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

Comments are welcomed!

Saturday, February 28, 2009

UPDATED Emerging Gold Producers Ranked -- Cash Flow Multiple Model

ERRATA: According to Miningmarketwatch. net, Metanor's cash cost per ounce is C$475, not $US. I have corrected the table and narrative on Metanor Resources to reflect this change. (March 1, 2009).


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 valuation that serves as a starting point for my assessment of whether or not to invest in an emerging junior gold producer. Even though it is standard, the cash flow multiplier method is more a relative value tool than an absolute value tool. The 10x cash flow assumption is a subjective assessment of value even though many analysts use it as a standard multiplier for assessing gold producers.

Finally, there is also considerable uncertainty in this method because many simplifying (some might say heroic) and forward looking assumptions are made about the number of ounces to be produced in the future, production costs, and the price of gold. That said, notwithstanding the price of gold, companies that have a track record of delivering results have less uncertainty than other companies.

The inputs into the calculation are ounces of gold produced, cash cost per ounce of production, projected price of gold, current share price, number of shares issued (diluted), general and administrative expenses, debt service expenses, and hedge book on forward sales of gold (if any). Expenses related to exploration are not included in this calculation because they are investments in future growth.

The following is my analysis of 22 emerging gold producers using a cash flow multiple ratio for CY2009 and CY2010 based on closing share prices on February 27, 2009. The higher the projected cash flow multiple, the more undervalued the stock is relative to other companies.

Three companies (Apollo Gold, Kinbauri, Timmins Gold) on the list appear to have experienced setbacks to production or have become silent on production progress recently. They remain on the list because they are interesting companies for other reasons, but the cash flow multiple analysis is not applicable (NA).

The list for CY2009 breaks down into four tiers as follows:



1) MDN Inc……………9.4
Metanor Res………...5.3
New Guinea Gold......4.8

4) Gold-Ore………........4.3
5) Castle Gold……........4.1


6) Richmont Mines........3.2
7) La Mancha…............3.2
8) Capital Gold..............2.8
9) ATW Ventures..........2.3

10) Jinshan Gold……....2.1


11) New Gold.................1.8
12) Western Goldfields....1.5

13) Gold Resource..........1.5
14) Jaguar Mining...........1.5
15) Alamos Gold……….1.2
16) Aurizon Mines..........1.2

17) Alexis Minerals........1.2


18) San Gold....................0.5

19) Minefinders................0.4

20) Timmins Gold...........(NA)

21) Apollo Gold..............(NA)

22) Kinbauri…................(NA)

The list for CY2010 breaks down into four tiers as follows:




1) MDN Inc…………..11.4
2) Metanor Res………...9.6
3) Gold-Ore………........7.1

4) Castle Gold……........6.5
5) New Guinea Gold......6.0


6) ATW Ventures..........4.9
7) Richmont Mines........4.4
8) La Mancha….............4.3
9) Capital Gold..............3.9
10) Jinshan Gold............3.6
11) Gold Resource.........3.4


12) Jaguar Mining...........2.4
13) New Gold…….........1.8
14) Western Goldfields...1.7
15) Alexis Minerals........1.7
16) Alamos Gold………1.6

17) Aurizon Mines.........1.3

18) San Gold.................1.1


19) Minefinders................0.9

20) Timmins Gold...........(NA)

21) Apollo Gold..............(NA)

22) Kinbauri…................(NA)



The company that is most undervalued using the cash flow multiple method is MDN Inc., a Montreal-based company involved in a joint venture with Barrick at the very high grade Tulawaka mine in Tanzania, Africa. MDN Inc. receives 30% of the revenue from the Tulawaka mine. Barrick is the operator at Tulawaka, so MDN Inc. is in effect a passive partner. But MDN Inc. also owns other properties in Tanzania with geological formations that are similar to Tulawaka. MDN Inc., a conservative company, is building a strong cash reserve position right now and engaging in minimal exploration or acquisition activities. This conservative approach in an era of global financial calamity and a rising price of gold might be why MDN Inc. is so undervalued. Some investors may also be concerned with political risk in Tanzania—particularly with regard to rumors last year of higher royalty fees proposed by the national government.

