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The Gold Stock Strategist analyzes leading junior gold producers and major gold mining companies.

Comments are welcomed!

Monday, June 30, 2008

Western Goldfields Inc.

CURRENT PRICE: $2.22
TARGET PRICE RANGE: $2.91-$7.06

Western Goldfields Inc. is a gold mining company with operations in Imperial County, in the Southeastern corner of California. Western Goldfields strategy is to identify and invest in proven and politically safe North American gold deposits using cash flow from their Mesquite gold mine production.

Western Goldfields had their first pour on January 15, 2008 and first quarter production of 9,960 ounces of gold. Management expects 20,000 to 30,000 ounces of gold production in the second quarter and hope to ramp up to 135,000-145,000 ounces of gold production in 2008 and 2009.

Mesquite Gold Mine
The Mesquite Gold Mine is an open pit mine outfitted with a fully permitted heap leach processing facility with a capability of up to 170,000 ounces per year production. The heap leaching process is explained very well in their promotional video.

Western Goldfields Inc. Promotional Video

Measured, indicated and inferred (MI&I) resources equal about 4.3 million ounces of gold at Mesquite—a very nicely defined resource. The gold resource is very finely disseminated particles of gold throughout the ore. Proven and probable reserves are

WESTERN GOLDFIELDS INC. SUMMARY

AMEX: WGW
TSX: WGI

Shares Outstanding: 135.4 Million (155.2 million fully diluted)

Market Capitalization: ~$300 Million

Investor Relations Telephone: 416-324-6015

Western Goldfields Inc. Web Site

Western Goldfields Inc. June Presentation

Western Goldfields Inc. has a total of 4.3 million oz of gold compliant with Canada’s 43-101 regulatory rule. There are 2.8 million proven and probably reserves defined for SEC purposes.

A portion of Western Goldfields production is hedged. A total of 66,000 ounces of gold per year are hedged though 2014 due to a credit facility agreement. The hedges are at $801 per ounce. That is roughly 40 percent of their gold production. Given the rising price of gold, the hedge is costing Western Goldfields almost $1.00 per share in share value for 2009 valuation based on the cash flow method of valuation used by the Gold Stock Strategist.

WGW had about $69 million in debt reported in the 2007 annual report through a loan term facility and has 6 million warrants outstanding maturing as early as December 2009.

Cash on hand as of June 2008 = ~$40,000,000. with 7.5 million restricted. They expect to have become cash flow positive in June 2008.

Production projections range from 135,000 up to 170,000 per year when the Mesquite mine is fully operational. For purposes of modeling, Western Goldfields Inc. production is projected to be 80,000 oz. in 2008; 130,000 oz.in 2009; 155,000 oz. in 2010.

A major issue of concern is the cost of production, estimated by management to be $470-$490 per ounce in 2008. Management projects the cost of production is to decline to $430-$450 in 2009 and $390-$410 by 2010. If energy costs continue to rise, cost of production is likely to increase relative to current management projections. This is the wild card for all producers in my opinion.

Management is experienced and well connected in the industry working for Barrick and Kinross Gold and other resource companies.

The following valuation methods are what I use to value Western Goldfields Inc. for my investment purposes and provide a range of short-run and potential long-run value. Of course, different assumptions would produce different valuations. The reader can assess the reasonableness of the assumptions.

SHORT-RUN CASH FLOW SHARE VALUE

$2.91 per share in 2009 using a cash flow model valuation and assuming the following:

10x cash flow
$865 per ounce POG (adjusted for hedge based on $925 spot POG)
$500 per ounce production cost
130,000 ounces of production
$6,200,000 G&A costs
155,167,000 shares outstanding (fully diluted)

POTENTIAL LONG-RUN RESERVE SHARE VALUE

$7.06 per share using Western Goldfields Inc.s 4.3 million oz. MI&I gold resource estimate.

The majors are paying about $280 an ounce for buyouts at $950 an ounce POG. 4,300,000 times $280 an ounce equals $1,095 million. $1,095 million divided by 155.2 million shares (fully diluted) equals $7.06 per share.

MANAGEMENT

Randall Oliphant, Chairman
Raymond W. Threlkeld, President and Chief Executive Officer
Brian Penny, Chief Financial Officer
Paul G. Semple, Vice President, Projects
Wesley C. (Wes) Hanson, Vice President, Mine Development


BOARD OF DIRECTORS

Randall Oliphant
Vahan Kololian
Martyn Konig
Gerald Ruth
Raymond W. Threlkeld

-------------------------------------------------

Full disclosure: I do not own shares in Western Goldfields Inc. The information provided in this post is believed to be correct, but not guaranteed. Investing in junior gold miners entails risks. Readers are responsible for their own investment decisions. Do your own due diligence.

