Gold and silver have been soaring amidst general market uncertainty, but unfortunately most stocks in gold and silver miners have not followed. While the companies that are mining these two precious metals have not caught up to the commodity prices, this gives the astute investor an opportunity to make an above average return on investment. Because the mining sector is loaded with different junior miners, it can be a daunting task to profile enough companies to come up with solid winners. In this series of articles, I will analyze 10 miners for you in order to make your research a little less tedious and hopefully more rewarding.
I’ll start off with a company that I believe has a lot of upside potential. Great Basin Gold (NYSEMKT:GBG) owns a producing mine located in South Africa. Burnstone is a shallow, low-cost mine located in one of the most prolific gold fields of the Witwatersrand Basin. Burnstone has 6.36 million Proven and Probable and 12.1 million Measured & Indicated resources. Mining costs are estimated at $450 per ounce.
In addition, GBG is developing the Hollister mine, part of the Carlin Trend, in Nevada. Hollister has 0.9 million Proven and Probable and 1.4 million Measured and Indicated resources at a mining cost of $527 per ounce. Hollister neighbors properties owned by Newmont and Barrick. The Hollister property also includes the Esmeralda Mill, which will improve recovery rates. Hollister additionally has an estimated 4.9 million P&P and 11.6 million M&I silver resources. These resources should not be overlooked as a significant contributor to revenues due to supply and demand factors in the silver market. I expect silver to rise more significantly in price in the coming months than gold.
Great Basin Gold’s management has projected 220,000 ounces of gold production in 2011 and an increase to 350,000 in 2012.
Financially, Great Basin has been spending a lot of cash and their burn rate indicates they will need significant cash infusions in the near future. Great Basin has sold some ore to Newmont and has recently completed stock offerings to boost reserves but may need additional cash until the company fully ramps up production. GBG has a quick ratio of 0.86 and a current ratio of 1.18. Total debt to equity stands at 46.57. Gross margin is comparable to industry averages. Great Basin has an investor cost of $64.81 per gold resource ounce, which is relatively cheap, and analysts have assigned a mean share price target of $4.23.
Great Basin Gold has been trading under both its 50 and 200 day moving averages, signaling a strong buying opportunity for value investors. GBG is a junior miner in the initial phase of the miner growth curve and I expect the price to rise substantially over time as rising production from the two mines finally begins to pay off for the patient investor.
Macroeconomic factors such as rising sovereign debt, popular uprisings, and increasing inflation in food, energy, and commodity sectors are very bullish for the price of gold and silver. This favors the junior miners who should cash in on the higher gold and silver prices at market. With a solid management team and two solid, producing mines, Great Basin Gold is a solid stock to consider.
Disclosure: I am long GBG.