by Gerry Greer
The current tension in the Middle East, disaster in Japan, and economic uncertainty are doing nothing to dispel the fear feeding gold speculation. The forcing down of the Japanese yen has the contra effect of supporting the US dollar.
The yen has fallen relative to the dollar in the last week, from a high of between 77 and 78 yen per $US to a relative steady 81 per dollar. While the yen has been weakened in terms of the US dollar, the dollar itself has weakened against a broad basket of currencies. This is noted in the US dollar index which hit a low this week of 75.25, the lowest it has been since December 2010 when it was 74.23. The index had fallen in the previous 8 trading sessions from 77.38.
The yen makes up 13.6% of the index. The euro is 57.6% of the index. The weakening of the Yen requires the strengthening of alternate currencies, and that strength in the last week is showing up predominantly in the euro, not the USD. With the problems in Portugal, the euro, while leveling off at 1.41 to 1.42 will have to fend off selling pressure in the near term. Would you bet on the currency of Portugal, Greece, Spain and Italy in a positive way? Currencies may remain range bound relative to one another simply because all major currencies currently have their own major problems.
We will now see if gold (GLD) can continue to trade as a currency independent of the relationship of the USD to the euro and the yen. If it can, then the price should increase independent of the other currencies. The rise in the price of gold last year made for healthy bottom lines in the last two quarters of last year for gold producers. The first quarter of this year should be as good as the fourth quarter of last, for those companies not carrying a hedge and fully exposed to the fluctuations in gold pricing.
Below are three miners who should have an excellent quarter with gold prices above $1375.
Yamana Gold (AUY) currently trading at $12.25, Yamana has a price to book of 1.243 to 1. Their earnings per share for 2010 were $.63, 30% higher than in 2009. The Earnings for the fourth quarter were $.23 accounting for 36% of the year’s earnings. Yamana has increased its mineral reserves by 26% and its mineral resources by 12%. Production guidance for 2011 is about the same as 2010; however profitability should increase with the increased price of gold. Production growth for 2012 is estimated at 27% and for 2013 for 60% above 2010 levels. Yamana’s land positions are in Brazil, Argentina, Columbia and Mexico.
Goldcorp Inc. (GG) currently trading at $48.40, with a price to book of 2.04 to 1. Earnings per share last year were 2.20 with $.57 in the fourth quarter. Production growth for 2011 is expected to be about 7%. Over the next 5 years Goldcorp will start 6 new mines with an expected growth in production of 60%.Goldcorp has positions in Canada, the USA, Mexico, Guatemala, Chile and Argentina.
Iamgold Corp. (IAG) currently trades at $22.25 and has a price to book of 3.07 to 1. Earnings per share in 2010 were $.77 with half $.39 coming in the fourth quarter. Production growth for 2011 is expected to be about 14%. Forecasts beyond that are not available as some of the production is from joint venture properties. On Iamgold’s own properties, gold production is expected to increase by about 50% by 2013. Iamgold has properties in Canada, South America (Equator, Suriname and French Guiana) and Africa (Botswana, Ghana, Mali, and Burkina Faso).
With gold above $1375 and the expected growth over the next 3 to 5 years these miners are currently undervalued should gold remain at these levels over the next 3 to 5 years.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.