West Coast Commentator

Gold Stock Earnings to Shine in 2007

Two Remarks on Yamana Gold:

They have hedged 90 million pounds of their2008 Chapada copper production
at an average price of $2.75/lb, not $3.50 as stated by Trey Wasser. Neverthe-
less, but he is correct when he states that cash costs for gold production will be
(-$114) per ounce. Chapada's sheer copper production size will just make the
company a low-cost copper producer with gold credits. That's the same "il"logic
as for the negative triple-digit "gold production" cash costs of zinc miner Agnico
Eagle (except that they didn't get it to hedge their base metals!). Gold-bugs will
cry foul at such a statement I'm sure. But copper-bugs may rest assured, as
the hedging program includes long-call options at an average strike price of
$3.25 per pound of copper (if, let's say, the dollar takes a dive...).

Yamana is my largest position and that also for another good reason, which fits
right into this article: They are far less subject to the production cost increases
other miners face because of the strong Brasilian mining equipment industry.
Case in point: Yamana uses Randon trucks, domestically manufactured, cheap
and most of all available including tires. I don't even have to point out labor as
another big plus, that Brasil has a large supply of well-educated and mining-
experienced personnel available. That should be pointed out prominently in
this article, one just has to compare this to the situation in Australia (which is
one of the reasons I currently only hold one position there, Kingsgate Cons.),
where six-figure annual wages even for college grads blow to top off mining
projects - if the companies find somebody at all to replace their double-digit
turnover rate-caused vacancies.

A remark on Hecla: A good company, even though their heydays are over
(they used to have 30%+ dividend yield-years from their namesake mine in
Idaho, but this is hunderd years ago). If you want to go for the dilution ride,
go ahead... The Carlin Trend project mentioned above is the Ivanhoe Mine,
a high-grade 1oz+/ton vein deposit slated to come online next year. A much
better way to participate in that is to invest in the owner and 50% JV-partner
Great Basin Gold (AMEX:GBN), who currently brings a large shallow gold
deposit on the East Rand in South Africa into operation and has a very low
valuation. A pure gold play. This way one is not stuck with Hecla when zinc
and lead take the dive.