Metanor Resources (OTC: MEAOF; TSX.V: MTO)

Metanor Resources—headquartered in Val d’or (Valley of Gold), Quebec—remains in the top tier of emerging producers using the cash flow multiple method for both 2009 and 2010. They were also at the top of the cash flow multiple list published in June of last year. As new producers in 2008, this means Metanor Resources has delivered on producing gold and plans to expand production in 2009 and 2010 at minimal cost—a testament to strong management. Management has deep ties to the local communities which is a major plus for any industry—but especially for mining companies. Average cash cost per ounce is an estimated US$370, but should decline as higher grade ore is processed in 2010 with the re-opening of the high-grade Bachelor Lake underground mine. Metanor also benefits greatly from having their properties in low energy cost and mining friendly Quebec. Political risk is extremely low in Quebec.

Gold-Ore Resources (OTC: GREXF; TSX.V: GOZ)

Gold-Ore Resources is headquartered in Vancouver and is actively mining and producing gold at Sweden’s Bjorkdal mine. The company also owns other exploration properties. Gold is produced at Bjorkdal primarily from an open-pit mine. The company plans on improving grades and increasing ore processed from an under-ground operation in 2009 increasing production from 2008 to 2009. Average cash cost per ounce is “high-average” at an estimated $550, but expected to decline as higher grade ore is processed at a higher rate in 2009 and 2010. Sweden is a mining friendly jurisdiction with low political risk.

Castle Gold (OTC: CSGLF; TSX.V: CSG)

Castle Gold was created in the second half of 2007 with the merger of Aurogin Resources and Morgain Minerals. They have two producing gold mines—one in Mexico (El Castillo—100% interest) and one in Guatamala (El Sastre—50% interest). They have “low-average” costs per ounce (estimated at $US370). Castle Gold’s Q408 production was almost 7,000 ounces and is working hard to expand to 50,000 per year as soon as possible. So far, management has done a good job bringing Castle Gold into production. Management appears willing to consider merger or being acquired based on recent presentation. Castle Gold has recently had a nice run-up in stock price over the past 6 weeks, yet remains undervalued compared to most of its peers. Mexico is a relatively friendly jurisdiction for mining, but increasing U.S. news reports of drug violence may increase investor concern for political risk.

New Guinea Gold (OTC: NGUGF; TSX.V: NGG)

New Guinea Gold is a new producer in 2008 and new to the list of companies that I follow. New Guinea Gold is a low cost (less than US$300 per ounce) producer in gold rich—and remote—regions of Papua-new Guinea. A big plus for New Guinea Gold is that the company is run by a former Esso/Exxon manager and owns the complete Esso data base of drill results and properties in Papua-New Guinea. New Guinea Gold had some problems meeting production targets in 2008, but that is normal for companies just entering the production phase. This is a very ambitious management with plans to ramp up production sharply in 2011. Political risk may be a consideration for investors—especially as it relates to physical security, community relations, and political stability (see Fraser Institute Policy Index included in the Survey of Mining Companies 2007-2008.).

The cash flow multiple approach is not the only tool I use to assess emerging junior gold producers, but it is my primary tool of assessment.

I assess companies based on qualitative factors like political risk, currency exchange risk, property rights risk, remote site risk, single mine risk, operational risk, and management competence risk.

I also use other quantitative tools to assess emerging junior gold miners. Some junior gold miners are aggressively developing their resource base by drilling to expand their “measured, indicated & inferred” resources (Canadian standard) or their “proven and probable” reserves (U.S. standards). The cash flow multiple approach is not useful for assessing the value of these type of companies.

For example, San Gold is a case where the cash flow multiple 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 year. These drill results have helped to hold the share price of San Gold up during this time period. These drill results do not enhance their production plans for 2009, but do indicate a growing resource for future production. Minefinders, ATW Ventures, Western Goldfields, Jinshan Gold, Alexis Minerals are similar to San Gold in this regard.