Saturday, June 28, 2008

UPDATED Emerging Gold Producers Ranked -- Projected Cash Flow Method

One of the quantitative techniques I use to evaluate emerging gold producers is the ratio of projected future cash flow price (10x cash flow assumption) to current price.

This technique provides a standard quantitative comparison of company share valuation that serves as a starting point for my assessment of whether or not to invest in an emerging gold producer stock.

Once I have a standard quantitative measure of assessment, I can apply qualitative factors to the investment decision like political risk, currency exchange risk, property rights risk, remote site risk, single mine risk, operational risk, and management competence risk.

The following is my analysis of 15 emerging gold producers using a cash flow multiple ratio for projected 2009 and closing share prices on May 9, 2008. The higher the projected cash flow multiple, the more undervalued the stock.

MAY 9, 2008
2009 PROJECTED 10X CASH FLOW PRICE MULTIPLE TO MAY 9 PRICE
1) Metanor Res......3.7
2) Gold-Ore Res.....3.5
3) Gold Resource....3.5
4) MDN Inc..........2.9
5) ATW Ventures.....2.5
6) Jaguar Mining....1.9
7) Capital Gold.....1.7
8) W. GoldFields....1.6
9) San Gold Res.....1.5
10) Minefinders......1.5
11) Alamos Gold......1.5
12) Jinshan Gold.....1.5
13) Apollo Gold......1.2
14) Aurizon Mines....1.1
15) Kinbauri Gold...(NA)

JUNE 27, 2008
2009 PROJECTED 10X CASH FLOW PRICE MULTIPLE TO CURRENT PRICE
1) Metanor..................5.4
2) Gold-Ore................4.2
3) Alexis Minerals.......3.9
4) Timmins Gold........3.4
5) Gold Resource.......2.9
6) MDN Inc.................2.2
7) ATW Ventures........2.2
8) Jaguar Mining.......1.8
9) Minefinders............1.6
10) Capital Gold..........1.6
11) Western GoldField..1.5
12) Jinshan Gold..........1.5
13) Apollo Gold.............1.5
14) Alamos Gold...........1.4
15) Aurizon Mines.........1.1
16) San Gold.................1.0
17) Kinbauri................(NA)

Alexis Minerals and Timmins Gold were brought to my attention by readers of the Gold Stock Strategist. Both companies are significantly undervalued using a cash flow valuation method and coming in at #3 and #4, respectively, in comparison to their peers.

Metanor Resources and Gold-Ore Resources remain even more undervalued using a cash flow valuation method compared to peers as their share prices are down about 10% over the past month.

San Gold is a special case and a case where the cash flow method is inadequate when it comes to valuing emerging gold producers. San Gold has reported significant drill results in their Hinge deposit over the past month. These drill results have helped to drive the share price of San Gold up about 50% during this time period. These drill results do not enhance their production plans for 2009, but do indicate a growing resource for future production. Congrats to San Gold management and shareholders on this wonderful news.

San Gold's share price action on these drill results is good news for emerging gold producers. It suggests that as the other undervalued emerging gold producers begin to report good drill results and prove up their resource, their share price should benefit.

Something seems to be up with MDN Inc. as the share price rose about 35% over the past week or so. Speculation is that Barrick may be considering a buyout of their joint venture at Tulawaka in Tanzania. That would be good news as MDN Inc. has other properties in Tanzania and would provide resources to speed up development at those sites. It has been tough for MDN Inc. shareholders as little information has been forthcoming from Barrick, who is the operator of Tulawaka, on the progress of this project--even though MDN Inc. has been enjoying cash flow in this joint venture.

The price of gold rising this week has given ballast to the junior gold miners despite major market compression. I expect the value in the emerging gold producers will begin to be realized over the next few months and into 2009.

Best,
Gold Stock Strategist

Saturday, June 21, 2008

Emerging Gold Producer Index Outperforms Other Indices



The “theory” behind the Gold Stock Strategist investment style is that emerging junior gold producers should outperform other related investment styles. It is difficult to prove this hypothesis beyond a shadow of a doubt.

However, there are some simple metrics that can be used to test the Gold Stock Strategist hypothesis. The easiest is to compare the Year to Date (YTD) return of alternative precious metal or junior mining indexes.

Earlier this month, I announced the creation of the “Gold Stock Strategist Emerging Gold Producers Index (TM)” (GSSEPX). As the bar chart above shows, the theory underlying the Gold Stock Strategist seems to be holding against other indices based on companies. The GSSEPX is outperforming major precious metal related company indices in 2008. Yet it lags behind the price of gold YTD return.

The composition of the GSSEPX is subjective as are all indices and what is included or excluded is fair game for invalidating the hypothesis. In defense of the GSSEPX as a fair representation of the universe of emerging junior gold producers is that the 17 stocks comprising the index represent about 40% of all emerging junior gold producers.. Each company represents 1/17 of the total index. The top performers so far this year in the GSSEPX index are Kinbauri Gold, San Gold, Timmins, Metanor, and Aurizon (see below).



