[Editor’s note: The following article first appeared on the blog A New York Nickel on October 29. Read the original entry here.]
We spent the last couple of days here at New York Nickel combing through all of the 830 mining companies that comprise the “basic materials” industry on the TSX-V.
Our goal was to identify those companies that had cash and cash equivalents of $10 million or more, and then to further drill down to subgroup the resulting dataset into more specific categories: those with sales and profits, companies that are somewhat profitable or close to profitability, and those with no sales or profits.
This effort was undertaken to support our investment thesis that difficult times are likely ahead for many juniors as the credit freeze and dearth of investors may threaten those without the necessary cash reserves, making them takeover targets, or worse. This, then, places a premium on those mining companies that a) have the necessary cash to weather the storm, and b) already have sales and perhaps even profits but are trading at a steep discount today because of the current market conditions.
Our findings:
94 companies had cash and cash equivalents of over $10 million. This represents our total universe of Cash Kings.
Only nine companies were consistently profitable; some with growing sales. We will refer to this set as the “Tier 1 Cash Kings”:
*MRFY = Most Recent Fiscal Year
Our top three stock picks:
Gobimin Inc. (TSX: V.GMN, Stock Forum): Low cost producer of nickel, copper and cobalt operating in China. Excellent ramp in sales and profitability. $23 million in cash with no long term debt. Stock is trading at a 76% discount vs. six months ago. However copper and nickel prices are getting hammered so the company is conducting a strategic review. Pays a dividend. We don’t like the June 30 share buyback, though. Don’t waste your money like that, guys.
Energold Drilling (TSX: V.EGD, Stock Forum): Nice sales and profits. Low outstanding share count. Decent volume. Trading at a 78% discount to six months ago. $21 million in cash. EGD is primarily a diamond driller. A lot of backward looking stuff – we’re more interested in the future. They also own Impact Silver (TSX: V.IPT, Stock Forum), so you get a bit of a two for one play here.
Silverstone Resources (TSX: V.SST, Stock Forum): Recently profitable with good trading volume. Not sure whether the profitability is the result of breakeven production levels. Trading at a 76% discount to six months ago. $24.2 million in cash (6/30) with no debt. They buy silver by-products and then re-sell the silver on the market. Guidance is for 33% increase to 2009. Capstone (TSX: T.CS, Stock Forum) owns the majority of shares. They operate in Argentina and South America which could be meaningful against a backdrop of devaluing currencies in those regions. According to ScotiaMocatta (10/28/2008) silver is trading at a two year low. These guys seem to do a good job with IR; their website is geared to investors and from the looks of their event calendar they are aggressive about getting in front of people.
In our next posts we will explore these companies more fully and identify the “Tier 2” and“Tier 3” Cash Kings.
This article was written by a member of the Stockhouse community.