The rising price of gold in 2009 has given ballast to many emerging junior gold producers as shown in the previous post on the Gold Stock Strategist Index
©. If the price of gold rises over $1,000 and stays above that level, the tier one companies on this list—especially those with higher cash costs per ounce—should end sharply up in share price for the year.

Gold Stock Strategist


Full disclosure: I own shares in several of the 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.

Wednesday, February 25, 2009

UPDATE - GSSX Index© Outperforms Other Indices

I have updated my list of stocks included in the Gold Stock Strategist Index and comparison with other gold-related asset classes.

As indicated when I began this website last year, the “theory” behind the Gold Stock Strategist investment style is that emerging junior gold producers should outperform other gold-related investment styles because they are leveraged plays on the price of gold.

So far this year, the GSSX Index© is fulfilling the role of a leveraged play on gold with a 31.0% YTD return compared to the price of gold which has risen 9.9% YTD in 2009.

(click for larger chart)

The easiest--though probably not the best--way to test the GSS hypothesis is to compare the Year to Date (YTD) return of alternative precious metal or junior mining indexes.

Indexes Used for Comparison

Other indexes used to compare with the GSSX Index© 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 Venture 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.

Composition of the GSSX Index©

The composition of the GSSX is subjective as are all indices. Nevertheless, the GSSX is a fair representation of the universe of emerging junior gold producers. The 20 stocks included in the index represent about 40% of all emerging junior gold producers and about 1.3 million projected ounces of gold produced in 2009. Each company represents 1/20 of the total index. It is not weighted by market capitalization. The top performers so far this year in the GSSEPX index are La Mancha, Castle Gold, Gold Resource, Richmont, and New Gold.

Here is a list of the companies included in the GSSX Index© , followed by a chart with their relative performance YTD.

Alamos Gold (TSX:AGI; OTC:AGIGF)
Alexis Minerals Corp. (TSX:AMC; OTC:AXSMF)
Aurizon Mines Ltd. (TSX:ARZ; AMEX:AZK)
Castle Gold (TSX:CSG; OTC:CSGLF)
Capital Gold Corp. (TSX:CGC; OTC:CGLD)
Gold Resource Corp. ((OTC: GORO)
Gold-Ore Resources (TSX:GOZ; OTC:GREXF)
Jaguar Mining (TSX:JAG; NYSE:JAG)
Jinshan Gold Mines (TSX:JIN; OTC:JINFF)
La Mancha Resources (TSX:LMA; OTC:LACHF)
Metanor Resources (TSX:MTO; OTC:MEAOF)
Minefinders (TSX:MFL; AMEX:MFN)
New Gold Inc. (TSX:NGD; AMEX:NGD)
New Guinea Gold (TSX: NGG: OTC:NGUGF)
Richmont Mining (TSX:RIC; AMEX:RIC)
San Gold Corp. (TSX:SGR; OTC:SGRCF)
Timmins Gold (TSX:TMM; OTC:TMGOF)
W. Goldfields (TSX:WGI; AMEX:WGW)

(click for larger chart)

With this post, I have added several companies to the GSSX Index© (New Gold, Richmont, Castle Gold, La Mancha, and New Guinea Gold).

Two others have dropped out for various reasons including Kinbauri and Apollo Gold.

This update has been a long time coming. Hopefully, the emerging junior gold producers will be able to weather this years financial storms better than last year.


Gold Stock Strategist

Full disclosure: I own shares in many of the 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.

Thursday, February 19, 2009

Metanor Resources Share Price Breaks Resistance

I spent some time with the management of Metanor Resources (Serge Roy--Chairman & CEO; Ghislain Morin--President & COO; and Ron Perry--VP, Treasurer) at the ValueForum InvestFest Conference in Orlando, Florida on February 6 – 8.

Here is the link to ValueForum
Metanor, as a sponsor of this investment conference, hosted an evening reception. Here is what I learned and what I am thinking.