There are some general criteria that are used that are just common sense for managing risk. For example, one criterion is that the GSSEPX does not include companies that have operations in countries with high political risk even if they meet all other criteria.

There is also one obvious exception to the major criterion that companies must be within 12 months of entering into bulk sampling stage of production. On the exceptions list is Kinbauri Gold, unlikely to be in production until 2010—and more than a year away from their first bulk sample. The promise of this company is so compelling in my opinion that I think it deserves to be on the early radar screen of investors interested in emerging junior gold producers. It also offsets to some extent the inclusion of Jaguar Mining, a company at the other extreme since it is coming up on celebration of its first two years of production.

Other indexes used for comparison include the XAU index, the HUI, index, the TSX Venture Exchange index, and the price of gold index represented by the ETF symbol GLD.

The XAU is an index comprised of 10 large cap precious metals mining companies traded on the Philadelphia exchange. Companies in the index include: Agnico Eagle Mines (AEM), Anglogold Ashanti (AU), Barrick Gold (ABX), Freeport-McMoran Copper and Gold (FCX), Gold Fields(GF), Goldcorp (GG), Harmony Gold Mining (HMY), Kinross Gold (KGC), Newmont Mining (NEM), and Pan American Silver Corp. (PAAS).

The HUI—AMEX Gold BUGS (Basket of Unhedged Gold Stocks) index is comprised of 13 major gold mining companies including Agnico Eagle Mines (AEM), Coeur D Alene Mines (CDE), Eldorado Gold (EGO), Gold Fields ((GFI), Goldcorp (GG), Golden Star Resources (GSS), Harmony Gold Mining (HMY), Hecla Mining (HL), Iamgold (IAG), Kinross Gold (KGC), Newmont Mining (NEM), and Randgold Resources (GOLD).

The TSX Ventuire Exchange index represents the 2,300 companies listed on the TSX Venture Exchange. The TSX Venture Exchange is a public venture capital marketplace for emerging companies who have not yet met the requirements for listing on the TSX, which deals mostly with well established companies. The TSX Venture index is a much broader index than the others and includes companies other than gold miners such as junior natural gas explorers and other companies—primarily in the natural resource sector.

Finally, GLD is an ETF that tracks the price of gold.

Again, so far the premise of the Gold Stock Strategist (greater value in emerging junior gold producers) seems to be holding up against other related gold mining stocks based on these simple indicators. Yet, holding GLD would have been a better play so far this year. As gold enters its “high season” beginning in August, it will be interesting to see how this theory holds up against the metal.

Best,

Gold Stock Strategist

Friday, June 20, 2008

UPDATED List of Emerging Junior Gold Producers

Most junior gold miners are explorers engaging in discovery of gold mineralization and are not planning for production in the near term. Only a handful of junior gold miners are near production or emerging producers. These emerging junior gold producers are the companies I follow and cover on the Gold Stock Strategist.

My initial list of emerging junior gold producers was published on March 22, 2008 and included 31 companies. A more recent post on June 9 had a list of 41 companies. Since then I have had several comments requesting additional companies be added. The companies requested to be added are:

1) Apollo Gold

2) ATW Venture Corp.

3) New Gold (merging with Peak Gold and Metallica Resources)

4) New Pacific

5) Wesdome Gold

Apollo Gold and ATW Venture Corp. are two companies I have included in past posts and simply overlooked them even though I was aware that they were both emerging junior gold producers. These two will be added to the list.

The new New Gold (TSX:NGD; AMEX:NGD)is really a mid-tier producer even though it is ramping up production fast. In addition, Peak Gold has been producing gold for about two years, so it isn't really an emerging producer. I like this company and follow it, but it just doesn't fit the criteria for coverage on this web site.

New Pacific Metals Corp. (TSX:NUX; OTC:NUXFF)is a polymetallic explorer working in China that could be considered a producer in three or more years. However, they do not plan to build a mill, but rather sell their ore to be procssed and milled by another company. Again, I like and follow this company, but it doesn't fit into the

Wesdome Gold (TSX:WDO; OTC:WDOFF) owns a lot of properties in Canada with low MI&I reserves, less than 100,000 ounces gold per property, and has been producing for several years, though they are beginning to ramp up production into 2009. Interestingly, their production is projected to decline beginning in 2010. This is another company that just doesn't fit into the profile of an emerging junior gold producer.

Below are 43 emerging junior gold producer companies I have identified.


