrote:

> I am a gold bug / bull, however I find the author's article a bit
> optimistic. One must be very carreful when looking at miners. I especially
> find the following to be misleading:
> "Augmenting this fact, are the very low cash costs (and all in costs
> for that matter), which will undoubtedly help to set record net profits,
> cash flows and operating margins."
> It is my experience that cash is very hard to come by in today's
> "money-for-banks-only" environment.
> Small business and and miners are being starved of cash availability.
> There is a lot of share dilution and opressive financial conditions
> placed on miners trying to take advantage of the rise in precious
> metal prices.
> If you are going to invest in this sector, you best take a very good
> look at cash flow, and general business fundamentals before you select
> a stock.

Oct 04 06:24 PM

[bassmaster17:]

The trend will continue...China is igniting it...and the reversal of Reaganomics by socialist liberals is the fuel. The dollar could go the way of a toilet paper roll and props to the Aussies for doing the right thing. Keep the printing presses rolling!!!

Oct 06 01:17 PM

[elenora123:]

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Elenora
cash for gold

Nov 07 04:29 AM