Wellington West Analyst: Low Cost Gold Producers Rate High

Cash flow is king as investors weed through murky markets for opportunities in the mining sector, says Wellington West analyst Catherine Gignac. In particular, Ms. Gignac likes low-cost producers who are cashed up during these uncertain times. 

In a note to clients Ms. Gignac wrote:

Those [producer] companies with cash flow and low cash costs, low capital spending programs and manageable debt service levels stand to benefit the most as the market high grades names in a flight to quality.

She said she likes gold producers Yamana Gold Inc. (AUY), Iamgold Corp. (IAG) and Western Goldfields Inc. (WGW), that all have low cash costs compared to peers and very low price-to-cash flow multiples.  As for royalty companies, she likes Franco Nevada Corp. [TSX:FNV] that offers exposure to metal price movements with reduced management and cost risks.

Iberian Minerals Corp. (IZNFF.PK) is one of her favorite base metal producers. The copper/zinc/silver company is poised to deliver both low cash costs and price-to-cash flow multiple, assuming ramp-up to full production proceeds as planned, she wrote.

Ms. Gignac added that cash balances are also critical to the survival of exploration companies in the current market climate. 

She said:

While our preference is for producers, those exploration-stage companies with cash and modest burn rates may be able to weather the storm. The burn rates for the exploration programs are modest enough that existing cash balances should carry them through the coming year.

Inter-Citic Minerals Inc. [TSX:ICI] and Rainy River Resources Ltd. (RRFFF.PK) are two of her "buy" recommended explorers. 

Comments

[jcw92025:]

Great buy at these prices. Yamana is a low cost gold producer. If I had the money I would buy it hear.

2008 Oct 10 02:37 PM

[traderstraffic:]

Buy Colorado Gold Fields for junk change. Sitting on couple of gold mines and a mill. CGFI best play around for pennies. Load up now before the reports come back.

2008 Oct 10 03:44 PM

[relmor:]

AUY wont see these levels again. Maybe never. When gold makes its next run to new highs (Late year into next year) gold mines will have time to catch up, then run with gold again. Look at the history of how gold stocks perform by the year cycle and price etc.....
At a 52 week low... What else can you say...

2008 Oct 12 11:57 AM

[Socialism c...:]

@relmor: totally agree!! I've been long AUY for a while...just went longer!

2008 Oct 15 03:00 PM