1. Alexis Minerals Corp. (TSX:AMC; OTC:AMSMF)
2. Anatolia Minerals Development Ltd. (OTC:ALIAF)
3. Apollo Gold Corp. (TSX:ATG: AMEX:AGT)
4. Atna Resources Ltd. (TSX:ATN; OTC:ATNAF)
5. ATW Venture Corp. (TSX:ATW: OTC:ATWVF)
6. Aurelian Resources (TSX:ARU, OTC:AUREF)
7. Aurizon (TSX:ARZ; AMEX:AZK)
8. Axmin Inc. (TSX:AXM; OTC:AXMIF)
9. CGA Mining Ltd. (TSX:CGA; OTC:CGAFF)
10.Crystallex International Corp.(TSX:KRY; AMEX:KRY)
11.Dynasty Metals & Mining Inc. (TSX:DMM; OTC:DMMIF)
12.European Goldfields Ltd.(TSX:EGU)
13.European Minerals, Inc.(TSX:EPM; OTC:EPMCF)
14.Gabriel Resources Ltd. (TSX:GBU; OTC:GBRRF)
15.Jaguar Mining, Inc. (TSX:JAG; NYSE:JAG)
16.Gold Reserve Inc. (TSX:GRZ; AMEX:GRZ)
17.Gold-Ore Resources Ltd. (TSX:GOZ; OTC:GREXF)
18.Gold Resource Corp.(OTC: GORO)
19.Golden Queen Mining Comp. (TSX:GQM; OTC:GQMNF)
20.Great Basin Gold Ltd. (TSX:GBG; AMEX:GBN)
21.Hawthorne Gold (TSX:HGC; OTC:HWTHF)
22.International Minerals Corp. (TSX:IMZ; OTC:IMZLF)
23.Jinshan Gold Mines Inc. (TSX:JIN; OTC:JINFF)
24.Kinbauri Gold (TSX:KNB; OTC:KINBF)
25.Lake Shore Gold Corp. (TSX:LSG; OTC:LSGGF)
26.La Mancha Res. (TSX:LMA; OTC :LACHF)
27.Luna Gold (TSX:LGC : OTC:LGCU)
28.Metanor Res. Inc. (TSX:MTO; OTC:MEAOF)
29.Minco Gold (TSX:MMM: AMEX:MGH)
30.Minefinders Corp. Ltd. (TSX:MFL; AMEX:MFN)
31.Moto Goldmines Ltd. (TSX:MGL; OTC:MTOGF)
32.Nevsun Resources Ltd. (TSX:NSU; AMEX:NSU)
33.New Guinea Gold (TSX: NGG: OTC:NGUGF)
34.NovaGold Resources Inc. (TSX:NG; AMEX:NG)
35.Orezone Resources Inc. (TSX:OZN; AMEX:OZN)
36.Pacific Rim Mining Corp. (TSX:PMU; AMEX:PMU)
37.Petaquilla Minerals Ltd. (TSX:PTQ; OTC:PTQMF)
38.Rusoro Mining Ltd (TSX:RML; OTC:RMLFF)
39.San Gold Resources Corp. (TSX:SGR; OTC:SGRCF)
40.Starcore International (TSX:SAM: OTC:SHVLF))
41.Tara Gold (OTC:TRGD)
42.Timmins Gold Corp. (TSX:TMM; OTC:TMGOF)
43.Western Goldfields (TSX:WGI; AMEX:WGW)

I appreciate the help given by readers to identify any emerging junior gold miners planning to enter the production phase in 2008 or 2009.

Thank you.

Best,

Gold Stock Strategist

Wednesday, June 18, 2008

ATW Venture Corp.

CURRENT PRICE: $0.78
TARGET PRICE RANGE: $1.69-$4.43

ATW Venture Corp. an Australian-based gold mining company focused on consolidating and exploring gold assets in Western Australia, and commencing production by the second half of 2008. The company’s strategy is to move aggressively into production over the next 6 to 36 months on its two existing gold mines and use cash flow from those operations to explore and develop additional projects (Argentina) and to expand through acquisition.

ATW has two flagship Australian projects and an exploration project in northwestern Argentina. The first is the Burnakura Gold Project, located in the West Yilgarn Goldfields of Western Australia. The second is the Gullewa Gold Mine, which is south west of the Burnakura Gold Mine. These are the two projects on which ATW plans to build its company. The third ATW project is the Amarillo Project in Argentina

Burnakura Gold Mine
The Burnakura Gold Mine is outfitted with a fully permitted 160,000 tonne per annum (450 tpd) CIL gold plant, rolling stock, underground equipment, workshops, office space and a 90 man camp. The project covers 12km of prospective strike length along a major auriferous shear zone and mesothermal gold system.

Management believes potential exists to expand the low grade surface and high grade underground resources on the property. ATW's current focus is to streamline production facilities at Burnakura. Indicated resources are 400,000 gold equivalent ounces. Their goal is a first gold pour the company’s in mid 2008.

See map below.



