We have been generally bullish of gold since Jim Dines brought it to our attention at $35 per ounce many years ago. While we have never been part of the “doom and gloom” or the “hard money” movement we are able to appreciate that precious metals in general and gold in particular are often “safe havens” for money and investors. Gold can “inflation proof” a portfolio and offers price appreciation in times of political upheaval, uncertainty, inflation and currency debasement.
We think the European sovereign debt crisis will be a positive for gold prices in the mid to long term. With the recognition that all sovereign debt has a risk of nonpayment attached to it, we look for the nascent trend of sovereign nations and their central banks acquiring gold to not only continue but to accelerate. This represents a generational change in the mindset of central bankers on a worldwide basis. The impact will ripple through the gold market for years to come with a positive impact on prices.
Additionally, we think we are at the point in time when gold (and gold stocks) will once again start to benefit from all the normal factors that traditionally drive the price of gold. It is always frustrating when we go through a period like we just did when all the markets (and stocks) go to a correlation of one. Thus, instead of benefitting from the European crisis gold actually fell because it became a necessary source of funds for the traders that were facing margin calls on other losing positions. To paraphrase one of President Obama’s cronies “the gold market let a good crisis go to waste.”
We have selected ten leading gold explorers/producers with market caps under $2 billion that should benefit from a resurgent interest and flow of funds back into gold. Here are the first five:
AuRico Gold, Inc. (AUQ)
AuRico Gold is a $1.76 billion market cap company (excluding the Northgate transaction) with an average daily volume of 2.3 million shares. Some may recall AuRico was formerly known as Gammon Gold prior to June of this year. The company completed its acquisition of Northgate Minerals last week. With the acquisition of Northgate the company is an intermediate gold producer with 5 operating mines and the Young-Davidson targeting production at the end of 2012. Production is diversified between Canada, Mexico and Australia. The Young-Davidson deposit is world class and should produce 180,000 ounces of gold per year at a cash cost of $400/oz over a 15 year life with an initial capital cost of $377 million (of which $200 million remains). Dilution should not be a problem as the company is internally funded and has a proforma cash position of $346 million. The stock is off 29% from its 52 week high.
Exeter Resource Corporation (XRA)
Exeter is a $331 million market cap company with an average daily trading volume of 500,000 shares. The company is based in Canada and has operations in Chile. The company has the world class Caspiche copper-gold-silver project in Chile. Exeter is well financed with $78 million. The pre-feasibility study for this project is currently underway. The project currently has 21.3 million ounces of gold (M&I) and 48.4 million ounces of silver (M&I) with good potential for expansion. This is a great looking project. The stock is off 43% from its 52 week high.
Golden Star Resources, Ltd. (GSS)
Golden Star is a $530 million market cap company with an average daily trading volume of 509,000 shares. The company is based in Littleton, Colorado but principally operates in Ghana where it operates two mines. The company produced a total of 355,000 ounces of gold last year. Active exploration programs are being conducted in Western Africa and South America. The stock is off 66% from its 52 week high.
Jaguar Mining, Inc. (JAG)
Jaguar is a $482 million market cap company with an average daily trading volume of 2.1 million shares. The company is headquartered in the U.S. but is a South American play (Brazil). The company produced 80,000 ounces of gold in the first half of 2011 with record revenue of $115.7 million. Production is totally unhedged. Their Gurupi Project remains on schedule and on budget with the potential to add 2 million ounces to its existing 3.1 million ounce resource. The stock is off 25% from its 52 week high.
Mawson Resources Limited (MWSNF.PK)
Mawson is a $97 million market cap company with an average daily trading volume of 24,000 shares here in the U.S. (its principal market is in Canada). This is a very small company with very big backers and a gold project that could be an entire new gold district. Mawson’s Rompas project in Finland was discovered by blue chip company Areva (now Mawson’s second largest shareholder) and has returned bonanza grade gold and uranium over an area exceeding 6km in strike and 200m in width. Channel samples averaged 3.34 ounces of gold per ton and went as high as 22,723 g/t (373 oz/ton). Mawson has locked up all the ground in the area with their claim applications covering 75,340 hectares. The initial batch should receive formal approval next month thereby permitting a substantial drilling program this winter. As noted below we are personally invested in Mawson because we are awed by the potential of this project which is further magnified by the small capitalization of this company (51,670,753 shares outstanding with $11 million cash in the treasury). As we are not geologists, what we like most is that Mawson has attracted large “blue chip” backers i.e., management and board have a 10% interest, Areva has 9% with an option for an additional 8%, Pinetree Capital has 10% and the powerful $2.5 billion Sentient Group is the largest shareholder with 16%. We like being invested with sophisticated, deep pocketed industry experts such as these. The stock is off 41% from its 52 week high.
Disclosure: I am long MWSNF.PK.