In 2006, the NAV premium to share price for the senior and intermediate goldminers was just +4 pct, but throughout 2004 and 2005, it ranged from +25 pct to 27 pct. With the changing earnings picture this year, I expect prices to pop back to normal levels.
Of course, in 2007 there will be rising operating and developing costs (energy, labor and materials) that the gold mine operators will have to control.
In the past 24 months, the industry saw a number of larger companies acquiring smaller ones, and paying substantial premiums. There was Goldcorp (GG) and Glamis (GLG) and before that Glamis and Western Silver (WTZ). Also, Gold Fields (GFI) bought Bolivar (Venezuela) and Western Areas, and IAMGOLD (IAG) acquired Cambior (CBJ). Yamana (AUY) acquired Viceroy. Before that there was Barrick (ABX) and Placer Dome.
I expect more of the same this year from Barrick, Goldcorp, IAMGOLD and Yamana. Without Pierre Lassonde as President, I don’t know what to expect from Newmont (NEM).
The place to be in 2007 is not in any of these companies (except probably Yamana) or in the companies with hedged production, like Barrick or AngloGold Ashanti (AU), Minas Buenaventura (BVN), Lihir (LIHRY), Newcrest (OTCPK:NCMGY), Aurizon (AZK), or Red Back, or in one controlled by a mega-rich Russian oligarch (Polyus (OTCPK:NILSY)) by the name of Mikhail Prokhorov who sits, with at least 20 women today in a French jail cell, apparently accused of being their pimp.
No, the place to be is where the company is going from losses to significant profitability. That list (in alphabetical order) includes:
Agnico-Eagle Mines (AEM)
Alamos Gold [AGI.TO]
Eldorado Gold (EGO) [ELD.TO]
Gammon Lake Resources (GRS)
Guyana Goldfields [GUY.TO]
Harmony Gold (HMY)
High River Gold [HRG.TO]
Highland Gold [HGM.L]
Meridian Gold (MDG) [MNG.TO]
Minefinders (MFN) [MFL.TO)
Richmont Mines (RIC)
Sino Gold (OTC:SIOGF) [SGX.AX]
Yamana Gold [AUY/YRI]
You might add to that list a couple that are sitting on huge ore bodies and will be in production in two years or so: Crystallex (KRY) and Aurelian [ARU.TO]. For the best pure exploration play I like U.S. Gold Corp (UXG). And for pure silver I like Silver Wheaton (SLW). I also like a couple other silverminers, but this is a list of eighteen (18) that I think will do well in 2007 based on professional management, ore in the ground or growing profits.
It’s a big list, but, barring any significant discovery, a solid price run in one of them might be sold and replaced by another. This is a list that has to be managed.
One from the list that I like very much is Yamana, which starts trading on the NYSE today. But I am expecting CEO Peter Morrone to stay on the acquisition trail, which means dilution. In addition, Peter, who tells a great story, usually has this stock well-priced via promotion, so there is always risk of disappointing results. So, for me, my finger is always close to the sell button on that one.
Here is a list from BMO Research with 2007 estimated earnings based on a gold price estimate (unstated) of, I believe, US$605.
My opinion, which is clearly above most of the crowd, is that the average gold price for 2007 will be US$700, which would push these earnings estimates higher.
Addendum: Ok, since you are asking, I do like Kinross (KGC) [K.TO] and Pan American Silver (PAAS) [PAA.TO] too, on the basis of earnings growth for 2007. There; that's 20 precious metal stocks. I could go on, but I have to cut it off.