Gullewa Gold Mine
The Gullewa Gold Mine is located 300km south west of ATW’s Burnakura Gold Mine in Western Australia. Mining infrastructure at the Gullewa Project include a turn-key gold operation with a Carbon-In-Leach plant capable of up to 300,000 tpa (tonne per annum) gold production, a licensed tailings disposal facility, a 50-person camp, offices, workshops, bore fields and haulage roads. Indicated resources are about 900,000 gold equivalent ounces.

Amarillo Project, San Juan, Argentina
ATW also has an interest in northwestern Argentina gold-copper-silver mine. ATW is scheduled to begin a new drill program at the Amarillo project this year. ATW has a joint venture with the property owner, Marifil Mines Ltd. where ATW can earn up to a 70% interest in the property over a period of 5 years.

The Amarillo gold-copper-silver project is located within the Veladero-El Indio gold belt on the Argentine side of the Andes. This belt is becoming an attractive area for major mining companies investing substantial funds exploring for world class gold deposits. The belt has several major discoveries including Barrick’s 2 deposits lying to the north of Amarillo, Veladero (12.6 million ounce gold reserve) and Pascua Llama (18.3 million ounces of gold reserve) as well as a very high grade El Indio copper gold mine.

Infrastructure at and near Amarillo is limited. Fresh water can be found in creeks several miles downstream. Power and industrial facilities are effectively unavailable in the region. However, domestic power plants supply the area with an estimate of 20,000 inhabitants. Three fuel filling stations exist at Iglesia, Las Flores and Pismanta sites. These supply local power needs at Barrick´s nearby operations.

A March 2007 ATW presentation suggested Amarillo could hold 3 million equivalent gold ounces (au-cu) based on the geology and nearby mineralization in the rich Veladero-El Indio gold belt. However, the economic feasibility has not been established for this project.

See maps below.





ATW VENTURE CORP. SUMMARY

U.S. OTC: ATWVF
TSX: ATW

Shares Outstanding: 56.0 Million (85.6 million fully diluted)

Market Capitalization: ~$44 Million

Telephone: 604-662-8184

ATW Venture Corp. Web Site

ATW Venture Corp. has a total of 1.35M oz gold compliant with Australian regulatory authorities. Note, these ounces are not compliant with Canada’s 43-101 regulatory regime. These resources are likely to be expanded with additional exploration.

ATW Venture Corp. production is not hedged, has no debt, and has 26 million warrants outstanding maturing as early as December 2009.

Cash currently available as of May 2008 = ~$17,000,000.

Production projections range from 40,000 up to 100,000 per year once both Australian mines are fully operational. For purposes of modeling, ATW Venture Corp. production is projected to be 10,000 oz. in 2008; 40,000 oz.in 2009; 65,000 oz. in 2010.

Management is experienced and passionate about their projects, two important qualities.

The major troubling indicator is the relatively high cost of production estimated by management to be $500 per ounce. I suspect it will somewhat higher given it is based on past production when energy costs were much lower. This is the wild card in my opinion. High cost producers have very volatile share price swings when the price of gold fluctuates. If ATW can control costs in Australia, it should do very well once it is in production.

The following valuation methods are what I use to value ATW Venture Corp. for my investment purposes and provide a range of short-run and potential long-run value. Of course, different assumptions would produce different valuations. The reader can assess the reasonableness of the assumptions.

SHORT-RUN CASH FLOW SHARE VALUE

$1.69 per share in 2009 using a cash flow model valuation and assuming the following:

10x cash flow
$925 per ounce POG
$500 per ounce production cost
40,000 ounces of production
$2,000,000 G&A costs
85,560,000 shares outstanding (fully diluted)

POTENTIAL LONG-RUN RESERVE SHARE VALUE

$4.43 per share using ATW Venture Corp.s 1,300,000 oz. gold equivalent resource estimate. It could be worth a great deal more if the Burnakura Gold Mine, the Gullewa Gold Mine, and the Amarillo Project prove up additional resources.

The majors are paying about $280 an ounce for buyouts at $950 an ounce POG. 1,300,000 times $280 an ounce equals $364 million. $364 million divided by 85.6 million shares (fully diluted) equals $4.43 per share.

MANAGEMENT & DIRECTORS

-- Brent Butler - President, Chief Executive Officer and Director
-- Andrew W. Bowering, Chief Financial Officer and Director
-- David Stone, Director
-- Robert W. Schafer, Director
-- Graham L. Harris, Director
-- Luke A. Norman, Director, VP Corporate Development
-- Jasvir K. Kaloti, Chief Financial Officer, Corporate Secretary

-----------------------------------------------------

Full disclosure: I do not own shares in ATW Venture Corp. The information provided in this post is believed to be correct, but not guaranteed. Investing in junior gold miners entails risks. Readers are responsible for their own investment decisions. Do your own due diligence.

Tuesday, June 17, 2008

Gold-Ore Has New Drill Results at Bjorkdal

Gold-Ore Resources remains one of my favorite emerging junior gold producers.

