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

Comments are welcomed!

Thursday, January 14, 2010

Emerging Junior Gold Producers Powered Ahead in 2009

2009 was a fantastic year for emerging junior gold producers and stocks in the Gold Stock Strategist Emerging Junior Gold Producers (GSSX) Index ©. The GSSX Index© outperformed GLD, XAU, HUI, and the TSX Venture Exchange.

The GSSX Index© powered ahead 123 percent, beating the yellow metal, beating the HUI gain of 30%, beating the XAU gain of 36%, and even beating the TSX Venture Exchange of 92%.


Components of Comparison Indexes

The XAU is a capitalization weighted index comprised of 16 large cap precious metals mining companies traded on the Philadelphia exchange. Companies in the index include: Agnico Eagle Mines (TSE:AEM) ($AEM), Anglogold Ashanti ($AU), Barrick Gold (TSE:ABX) ($ABX), Freeport-McMoran Copper and Gold ($FCX), Gold Fields ($GFI), Goldcorp (TSE:G) ($GG), Harmony Gold Mining ($HMY), Kinross Gold (TSE:K) ($KGC), Newmont Mining (TSE:NMC) ($NEM), and Pan American Silver Corp. (TSE:PAA) ($PAAS).

The HUI—AMEX Gold BUGS (Basket of Unhedged Gold Stocks) is a modified equal dollar weighted index comprised of 15 major gold mining companies including Agnico Eagle Mines, Barrick Gold, Compania de Minas Buenaventura ($BVN), Coeur D Alene Mines ($CDE), Eldorado Gold (TSE:ELD) ($EGO), Gold Fields, Goldcorp, Golden Star Resources (TSE:GSC) ($GSS), Harmony Gold Mining, Hecla Mining ($HL), IAMGOLD Corporation (TSE:IMG) ($IAG), Kinross Gold, Newmont Mining, Yamana Gold (TSE:YRI) ($AUY) and Randgold Resources ($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 sector-wise 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 designed to track the price of gold. However, GLD was up 20 percent in 2009, trailing the actual price of gold. In 2009, the price of gold closed the year out by rising from a close of $884.30 on December 31, 2008 to $1096.50 on December 31, 2009, registering a 24 percent gain.

Composition of the GSSX Index©

As I have indicated in previous reports, 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.

Here is a list of the 18 companies included in the GSSX Index©.

Alamos Gold (TSE:AGI) ($AGIGF)
Alexis Minerals Corp. (TSE:AMC) ($AXSMF)
ATW Gold (CVE:ATW) ($ATWVF)
Aurizon Mines Ltd. (TSE:ARZ) ($AZK)
Capital Gold Corp. (TSE:CGC) ($CGLD)
Gold Resource Corp. ($GORO)
Gold-Ore Resources (CVE:GOZ) ($GREXF)
Jaguar Mining (TSE:JAG) ($JAG)
Jinshan Gold Mines (TSE:JIN) ($JINFF)
La Mancha Resources (TSE:LMA; $LACHF)
Metanor Resources (CVE:MTO) ($MEAOF)
Minefinders (TSE:MFL) ($MFN)
MDN Inc. (TSE:MDN) ($MDNNF)
New Gold Inc. (TSE:NGD) ($NGD)
New Guinea Gold (CVE:NGG) ($NGUGF)
Richmont Mining (TSE:RIC) ($RIC)
San Gold Corp. (CVE:SGR) ($SGRCF)
Timmins Gold (CVE:TMM) ($TMGOF)

Originally, the GSSX was comprised of 20 stocks. Two companies in the index were bought out during 2009—Kinbauri and Castle Gold.

The 20 companies included in the original index represented about 40% of all emerging junior gold producers and about 1.3 million projected ounces of gold produced in 2009. Each company represented 1/20 of the total index. It was not—and is not—weighted by market capitalization. I removed Castle Gold and Kinbauri from the index for the end of year calculation in this presentation, so each company represents 1/18 of the total index.

GSSX© Component Performance

The top performer by far for the year in the index was La Mancha Resources, with a whopping 724 percent gain. Other high flyers include San Gold (237%), Gold Resource (221%), Timmins Gold (190%), New Gold (160%) and Jaguar Mining (131%). The average gain for the year was 123 percent. The only company that did not register a gain for 2009 was MDN Inc. (0%)
One interesting item of note is that after conducting a sensitivity analysis by removing a clear outlier, La Mancha, and adding back in the returns for Kinbauri and Castle Gold the results are nearly identical at about a 120 percent or so gain.


The GSSX Index©, will have 3 to 4 new component companies added for 2010 and will be updated more regularly.

Wednesday, January 13, 2010

Terrane Seeks Asian Partner for Mt. Milligan

Last week, Goldcorp (TSE:G) ($GG) let expire its one-time option to convert non-voting preferred shares in Terrane Metals’ (CVE:TRX) ($TRXOF) Mt. Milligan gold and copper project into a 59 percent common share interest in the company. We indicated at the time that this milestone cleared up the ownership of Terrane, giving them a green light to seek other financing options.

Finding a new partner “is our intention now, and Goldcorp knows that,” Pease indicated to Bloomberg reporters. “Likely partners that we’re pursuing are the metal smelting and refining companies.

Yesterday, Bloomberg reported that Terrane is in talks with Japan’s Mitsubishi Corp., Sumitomo Corp. and other companies to help finance the $866 million gold-copper mining project. In addition to the Japanese mining interest, there are reports that Chinese and Korean mining companies may be interested in Terrane.

Terrane will be first focused on financing the recently approved 2010 construction budget of $172 million.

