Since the end of December, gold bullion went up +13%, breaking its late downtrend momentum. Following the recent US Fed commitment to low rates and global uncertainties remaining in the world, the commodity should soon revisit it all-time highs. UBS mentioned in a report published on January, 23rd that the bank's gold target for 2012 is 2050US$ per tr.oz or an additional +17% vs. current level. A sustained gold price is good for gold mines and especially junior exploration companies. Banks and investors, reluctant to invest in these names in the past year should be back as well as financing and share issues to develop their assets. Mining is a risky business but a very lucrative too; the number of mining shareholders amongst the world billionaires is a good example.
Nonetheless, stocks have been beaten down in the past six months and amongst them, Western Copper & Gold (NYSEMKT:WRN), Lion One Metal (LIO.cn), Detour Gold (DGC.cn), Spartan Gold (SPAGD), Eastmain Resources (ER.cn) & Wesdome Gold Mining (WDO.cn). All these names are sitting on undeveloped assets and great reserves but their market capitalisation varies from US$21m to US$2,7bn. The divergence comes mainly from their development stage; Detour being close to production (actually probably ahead of schedule) and Spartan on the verge of releasing its pre-feasibility report. In both cases, you should have these names in your portfolio. Detour just made a secondary issue and raised nearly C$240m to develop its Detour Lake assets. They also published an updated report on their reserves up 5% at 15.6m ounces. The project is an open-pit mine, cheaper than underground mining as it is often the case in Canada. Spartan is also looking at developing three open-pits with a potential of multi-millions ounces underground. The management recently took over the assets through its company Sphere Resources (SPH.cn), diluting original shareholders to a minority stake. Not a smart move if you consider that they should have been a major source of financing but the management knows the value of the Carlin trend property. Fronteer Gold, their neighbour was bought out for a record price per ounce last year by the major Newmont Mining. Often the case in Mining, mergers and acquisition of good properties offer a support to the stocks. Detour, Western C&G and Spartan are now clearly targets for Barrick or Newmont. Based on recent transactions in the industry and NAV, Detour is worth C$65, Spartan US$4.5 and Western C&G C$7.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.