Like many juniors, the share price is being held back by the liquidation of holdings by a major shareholder needing to raise capital. Kinbauri Gold went through this for a few weeks and once the selling was finished, the share price rallied from the $0.70s level to the mid-$0.90s per share. Of course, Kinbauri has settled in at $0.79 today so maybe the sellers are back!

On a brighter note, Gold-Ore issued a press release with outstanding drill results and updated production data.

Gold-Ore Announces Central Tunnel Drill Results - Bjorkdal, Sweden Evaluating Bulk Mining Methods

The quality of posts on emerging junior gold producers at the Stockhouse bulletin boards seems to have improved since I started the Gold Stock Strategist. I'm not sure there is a connection, but it is great to see more fundamental analysis on the boards. Today, Stockhouse's GOZ board has a great discussion of what the new release means and why Gold-Ore's share price should do very well by 3Q or 4Q of this year. Rather than me repeating much of what is posted, I recommend you read today's posts at the Stockhouse GOZ board.

Stockhouse Gold-Ore Bulletin Board--June 17, 2008.

Best,

Gold Stock Strategist

Wednesday, June 11, 2008

Gold Resource Corp.

CURRENT PRICE: 5.20
TARGET PRICE RANGE: $5.88-$14.86

Gold Resource Corporation is a mining company headquartered in Denver, Colorado and focused on production and pursuing development of select, high-grade gold and silver projects that feature low operation costs and produce high returns on capital. The Company has 100% interest in four high-grade gold and silver properties in Mexico's southern state of Oaxaca. Construction is underway at the Company's flagship property, its El Aguila Project, targeting gold production the last half of 2008.

See map below.



The El Aguila project is a 100% owned high-grade gold, silver, lead, zinc, copper system that will initially be mined as an open pit project. Surface samples have yielded high grades including grades of up to 36 g/t gold and a 3,100 g/t silver.

The other three properties are also 100% owned--El Rey (gold, silver), Las Margaritas (silver, gold), and Solaga (silver, gold).

All four properties will be logistically close enough to feed their 1,000 tpd mill (850 tpd flotation and 150 tpd agitated leach) producing dore and concentrate.

GOLD RESOURCE SUMMARY

U.S. OTC: GORO
FRANKFURT (GERMANY): GIH

Shares Outstanding: 34.2 Million (36.8 million fully diluted)

Market Capitalization: ~$178 Million

Telephone: 303-320-7708

Gold Resource Web Site

PDF GoldSeek Research Report-January 2007

Gold Resource is one of those rule breaker companies that defy traditional analysis as they do not have an estimate of proven and probable reserves compliant with SEC rules. The main reason they haven’t gone to the trouble to prove up the resource is that they are not seeking loans to develop the project. Rather than go through the expensive process of formally defining the extent of the resource, they have conducted several detailed technical studies of the drill results from deposits at El Aguila. You will notice that Gold Resource issues many more press releases of their drill results than other emerging junior gold producers as a way of keeping their investors informed of the expansion of the resource.

El Aguila performed a scoping study in 2004. A scoping study is the first level of study that is performed on a mineral deposit to determine its economic viability. This is usually performed to determine whether the expense of a full pre-feasibility study and later full feasibility is warranted. The combination of a scoping study and continued promising drill results have given Gold Resource management the confidence that sufficient mineralization exists to move into production quickly. The current plan is to move into production in the 2nd half of 2008.

According to Gold Resource, they believe they have a potential total of 2M oz of gold equivalent resources along 2 kilometers in the El Aguila project.

The lack of compliant reserve base creates one more problem in valuing Gold Resource. As a result, and unlike companies with measured compliant resource estimates, the valuation of Gold Resource based on projected production is much higher than valuation based on reserves/resources.

Gold Resource production is not hedged, has no debt, and has no warrants outstanding.

Cash currently available as of January 2008 = ~$22,000,000. This is plenty of cash to move the company into production. It doesn't seem necessary for management to issue further shares to finance development and production.

One-third of the shares are owned by management, one-third owned by institutions, and one-third by retail shareholders.

Management has also indicated they are interested in paying a dividend equal to one-third of earnings once they reach a steady state of production.

Management projects production will be 70,000 oz. gold equivalent in the first full year building up to 120,000 oz. when up to full production in the third year. For purposes of modeling, Gold Resource production is projected to be 20,000 oz. in 2008; 70,000 oz.in 2009; 90,000 oz. in 2010.

Management has a solid record of experience in mining and so far have executed well with Gold Resource Corp.


The following valuation methods are what I use to value Gold Resource for my investment purposes and provide a range of short-run and potential long-run value. Of course, different assumptions would produce different valuations. The reader can assess the reasonableness of the assumptions.

