After looking long and hard, I have come up with what I think are the top 5 gold miners to own in 2011. I took their financial position, growth prospects, management and valuation when coming up with this short list. Obviously I don't expect these to be the top 5 gold stocks in 2011 as that would be nearly impossible to accurately forecast how the markets will value these companies coupled with the fact I don't include exploration companies, instead focusing on the Junior Miners. In reverse order:
5) Great Basin Gold (GBG) - With a great valuation, strong production growth profile, I think GBG will have a very nice run in 2011. In addition to their two mines online that have exploration upside, they also have 2 other grass roots properties from which they can grow organically.
- 2P Reserves - 5.22m oz
- 2011 Production@Cash Costs - 310@650
- Price per current ounce of Production - $2888
- How much you are paying for each 2P reserve ounce - $171.48
- Operating Cash Flow Multiple - 4.45x
4) Wesdome (WDOFF.PK) - Although the production growth profile is not really known except in the very near term, they do have a very high quality asset base, great management and a very compelling valuation.
- 2P Reserves - 829k
- 2011 production @Cash Costs - 100@550
- Price per current ounce of Production - $2860
- How much you are paying for each 2P reserve ounce - $345
- Operating Cash Flow Multiple - 3.81x
3) Gammon Gold (GRS) - It was not until recently I warmed up to this company as they acquired Capital Gold (one of my favorite miners), making them a quasi-hybrid precious metals miner. I believe there are only a few silver miners out there worth owning due to valuation as well as qualitative aspects, so coming upon this kind of company is very compelling to me. They have 2 producing properties with a host more in the pipeline. Like the others, great management, strong production growth profile coupled with a gross undervaluation making Gammon number 3 on my list.
- 2P Reserves- 2.55m
- 2011 Porduction@Cash Costs - 210-230@450
- Price Per Current ounce of Production - $4980
- How Much You are paying for each 2P reserve in the ground - $428.77
- Operating Cash Flow Multiple - 5.78x
2) Brigus Gold (BRD) - One of my favorite gold miners at the moment as well as my turnaround story for 2010. With the elimination of their hedge book, this is one company that the market has obviously overlooked and is just waiting to make a substantial run to the upside. They also have an extremely rich land package, from their current flagship mine in Black Fox to the adjacent properties in Pike River and Grey Fox up to their property "Goldfields", home to two different mines, notably the Box Mine.
- 2P Reserves - 2.36m
- Production@Cash Costs - 110@510
- Price Per Current Ounce of Production - $2,848
- How much you are paying for each 2p reserve in the ground - $$132.75
- Operating cash Flow Multiple - 3.61x
1) Atna Resources (ATNAF.PK) - I just can't comprehend why this stock is trading at these levels (50m market cap), extraordinary production growth profile, which will be derived from 3 mines in 2012. They also don't need to go on the acquisition front anytime soon as they have their largest asset set to come-online in 2015.
- 2P Reserves - 400k
- Production@Cash Costs - 40k@700 ( and declining annually)
- Price per Current ounce of Production - $1,312,
- What you are paying for each 2P reserve in the ground - $131.20
- Operating Cash Flow Multiple - 2.22x
The graph above illustrates the robust growth in production by all these companies (ex:Wesdome).
Back To Valuation: Because it would be difficult trying to put a discounted cash flow model in this article I used some very common, yet very telling metrics by which to measure these companies.
- Price per Ounce of current years production - $7,400
- Price per Ounce of 2P reserves - Approximately $400/oz
- Operating Cash Flow Multiple - 10x
These were calculated using a large sum of various mining companies and taking the weighted average. Assuming these miners traded at the industry averages, we would get a valuation that looks like this
Great Basin Gold - Approx $5.90
Wesdome - Approx - $5.10
Gammon Gold - Approx $11
Brigus Gold - Approx $4.65
Atna Resources - Approx $2.30
Of course it is not nearly as black and white as this, as it excludes quality of management, growth, quality of assets, various risk attributes among others, but it does serve as a decent initial screener. Some others that look very cheap are:
- Jaguar (JAG)
- Centamin Egypt (CELTF.PK)
- Golden Star Resources (GSS)
- Northgate Minerals (NXG)
- Orvana (ORVMF.PK)
- Minefinders (MFN)
- Richmont (RIC)
- Timmins (TMGOF.PK)
Disclosure: I am long GBG, BRD, GRS.