Positive recent macroeconomic events likely mean that gold will go up in price. The EU has come up with a plan to defuse the EU credit crisis for the near term at least. Perhaps recent actions will lead to a long term solution. The can has been kicked down the road on the situation in Greece. However, the Greek PM’s decision to have a referendum on the newly approved austerity cuts may throw a wrench in the works. Nonetheless, the can has still been kicked down the road. No one wants an immediate default.
The U.S. has reported better than expected economic data recently. Automaker sales showed good growth on Nov. 1. A bigger item was the Q3 GDP of +2.5%, when many were saying that the U.S. was about to double dip. The initial Claims numbers have reinforced a slow recovery thesis in the last several weeks. The number has floated around 400,000 new claims per week. Additionally, the Chinese HSBC PMI for October came in at 51.0.
This is the first expansionary number in months. As a result, the fear in the market has lessened from outright terror to worry. Gold has started to rise again as the “sell everything” terror abated. It hit bottom on Sept. 26, 2011 at $1535/oz. It has since risen to a recent high of $1754/oz. Gold took a nosedive Monday Oct. 31, 2011 to about $1710/oz. as the BOJ sold Yen on the Forex to push the price of the Yen down relative to the Euro and the USD. Since gold is priced mostly in Euros and USDs, gold’s own price tends to go down if those currencies go up.
However, the Japanese Yen selling was a unilateral action by the BOJ. Such unilateral actions usually do not have sustainable effects. Gold fell further Nov. 1 to 1680/oz. on the announcement of the Greek referendum. It has rebounded since to $1734 currently. I would expect gold to rebound more relatively quickly. More importantly its most recent high of about $1750/oz. is an important technical resistance area. If the price of gold breaks above this area, it is likely to continue upward.
In addition to the above mentioned fundamental and technical reasons for gold to rise, the ECB (under Draghi -- the Italian) is expected to lower interest rates on Thursday Nov. 3, 2011. This should add to inflation fears, but it should help most believe in an eventual EU recovery. Lower interest rates will help Spanish and Italian real estate markets. Lower rates are likely to push bond rates down too. This should help borrowing cheaper. It should aid inflation, which should help push gold up.
The leveraged EFSF fund of approximately 1 trillion Euros (about $1.4T) meant to help deal with the EU credit crisis should add to the inflation fears, but it should aid the recovery hopes. The RBA is expected to lower its rates at its next meeting. The PBOC is expected to stop tightening. 45 Asian countries are expected to grow at 7.5%+ in 2011 and 2012, including behemoths China and India. Inflation is high in those countries and other emerging market countries. The following table includes the CPI’s for some of the more important countries’ economies.
4.8% (since Jan. 1, 2011 -- Oct.)
7.31% (YoY -- Sept.)
Gold miners should benefit from likely higher prices. At the very least they should benefit from a likely worst case stabilization of gold at these higher prices. Some of the gold mining companies that have been showing good growth are: Coeur d’Alene mines Corporation (CDE), Paramount Gold and Silver Corp. (PZG), Allied Nevada Gold Corp. (ANV), and Gold Fields Ltd. (GFI). These are examined more thoroughly below. Others that are likely to do well (good 5 year % EPS growth estimates per annum) are industry leader Barrick Gold Corp. (ABX) -- 26.09%, AngloGold Ashanti Ltd. (AU) -- 64.90%, Hecla Mining Co. (HL) -- 13.60%, and IAMGOLD Corp. (IAG) -- 29.60%. I am sure there are others, but I hope I have given you a good start.
CDE engages in the ownership, operation, exploration, and development of silver and gold mining properties located primarily in South America, Mexico, the U.S., and Australia. It also explores for lead and zinc. The chart below shows the recent sales growth. The one to the right of it shows the growth in operating cash flow.
click to enlarge
The chart below shows the mine contribution of CDE’s various mines.
The table below shows CDE's mineral reserves.
