Stockhouse Ticker Trax is equity specific research (Canadian listed and market cap < $300 million) published every Monday to paid subscribers. Our free Friday column may feature companies previously featured to paid subscribers (with a minimum one month delay) or discuss topics of interest to the general investment community and relevant to overall portfolio management.
In this issue:
I. Gold valuation update for July – Avg $38/oz ($34 June and $47 Dec/11)
Even as gold (again) broke through $1600 this week, we have seen only marginal improvement in depressed junior gold valuations. This is a direct result of broad-based risk aversion that we have seen since March 2011, in smaller, high-risk equities.
There is another problem affecting these projects, and it goes beyond the frustration of trying to finance in this economy - many of the major gold producers are running into significant operating and capital cost problems.
Just this week gold mining giant Barrick (TSX: T.ABX, Stock Forum) released financials and it is clear they bit off more than they could chew in South America. Its Pascua-Lama project in the Andes Mountains is expected to cost $8 billion (50% more than budgeted). This is not only a massive cost over-run, but in Argentina and Chile where political and country risk are very high.
Barrick stated that they are shifting their strategy away from a focus on growing gold production to improving the rate of return for shareholders. This will help the gold price as it improves the supply/demand fundamentals, but it highlights the problems faced on “many” gold exploration projects – for majors and juniors alike.
Typically the juniors could also depend upon the blue sky potential of a merger or takeover by a major. Right now those are few and far between. Because of this, the blue sky premiums that many of these companies would command in the past, are just not there.
Certain projects will command a higher valuation if the economics are strong - higher grade, shallow, and have low (realistic) capital costs. Without this companies are really struggling with their valuations. Some mining promoters are also able to create a story that attracts momentum traders, but that is typically short lived.
Right now capital and operating costs are the Red Flags of the industry. If there is a hint that they will be high, then institutional money is reluctant to invest, and big banks even more so.
You can clearly see this in the tables below with companies like Exeter (TSX: T.XRC, Stock Forum). Not only do they have over $60 million in the bank but a massive base and precious metals project in South America. In the valuation I give them NO credit for the other metals and yet the gold portion carries a valuation of only $2 per gold ounce!
It is very unfortunate to see this but investors feel the deposit will never be developed and must assume no one will ever have an interest in buying or merging with them. This may not be a realistic assumption, but until the market pays attention, it is deemed worthless. A terrible situation if you are XRC shareholders or management.
The tables contain many very attractive investment opportunities if you have the patience. One in particular that stands out is Victoria Gold (TSX: V.VIT, Stock Forum; 28 cents) but there are many if you do your research and focus on balance sheets, grades and depth.
Standardized monthly notes for our gold tables
We have sorted the same table four ways so you can determine which format is the most useful.
Note: Due to limited space for website presentation, we are not able to display various additional notes for many of the companies. This may include additional copper or silver resources that were not taken into consideration for the valuation. Only resources that were specifically reported in a 43-101 report were included. Many of these companies own various other projects or assets that may add additional value. Almost all companies host a Powerpoint presentation on their website and this is a valuable tool for doing further due diligence.
(Please click on the individual table to see bigger size)
Comparative Chart of Junior Gold Companies - Sorted by EV / Risked Reserves - July 27, 2012
Comparative Chart of Junior Gold Companies - Sorted by Cash - July 27, 2012
Comparative Chart of Junior Gold Companies - Sorted by Total Ounces - July 27, 2012
Comparative Chart of Junior Gold Companies - Sorted by Name - July 27, 2012
Important note: Our Ticker Trax Comparative Gold Analysis is an educational tool. If you are not a professional money manager we strongly suggest working with a qualified investment advisor prior to making any investment decisions based upon these tables. Once a month we will update this analysis and publish it on Friday afternoon with any relevant notes.
Gold table reference notes:
Measured Mineral Resource: is that part of a resource for which quantity, grade or quality, densities, shape, and physical characteristics are so well established that they can be estimated with confidence sufficient to allow the appropriate application of technical and economic parameters, to support production planning and evaluation of the economic viability of a deposit. The estimate is based on detailed and reliable exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough to confirm both geological and grade continuity.
Indicated Mineral Resource: is very similar to the Measured classification but the resource can be estimated with a level of confidence “sufficient” to evaluate economic viability of the deposit. This classification is much stronger than Inferred but still makes a significant number of assumptions. Most junior exploration companies in Canada report Measured & Indicated (M&I) in the same category.
Inferred Mineral Resource: is that part of a resource for which quantity and grade or quality can only be estimated on the basis of geological evidence that involves limited sampling and reasonable assumptions. The estimate is based on limited information gathered from locations such as outcrops, trenches, pits, workings and a very limited number of drill holes. The Inferred category is similar to saying “we have a reasonable expectation the minerals are there but have yet to prove it through sufficient drilling.” Moving a resource from Inferred to M&I can be time consuming and expensive.
In addition to this weekend column and the bottom fishing research sent to paid Ticker Trax subscribers on Monday, I also provide free MicroCap alerts throughout the week. These are based upon News or Abnormal Price/Volume Activity on the several hundred stocks we track from our own research, brokerage analysts, or third-party newsletter writers.
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