SHORT-RUN CASH FLOW SHARE VALUE

$14.86 per share in 2009 using a cash flow model valuation and assuming the following:

10x cash flow
$925 per ounce POG
$115 per ounce production cost
70,000 ounces of production
$2,000,000 G&A costs
36,800,000 shares outstanding (fully diluted)

POTENTIAL LONG-RUN RESERVE SHARE VALUE

$5.88 per share if Gold Resources 783,000 oz. gold equivalent is accurate. It could be worth a great deal more if El Aquila delivers on management’s estimate of 2 million oz. gold equivalent. If the other three properties prove up, the potential value is much higher.

The majors are paying about $280 an ounce for buyouts at $950 an ounce POG. 783,000 times $280 an ounce equals $216 million. $216 million divided by 36.8 million shares (fully diluted) equals $5.88 per share.

MANAGEMENT

William (Bill) Reid
President, CEO and Director

David Reid
Vice President of Exploration and Director

Jose (Pepe) Perez Reynoso
Manager of Mexican Operations

Jason Reid
Vice President of Corporate Development

Monty Jennings
CFO

Bill M. Conrad
Director

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Full disclosure: I do not own shares in Gold Resources. The information provided in this post is believed to be correct, but not guaranteed. Investing in junior gold miners entails risks. Readers are responsible for their own investment decisions. Do your own due diligence.

Monday, June 9, 2008

UPDATED List of Emerging Junior Gold Producers

There are well over 1,000 publicly traded junior gold miners. Most of them are explorers engaging in discovery of gold mineralization and are not planning for production in the near term. Only a handful of junior gold miners are near production or emerging producers.

My initial list of emerging junior gold producers was published on March 22, 2008 and included 31 companies. Thanks to comments by readers of the Gold Stock Strategist and additional research, I have been able to identify a total of 41 emerging junior gold miners.

Below are 41 emerging junior gold producer companies I have identified.


1. Alexis Minerals Corp. (TSX:AMC; OTC:AMSMF)
2. Anatolia Minerals Development Ltd. (OTC:ALIAF)
3. Atna Resources Ltd. (TSX:ATN; OTC:ATNAF)
4. Aurelian Resources (TSX:ARU, OTC:AUREF)
5. Aurizon (TSX:ARZ; AMEX:AZK)
6. Axmin Inc. (TSX:AXM; OTC:AXMIF)
7. CGA Mining Ltd. (TSX:CGA; OTC:CGAFF)
8. Crystallex International Corp.(TSX:KRY; AMEX:KRY)
9. Dynasty Metals & Mining Inc. (TSX:DMM; OTC:DMMIF)
10. European Goldfields Ltd.(TSX:EGU)
11. European Minerals, Inc.(TSX:EPM; OTC:EPMCF)
12. Gabriel Resources Ltd. (TSX:GBU; OTC:GBRRF)
13. Jaguar Mining, Inc. (TSX:JAG; NYSE:JAG)
14. Gold Reserve Inc. (TSX:GRZ; AMEX:GRZ)
15. Gold-Ore Resources Ltd. (TSX:GOZ; OTC:GREXF)
16. Gold Resource Corp.(OTC: GORO)
17. Golden Queen Mining Comp. (TSX:GQM; OTC:GQMNF)
18. Great Basin Gold Ltd. (TSX:GBG; AMEX:GBN)
19. Hawthorne Gold (TSX:HGC; OTC:HWTHF)
20. International Minerals Corp. (TSX:IMZ; OTC:IMZLF)
21. Jinshan Gold Mines Inc. (TSX:JIN; OTC:JINFF)
22. Kinbauri Gold (TSX:KNB; OTC:KINBF)
23. Lake Shore Gold Corp. (TSX:LSG; OTC:LSGGF)
24. La Mancha Res. (TSX:LMA; OTC :LACHF)
25. Luna Gold (TSX:LGC : OTC:LGCU)
26. Metanor Res. Inc. (TSX:MTO; OTC:MEAOF)
27. Minco Gold (TSX:MMM: AMEX:MGH)
28. Minefinders Corp. Ltd. (TSX:MFL; AMEX:MFN)
29. Moto Goldmines Ltd. (TSX:MGL; OTC:MTOGF)
30. Nevsun Resources Ltd. (TSX:NSU; AMEX:NSU)
31. New Guinea Gold (TSX: NGG: OTC:NGUGF)
32. NovaGold Resources Inc. (TSX:NG; AMEX:NG)
33. Orezone Resources Inc. (TSX:OZN; AMEX:OZN)
34. Pacific Rim Mining Corp. (TSX:PMU; AMEX:PMU)
35. Petaquilla Minerals Ltd. (TSX:PTQ; OTC:PTQMF)
36. Rusoro Mining Ltd (TSX:RML; OTC:RMLFF)
37. San Gold Resources Corp. (TSX:SGR; OTC:SGRCF)
38. Starcore International (TSX:SAM: OTC:SHVLF))
39. Tara Gold (OTC:TRGD)
40. Timmins Gold Corp. (TSX:TMM; OTC:TMGOF)
41. Western Goldfields (TSX:WGI; AMEX:WGW)

This website is a work in progress that hopefully benefits those interested in emerging junior gold producers. I would appreciate it if readers would help me identify any emerging junior gold miners planning to enter the production phase in 2008 or 2009 by mentioning them in a comment to this post.