CDE is growing the mineral reserves consistently. This is reflected in its 25% 5 year EPS percentage growth estimate per annum. It is trading at an FPE of 6.69. It has room to move up, especially if gold prices are increasing.
PZG is an exploration stage gold and silver mining company. It engages in the acquisition, exploration, and development of gold, silver, and precious metal properties in Mexico and the U.S. PZG holds a 100% interest in the San Miguel property located in southwestern Chihuahua, northern Mexico. Its other properties include the Sleeper Gold mine in Humboldt County, the Mill Creek and the Reese river properties located in Lander County, and the WR Claims located in Spring Valley area in Pershing County, Nevada. This is a young company that is acquiring gold properties cheaply. The chart below shows (.pdf) just how much more cheaply.
The table below shows PZG’s resources. By comparing these to those of the more mature CDE, you can see just how good a value PZG is. CDE’s market cap is $2.35B. PZG’s is only $377.46M. That’s less than 1/6 of CDE’s. The numbers speak for themselves. See PZG’s resources table below.
Totaled, these amount to 7,002,000 gold equivalent ounces; and this company is still growing quickly. The only caveat is that it is mostly an exploration company. It is planning to sell more developed assets to more mature miners for actual production. There is always the possibility that this strategy could change.
ANV engages in the evaluation, acquisition, exploration, and advancement of gold exploration and development projects in the state of Nevada. Its primary mine is the Hycroft, but it is in various stages of development in many more mines in Nevada. The chart below shows ANV’s gold resource growth at Hycroft (.pdf), which is excellent.
The gold production growth is shown in the chart below.
This growth is forecast to quite rapid through 2015. Beyond that it tapers off. However, this may likely be due to the company’s unwillingness to forecast uncertain resources. In fact there is every reason to believe that growth will continue to be fast far beyond 2015. The total reserves (ounces) in the Hycroft mine are 10.2 million ounces of gold and 388.6 million ounces of silver (at a cash cost/oz. of $450-$490/oz.). There are figures for some of the other mines, but a much lesser amount of exploration has been done on them. Citing them would be misleading at this point. They will turn out to have much higher levels of resources. Hycroft itself still has more exploration to go. Its resources are expected to increase. This is such a new, fast growing company that analysts have not even given it a 5 year EPS % growth per annum figure, but it is forecast to grow at 248.10% in FY2012. This is one you want to ride for a while.
GFI engages in the acquisition, exploration, development, and production of gold properties. The company holds interests in mines in South Africa, Ghana, Australia, and Peru. It has total attributable gold equivalent mineral resources of 78 million ounces and mineral resources of 281 million ounces. In GFI’s most recent update it said that Q3 2011 production would be approximately 900,000 gold equivalent ounces. This is a 3% increase over Q2 despite a 5 day labor interruption in production in July. GFI also has a good pipeline of new projects with four major new projects in resource development. Annualized production is 3.5 million gold equivalent ounces. Zacks expects them to grow profits by 57% in 2012. It is currently trading at a FY2011 PE of 13.28. It has room to run with a 57% EPS growth forecast for 2012.
The charts of these stocks add some technical flavor.
The two year chart of CDE is below.
The two year chart of PZG is below.
PZG is overbought short term on its slow stochastic sub chart. However, the chart shows a good consolidation over the last few months. It still seems long term oversold. Perhaps as importantly the analysts’ 1 year percentage price growth forecast is 306%. This by itself is a good reason to buy this stock.
The two year chart of ANV is below.
The two year chart of GFI is below.
All of these companies are near term overbought on their slow stochastic sub charts. However, they are, except for super strong ANV and more average GFI, below their 200-day SMA’s. The recent partial pre-announcement from GFI has helped to push it up. With a low FY2011 PE and 57% FY2012 EPS growth forecast, GFI has room to run further up. PZG and CDE are in position to move up in price. ANV hasn’t stopped appreciating in price even during the last few months of market trouble. I have found no reason for this stock to break its positive uptrend. You can likely ride this one higher with good confidence for quite some time.