With gold prices well over $1,400 per ounce, and the dollar showing renewed weakness, it makes sense to keep some assets in gold related stocks. In particular, I like some of the lower priced gold stocks that have new mines in development. I also look for companies that could be attractive for a larger gold company to buy. Investing in gold stocks with reasonable valuations, strong management teams, and solid business models, can increase the chances that another company will acquire them outright.
With some companies holding large amounts of cash on their balance sheets and interest rates still near record lows, it is likely that we will see more deals and consolidation in this sector. With that in mind, I have researched a few names that fit the criteria discussed above, and are therefore more likely to be looked at as a buyout target. These are solid companies that appear undervalued and likely to rise whether or not they are acquired. Here are some of the names worth looking at:
Northgate Minerals (NXG) shares are trading at $2.74. NXG is a gold miner based in Vancouver, Canada. The 50 day moving average is about $2.78 and the 200 day moving average is about $2.95. Earnings estimates for NXG are 4 cents per share in 2011 and 21 cents for 2012.
Why Northgate could be an attractive target: Northgate reported adjusted net earnings of $17.2 million or $0.06 per diluted share and cash flow from operations of $56.5 million or $0.19 per diluted share for the fourth quarter of 2010. This shows improved results and the cash (equivalent) balance at the end of the year (2010) was $334.8 million. Northgate has invested heavily in its Young-Davidson mine which is projected to achieve open pit production and the first gold pour in the 1st half of 2012. The Young-Davidson mine will provide a new catalyst for growth.
Yamana Gold (AUY) shares are trading at $12.58. Yamana is a gold mining company based in Toronto. The 50 day moving average is $12.07 and the 200 day moving average is $11.15. Earnings estimates for AUY are about 96 cents per share in 2011 and $1.02 for 2012. AUY pays a dividend of 12 cents per share which is equivalent to a 1% yield.
Why Yamana could be an attractive target: Yamana is undervalued relative to its peers and trades for just over book value, which is stated at $9.77. Many large gold mining stocks trade for about 20 times earnings while Yamana only trades for about 12. Acquiring Yamana could be highly accretive for a major gold company due to this disparity in valuation.
Crocodile Gold (CROCF.PK) shares are trading at about $1. Crocodile Gold is based in Canada with mines in Australia. The 50 day moving average is $1.25 and the 200 day moving average is $1.27. These shares dropped about 25% recently, when Crocodile announced a capital raise at C$1.05 per share, in order to fund more development. You can read about this deal here. With the capital raise behind it, the company has the cash needed to fully develop its properties. The recent price drop is a great buying opportunity. Read the investor presentation from Crocodile here.
Why Crocodile could be an attractive target: Crocodile Gold has an experienced management team with several top executives having been previously employed at Goldcorp (GG). When you see several executives leave a major, well established company like Goldcorp, they must be seeing serious upside in Crocodile. This company appears to be developing itself to be a prime acquisition target in the future. Crocodile Gold is currently mining from the Howley, North Point and Princess Louise open pit mines and the Brocks Creek underground mine. Crocodile is currently developing the Cosmo underground mine which has great potential and is expected to start production around mid 2011. This stock trades in Canada on the Toronto Stock Exchange and in the U.S.
Kinross Gold (KGC) shares are trading at $16.08. Kinross is a gold exploration and production company based in Toronto. The 50 day moving average is about $16.20 and the 200 day moving average is about $17.13. Earnings estimates for KGC are at 66 cents per share in 2011 and 83 cents for 2012.
Why Kinross could be an attractive target: Kinross looks undervalued, and is trading at a discount to its peers and to stated reserves. Also, there is growth potential- Kinross said it expects to increase its annual production to approximately 4.5-4.9 million ounces by 2015. Kinross has a strong balance sheet, and reported over $1.4 billion in cash, cash equivalents and short term investments as of December 21, 2010. Others believe Kinross could be a takeover target as well. You can read more about this here.
Golden Star Resources (GSS) shares are trading at $3.07. Golden Star is a gold mining and exploration company based in Colorado. The 50 day moving average is about $3.54 and the 200 day moving average is $4.32. Earnings estimates for GSS are at 24 cents per share in 2011 and 35 cents for 2012. GSS shares dropped from about $4 per share down to about $3 after reporting earnings that disappointed investors.
Why Golden Star could be an attractive target: Golden Star shares have dropped about 50% from the 52 week highs of $6.01 which could attract a takeover offer. Golden has a strong balance sheet and reported cash and cash equivalents at year-end 2010 were about $178.0 million.
Taseko Mines, Ltd. (TGB) shares are trading at $5.91. Taseko is engaged in mining, exploration and production. This company is based in Vancouver. The 50 day moving average is about $5.90 and the 200 day moving average is $5.10. Earnings estimates for TGB are about 77 cents per share in 2011.
Why Taseko could be an attractive target: Taseko might be an interesting target for a major gold company because it has strong growth potential especially if the Prosperity Mine pays off. It also has a solid, debt free balance sheet. You can read more about TGB in this investor presentation.
The data is sourced from Yahoo Finance. The information and data is believed to be accurate, but no guarantees or representations are made. Rougemont is not a registered investment advisor and does not provide specific investment advice. The information contained herein is for informational purposes.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: I am long Crocodile Gold