Production at the Bachelor Lake mill is advancing forward. Today's release shows Metanor has increased ore throughput from 700 tons per day (tpd) to 800 tpd with minimal investment and intends to move to 1,000 tpd in 2009.

Even better, the company is quickly developing the resource rich and high-grade Bachelor Lake mine.

The Bachelor Lake and Hewfran mines are classified as "abandoned" and as a result will be eligible for the up to 47% Quebec tax credit for exploration and development. The ore from these mines will also go through the bulk sampling process (50,000 tons of ore) before the ore from Bachelor Lake/Hewfran are declared to be commercial producing mines. This is the same process Metanor went through with the Barry pit in 2008.

My sense is that the timetable is about 12 months before they begin bulk sampling from Bachelor Lake and Hewfran. Bachelor Lake and Hewfran have high grade ore (7-9 grams and higher per ton) and can easily be connected with one another underground at levels 6 and 8. The Bachelor Lake mill is right next to the Bachelor Lake mine head so transportation costs for this ore will be near zero.

The plan remains to mix the higher grade Bachelor Lake/Hewfran ore with the lower grade Barry pit ore. This will extend the mine life for all three mines. This is a very good thing for shareholders.

The mill is still getting about 95% gold recovery rates even at the higher mill throughput rate.

Metanor investors have emailed me or commented on the previous post expressing concern because the share price had been stuck at C$0.45 while other junior gold producers had a higher percentage run up in share price over the past two months.

It is my opinion that the share price resistance experienced over the past two months was due to the overhang of the Raymond James "flow through" secondary private placement in December. Those who bought into the secondary were selling at cost to take advantage of the tax arbitrage provided by the Province of Quebec's "flow through" tax credit for provincial citizens. I also believe we have burst through those trading shares two weeks ago and the share price has moved to resistance at higher levels—currently at about C$0.60 per share.

Last month, Metanor also received a check from the Province of Quebec for about C$3.3 million in exploration tax credits for past exploration activities.

I remain very excited about the “Blue Sky” Nelligan property we visited this past summer and am hopeful drilling activities will begin at the Nelligan soon. Remember, Nelligan produced a 584 gram per ton channel sample and is only 4km from the Bachelor Lake mill. Even better, Metanor owns the property between Bachelor Lake and Nelligan which is unexplored to date.

Moreover, there are also smaller properties (6,000 oz. to 348,000 oz. of historical resources--NOT MI&I) within a reasonable distance of the Bachelor Lake mill that have 1 million - 1.5 million oz. historical gold resources.

Metanor's management has indicated they are being extremely cost conscious while trying to advance the number of ounces they produce as quickly as possible. Increasing production is very important in a rising gold price environment and I expect the price of gold to trend higher for several years.


The Gold Stock Strategist
Full disclosure: I own shares in Metanor 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.

Friday, February 13, 2009

List of Emerging Junior Gold Producers -- 2009

ERRATA: In response to a reader's comment, I have corrected the European Minerals to Orsu Metals due to acquisition. I own a ton of warrants at much higher prices and had hoped to forget that company. I have also added Richmont Mines, even though they have been producing for several years. They are rapidly expanding production and have a strong growth strategic plan. Thanks for helping me clean up this list. (Feb. 16, 2009)

ERRATA: I have added Oceanagold and Capital Gold to the list (Feb. 26, 2009).

Most junior gold miners are explorers engaging in the discovery of gold mineralization and are not planning to produce gold 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. The last update on June 30, 2008 had a list of 43 companies. Since then Kinross bought out Aurelian Resources and Aurelian has been removed from the list. In addition, European Minerals merged to create a new company, Orsu Metals.

I have also received several comments requesting additional companies be added. After reviewing all the requests, the following companies will be added to my watch list:

1) Vista Gold

2) Troy Resources

3) Centamin Egypt

4) Ramelius Resources

5) Castle Gold

6) Richmont Mining

7) Oceanagold Corp.