The Mt. Milligan project is projected to annually produce 89 million pounds of copper and 262,100 ounces of gold over a 22-year mine life.

This is good news for Terrane shareholders who bought on speculation the Goldcorp would completely buy out Terrane to get at the Mt. Milligan deposit. Mt. Milligan is a world class asset with 6 million proven and probable ounces of gold and 2.1 billion pounds of copper. The project is scheduled to begin production by late 2012.

Shares of Terrane Metals are up 5 percent this afternoon, with an OTC price of $1.27 per share.

Tuesday, January 12, 2010

Yamana Gives 2010 and 2011 Guidance

Toronto, Canada-based Yamana Gold Inc. ($AUY) (TSE:YRI) announced its outlook today for production, cash costs, and capital expenditures for fiscal years 2010 and 2011.

Production

The company estimates annual production for 2010to range from 1,030,000 to 1,145,000 gold equivalent ounces (GEO) and 1,045,000 to 1,150,000 in 2011, an increase of 12 percent over 2009.

Yamana CEO Peter Marrone stated, "Our objective has been to create consistency and reliability in our operations with a sustainable production platform of approximately 1.1 million gold equivalent ounces at consistent cash costs. Our outlook for the next few years maintains that objective. Going forward, our development stage and exploration projects, in addition to further value enhancing opportunities, will provide Yamana with a superior organic growth profile and value proposition."

The production estimates do not include additional production from Agua Rica or new discoveries at El Penon. Updates are expected in the first quarter of 2010. QDD Lower West additional production is not included. An update is expected in the second half of 2010.

Growth is expected to ramp up big time in 2012 with four development projects are expected to begin production. These four projects are expected to contribute an additional 390,000 GEO annually.

Yamana assumes gold prices in 2010 and 2011 at $1,050 per ounce, silver prices at $18.80 per ounce, copper prices at $2.75 per pound and zinc prices at $1.00 per pound.

Cash Costs

By-product cash costs, excluding production from Alumbrera, are expected to be below $200 an ounce in both 2010 and 2011. Co-product cash costs from continuing operations are expected to range between $360 and $400 in 2010 and $370 to $400 per GEO in 2011.

Capital Expenditures

Capital expenditures for 2010 are forecast to be $515 million and $455 million in 2011. Sustaining capital expenditures in 2010 are forecast to be $230 million and in 2011 are expected to be $155 million.

Conclusion

Yamana is a solid play for buy and hold investors who see the price of gold setting new highs for 2010 and beyond. Yamana share prices corrected downward by 23% as the price of gold dropped off of all-time highs of $1,226 an ounce in November 2009 and appears to be undervalued at a current share price of $12.27. Yamana remains the premiere growth play in the gold mining sector among majors and mid-tier gold producers.

Yamana Gold is one of the Gold Stock Strategist newsletter “Growth” recommendations. Since being recommended in the August 2009 issue of the Gold Stock Strategist, Yamana’s share price has risen 29.3 percent.

Disclosure: No position

Friday, January 8, 2010

Goldcorp Lets Option Expire, Terrane to Seek Financing for Mt. Milligan

Goldcorp ($GG) (TSE:G) decided to let expire an option to convert its non-voting preferred shares in Vancouver-based Terrane Metals ($TRXOF) (CVE:TRX) to voting common shares. Goldcorp will maintain its 60 percent non-voting preference interest in Terrane Metals.

This decision clears up the ownership of Terrane Metals which will now start looking at options for financing the construction of the project.

In a statement, Goldcorp CEO Chuck Jeannes called the Mt. Milligan project an "outstanding asset." Furthermore, he said, "Goldcorp believes that the best way to continue participating in the bright future of this project is through our equity interest in Terrane."

Robert Pease, President and CEO, Terrane, Metals stated: "With project ownership now clarified, Terrane will move forward with financing alternatives to develop the Mt. Milligan project. Terrane shareholder value is firmly underpinned by a six million ounce, low-cost and construction-ready reserve."

History
Goldcorp sold the Mount Milligan project and certain other Canadian exploration properties to Terrane in July 2006, for 240-million convertible preferred shares in Terrane.

The companies announced in May 2008 that Goldcorp would guarantee the C$40-million credit line and, during the term of the credit facility, would have the option to convert preferred shares in Terrane into a joint-venture interest in the project.

The option expired today and Goldcorp has extended a C$40 million credit facility through May 7 to give the emerging gold producer time to arrange financing for C$172 million to begin construction in 2010. It is expected the nearly 3-year Mt. Milligan project will cost C$915-million to build.

The Future
A feasibility study update completed last year forecast average annual production of 262,000 ounces of gold and 89-million pounds of copper for the first six years of a 22-year mine life.

The study projected gold production byproduct cash costs at negative $8 per ounce, using an average gold price of $800 an ounce and copper price of $2 per pound. Gold is currently trading at $1,130 an ounce. Copper is currently trading at $3 a pound.

Mt. Milligan will be a conventional open pit mine with a 60,000 ton per day copper processing plant. The feasibility study projected average annual production of 262,100 ounces of gold and 89 million pounds of copper for the first six years of a 22-year mine life.

Pease said last month that Terrane hoped to start construction in the second quarter of this year, and is targeting commercial production in the fourth quarter of 2012.

Terrane Metals was a speculative recommendation in the November 2009 issue of the Gold Stock Strategist newsletter at $0.80 per share and, at today's share price, is up 31 percent since being recommended 10 weeks ago.



Shares of Terrane Metals are down about 7 percent this afternoon, with an OTC price of $1.05 per share and volume of almost 1.1 million shares. Shares of Goldcorp are up 0.65 percent at $42.08.

Disclosure: Long Terrane Metals

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