Best,

Gold Stock Strategist

Saturday, June 7, 2008

Revisiting the Investment Rationale for New Jr. Gold Producers

When I first set up this web site, I outlined the rationale for my strategy to focus on emerging junior gold producers in the first post titled, "Why Near Production Junior Gold Miners?"

It is important to occasionally remind readers of the rationale of the strategy, especially when the emerging junior gold producing company share prices tread water.

The following chart illustrates the life cycle of a junior mining stock with the share price on the Y axis and chronological time on the X axis.



The first stage of a junior miner is the discovery stage. This is the stage where companies are identifying resources and proving up the resource if the preliminary data from the drill cores look promising.

Many companies see a sharp rise in the share price as they prove up resources and many junior mining investors like to pick up companies at this stage. If the resource proves up, these investors can make a lot of money.

During the second stage in the life cycle of a junior mining company, the resource must be assessed to see if it is economically feasible. Share prices often move down during this stage. There is a lot of work (and risk that the resource fails feasibility) that goes into this assessment. Important items include the projected price of gold, projected cost of production, the grade of the ore (how much mineralization is in the rock), and available infrastructure (road access, mill construction, etc.).

Development includes engineering and geological activities such as geologic modeling, ore reserve estimation, geostatistical data analysis, pit/underground mine optimization mapping, pit/underground mine design, detailed mine planning, continued exploration planning, mining method optimization, mill design and construction and several other actitivites.

The next stage begins with the decision to produce and commencement of production. In practice, this stage overlaps with the development stage as mill construction follows the decision to produce. The key point in this stage from an investment standpoint is between the decision to produce and the first pour.

Overlaps also exist between the discovery stage and the production stage as many junior gold miners commence production before they fully prove up the entire resource. In addition, the acquisition of nearby properties with promising resources are often turned into proven reserves while production is expanded.

The risk of failure for companies that have not yet commenced production is extremely high. Companies that have executed well on identifying resources and moving into production have a lower risk profile because they have proven their ability to bring a project to profitability.

My preference is to invest in emerging junior gold producers that have just commenced production, have a rich resource base of operations, and either own several properties or have a wide sphere of nearby potential properties they might acquire or develop an arrangement to process the reserves.

Junior gold miners in the pre-production or early production phase can also be a hedge against a falling gold price.

Mining is a risky business. A lot can go wrong. But the reward to risk ratio is better for emerging gold producers over the next 6-18 months than many other investment options in my opinion.

There are other important characteristics I look for in an emerging junior gold producer, but these are the major considerations related to the life cycle of a junior gold miner.

Best,

Gold Stock Strategist

Monday, June 2, 2008

NEW Emerging Junior Gold Producer Index

The emerging junior gold producer subsector is a very small and unique universe of companies. I have identified between 30 and 40 companies believed to be in this class of companies.

Many analysts use the TSX Venture exchange as an proxy comparison index for small mining companies. It has the advantage of being very broad and the disadvantage of being less reflective of junior gold miners--and even less reflective of emerging junior gold producers.

For purposes of benchmarking emerging junior gold producers that rank high on a cash flow and in situ basis, I have developed an index that includes 17 emerging junior gold producers called the "Gold Stock Strategist Emerging Gold Producers Index (TM)."

This index is necessarily subjective based on hours of study and contemplation. It will be fluid as I find companies that meet the criteria. The most important screen is that the index will not have companies with operations in extremely politically risky countries such as Venezuela and Ecuador. The index also does not include emerging gold producers in South Africa because electricity in South Africa is unstable and mining is energy intensive.

There are 17 companies currently in the Gold Stock Strategist Emerging Gold Producers Index (TM). Each company represents 1/17 of the total index.

The following jpeg includes a ranking based on YTD percentage gains for 2008 along with the overall index YTD. The YTD share price gain for the Gold Stock Strategist Emerging Gold Producers Index is 10.0 percent in 2008 as of June 1, 2008.

Two companies added to my original 15 are Alexis Minerals and Timmins Gold. The top three performers so far this year are Kinbauri, Metanor, and Timmins. I hope readers find this index useful.

Gold Stock Strategist Emerging Gold Producers Index (TM)
(click to enlarge)





Best,

Gold Stock Strategist













Full disclosure: I own shares in companies listed above. The information provided in this post is believed to be correct, but not guaranteed. Investing in junior gold miners entails risks. Readers are responsible for their own investment decisions. Do your own due diligence.

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