The market staged an impressive "Risk on" rally on Friday. Even some of the severely beaten down junior goldminers participated in the rally. For intrepid investors who don't mind making some small aggressive speculative plays once in a while, miner Golden Star Resources (GSS) might fit the bill. The company has been plagued by falling gold prices early in the year, several operational issues and higher financing costs. However, it has a very cheap valuation, is making structural changes and insiders are voting their confidence by buying shares.
"Golden Star Resources through its subsidiaries, engages in the acquisition, exploration, development, and operation of gold properties." (Business description from Yahoo Finance)
7 reasons GSS makes sense as a highly speculative buy at $1 a share:
- Myriad insiders bought over 500,000 shares in multiple transactions in May.
- The company's new chairman was the CEO of gold mining behemoth Gold Fields (GFI). He is working for no direct compensation but for stock options which aligns him strongly with shareholders in driven value in the stock.
- Golden Star has a three year program being executed to upgrade facilities, streamline operations and reduce costs throughout the system.
- Despite recent problems, investors should take a longer view on this company. It has raised revenues at a better than 25% annual clip over the past five years. GSS is also selling at the bottom of its five year valuation range based on P/B, P/S and P/CF.
- Earnings are ramping up smartly. The company lost a penny a share in FY2011. However, analysts project earnings of 8 cents a share in FY2012 and 24 cents a share in FY2013.
- Given the dismal performance of junior goldminers, M&A activity should increase as it is easier to find gold on Wall Street than in the ground. Yamana Gold (AUY) recently bought Extorre Gold (XG) for an over 65% premium gives an example on how undervalued some of the junior goldminers are right here.
- The stock is extremely cheap at 65% of book value, 5 times forward earnings and just 60% of revenues.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in GSS over the next 72 hours.