The one removal and eight additions brings the list of emerging jr. gold producers to 50. Below is my 2009 comprehensive list of emerging junior gold producers.

1. Alexis Minerals Corp. (TSX:AMC; OTC:AXSMF)
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. Aurizon (TSX:ARZ; AMEX:AZK)
7. Axmin Inc. (TSX:AXM; OTC:AXMIF)
8. CGA Mining Ltd. (TSX:CGA; OTC:CGAFF)
9. Capital Gold (TSX:CGC; OTC:CGLD)
10. Castle Gold (TSX:CSG; OTC:CSGLF)
11.Centamin Egypt, Ltd. (TSX:CEE; OTC:CELTF)
12.Crystallex International Corp.(TSX:KRY; AMEX:KRY)
13.Dynasty Metals & Mining Inc. (TSX:DMM; OTC:DMMIF)
14.European Goldfields Ltd.(TSX:EGU)
15.Gabriel Resources Ltd. (TSX:GBU; OTC:GBRRF)
16.Jaguar Mining, Inc. (TSX:JAG; NYSE:JAG)
17.Gold Reserve Inc. (TSX:GRZ; AMEX:GRZ)
18.Gold-Ore Resources Ltd. (TSX:GOZ; OTC:GREXF)
19.Gold Resource Corp.(OTC: GORO)
20.Golden Queen Mining Comp. (TSX:GQM; OTC:GQMNF)
21.Great Basin Gold Ltd. (TSX:GBG; AMEX:GBG)
22.Hawthorne Gold (TSX:HGC; OTC:HWTHF)
23.International Minerals Corp. (TSX:IMZ; OTC:IMZLF)
24.Jinshan Gold Mines Inc. (TSX:JIN; OTC:JINFF)
25.Kinbauri Gold (TSX:KNB; OTC:KINBF)
26.Lake Shore Gold Corp. (TSX:LSG; OTC:LSGGF)
27.La Mancha Res. (TSX:LMA; OTC :LACHF)
28.Luna Gold (TSX:LGC : OTC:LGCU)
29.Metanor Res. Inc. (TSX:MTO; OTC:MEAOF)
30.Minco Gold (TSX:MMM: AMEX:MGH)
31.Minefinders Corp. Ltd. (TSX:MFL; AMEX:MFN)
32.Moto Goldmines Ltd. (TSX:MGL; OTC:MTOGF)
33.Nevsun Resources Ltd. (TSX:NSU; AMEX:NSU)
34.New Guinea Gold (TSX: NGG: OTC:NGUGF)
35.NovaGold Resources Inc. (TSX:NG; AMEX:NG)
36.Oceanagold Corp. (TSX:OGC; OTC:OGDCF)
37.Orezone Resources Inc. (TSX:OZN; AMEX:OZN)
38.Orsu Metals, Corp.(TSX:OSU; OTC:OSUMF)
39.Pacific Rim Mining Corp. (TSX:PMU; AMEX:PMU)
40.Petaquilla Minerals Ltd. (TSX:PTQ; OTC:PTQMF)
41.Ramelius Resources Ltd. (OTC:RMLRF)
42.Rusoro Mining Ltd (TSX:RML; OTC:RMLFF)
43.Richmont Mines Inc. (TSX:RIC; AMEX:RIC)
44.San Gold Resources Corp. (TSX:SGR; OTC:SGRCF)
45.Starcore International (TSX:SAM: OTC:SHVLF))
46.Tara Gold (OTC:TRGD)
47.Timmins Gold Corp. (TSX:TMM; OTC:TMGOF)
48.Troy Resources (TSX:TRY; OTC:TRYRF)
49.Vista Gold (TSX:VGZ; AMEX:VGZ)
50.Western Goldfields (TSX:WGI; AMEX:WGW)

I appreciate the help given me by readers of the Gold Stock Strategist to identify emerging junior gold producers.

Thank you!


Gold Stock Strategist

Full disclosure: I own shares in several of the 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 investment decisions. Do your own due diligence.

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