Gold mining stocks are trading at record lows relative to gold prices. Extreme lows of this nature have only occurred 5 times in the past 100 years. According to Barron's, this could mean a buying opportunity for investors.
Although gold is down from its September high of $1,920, it's still up nearly 140% over the past five years. According to a recent Morgan Stanley report, "the fundamental factors that have driven the gold bull market of late remain very much in place." Gold prices are expected to increase in 2012 due to the ongoing European debt crisis and the sluggish U.S. economic recovery.
Longer-term, even greater forces are anticipated to drive gold prices to new highs. Standard Chartered Bank estimates that per capita income in China and India will reach 30% of the U.S. level over the next two decades, which should cause gold prices to rally "up to $4,869 per ounce by 2020, should current relationships between Asian demand and gold persist." As the price of gold goes up, mining companies that have entered production could see their share price rise along with their profits.
One such company is Pan American Goldfields (OTCBB: MXOM), a Canadian mining company that's generating revenue from pilot production at its Cieneguita mine in Mexico's Sierra Madre region. The Cieneguita mine contains an estimated 1.1 million oz. gold equivalent, or 474,900 oz. gold and 33.5 million oz. silver.
A preliminary economic assessment is underway for the Cieneguita project, setting the stage for a much larger mining operation. The PEA is expected to establish the viability of operating at a rate of approximately 100,000 gold eq. ounces per year, with the potential to generate a net profit of nearly $88 million to MXOM annually.
MXOM is also advancing the Cerro Delta gold project on the border of Chile and Argentina. The Cerro Delta is on the same structure as, and is geologically similar to one of the largest undeveloped gold deposits in the world: the Barrick-Kinross 23.2-million-ounce-gold Cerro Casale porphyry deposit, located 12 miles west.
MXOM is led by an experienced management team that includes Hernan Cellorio, the former president of Barrick Argentina. The Company's Chairman, Neil Maedel, is an international financier with years of experience in the resource industry. You can watch an exclusive interview with Mr. Maedel from the recent RedChip Small-Cap New York Conference, where he delivered a corporate presentation on MXOM. The interview and presentation are available on our conference page.
Disclosure: The subject security is a client of RedChip Companies, Inc. RedChip Companies, Inc., employees and affiliates may have positions and affect transactions in the securities or options of the issuers mentioned herein. For full financial disclosures for all RedChip clients, please visit http://www.redchip.com/disclosures.asp?src=rcv.