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.
This week’s discussion topic
I. Update to our junior gold stock valuation table: Valuations on a per ounce basis remain depressed even as gold and copper prices remain high.
The first three weeks of 2012 has started out with a yawn for the large majority of small stocks but this has not been the case for North American mid to large caps, which have done very well. If we continue to see strength on the big boards, the hope is that more speculative capital will move into the higher risk small companies.
For the time being, however, penny stock speculators remain shell shocked from 2011. Because of the extreme volatility we witnessed last year, few believe a month of solid gains on large stocks will not result in a repeat of what happened after Q1 2011 - when everything looked rosy before juniors started an eight month trend of lower lows.
The professional traders on mid and large caps have been expecting negative news (in particular out of Europe) but it has yet to materialize. This has forced them to remain long on a large majority of positions and likely cover large short positions coming out of year end. The professional traders are not the only ones moving massive quantities of capital through the system but they are the best at identifying short-term direction.
Iran remains the wildcard this year and also the potential catalyst to drive gold and oil higher in 2012. While the debt problems of Europe (or relatively small economic slowdown in China) remain on the table, these issues were factored into the market during Q3 and Q4 2011.
Junior gold valuations
While you wouldn’t know it from looking at their performance in 2011, Canadian junior resource stocks typically do very well and are responsible for generating tens of thousands of jobs internationally and investing billions in the local economies. While the risks can be high (even when researched properly) the rates of return can be exponential. Fortunately the TSX and TSX.V allow investors to speculate on everything from base and precious metals, to diamonds and energy.
As I mentioned last month, we would start tracking the majority of TSX and TSX.V listed gold stocks with a minimum of one million ounces and a market cap below $300 million (micro cap) – we specialize in this size of company within the Canadian markets.
Modifications this month
For January we have added 16 companies to ensure we are picking up the largest majority in the sector. We have also added two more columns so each month you can monitor the change in valuation from the previous month and from the time we started this process mid December 2011.
For the most part, valuations this month are a mixed bag. The overall valuation per ounce in December was $56 and we are reporting $60 this month – but keeping in mind we added 16 more companies. A large majority still trade in the $20 to $40 range.
Country risk shines
You will really notice the impact country risk has on a company. Do some research into Gobimin (www.gobimin.com) and you will see how investors love to hate China. It is quite shocking to see its gold project almost worthless by the time you pull out its large cash position sitting in China and Hong Kong. Another new one we added and evidence of investment avoidance in Chile is Exeter (www.exeterresource.com). They have more than $70 million in the bank and a massive gold and copper project but the valuation is incredibly low. I am sure a sector rally would change this but it is a tough call as to whether or not there is substantial value here given the (perceived) country risks.
Increased activity this week
I watched a substantial movement of money into the junior uranium stocks this past week and across the board I am starting to notice decent movement in many penny stocks that have been avoided for months. It is possible we are starting to see a real movement of money into higher risk speculations. While it may be wishful thinking, once we start to see more activity in these junior golds, it shouldn’t take long for many of them to move dramatically. Let’s just hope we don’t see a repeat of 2011.
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
Comparative Chart of Junior Gold Companies - Sorted by Net Debt (Cash)
Comparative Chart of Junior Gold Companies - Sorted by Total Gold Ounces
Comparative Chart of Junior Gold Companies - Sorted by Name
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.
Research & Analysis by Adam Deadlock [*]
[*] Adam Deadlock is a 2012 graduating finance student from the University of Calgary, Haskayne School of Business. Adam does part-time research and analysis for various Ticker Trax projects and also for MicroCap.com. He is part of a small group of Haskayne students involved in the Calgary Portfolio Management Trust (CPMT) initiative.
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.
Original gold valuation tables and introduction - December 2011
https://stockhouse.com/Columnists/2011/Dec/16/Shockingly-Low-Gold-Ounce-Valuations-on-48-TSX