Gold stocks

[Guest Bronco]

I do like Gold, but don't own any.  I used to, before I got married - but had to sell it, because well, I got married.

 

Back to the point - I understand the gold thing.  I don't get the gold stocks.  I can't find any that really generate cash flow that justify their market caps.  Help?  Looking for an education.

 

I would think that a market cap for a gold stock would roughly equate to potential gold to be mined x FMV of gold price less the costs to get it out of the ground.  Of course, the NPV of all those items would need to be considered (although in a world of 0% interest rates, does it?).

 

Any good insights appreciated - also, and recommendations of gold stocks would also be interesting.

[Guest broxburnboy]

In the world of gold stocks, there are several levels of market cap/size, associated with more risk as you go down the food chain:

 

At the top are the huge multinationals who pay dividends based on profit margin between production costs and market price. Until recently most of these had at least a portion of their production hedged by preselling into the futures market. With the rapidly rising price of gold 2 of the larger ones Barrick and Anglogold Ashanti closed their hedge book completely, booked a loss and are now participating in the run up of the commodity price.

 

http://www.istockanalyst.com/article/viewarticle/articleid/3681409

 

Next are the mid teir producers.. the rising stars of the gold world as they move from mine development and all the associated capital costs to increasing production. They have more than one mine and their production profile is increasing into a rising spot price.. doesn't get much better than that.  Yamana, Goldfields etc. Google "gold producers" will deliver websites that have filters to begin your due dilligence.

 

There are also smaller producers with the same near term production increase story. Here in Canada names like Redback, Osisko, San Gold etc. are all out there. Moving into Silver and Silver/gold there are Hecla, Agnico/Eagle (some overlap with mid caps here) etc.

 

At the bottom of the pile are small and micro cap explorers where risk abounds and so does some pretty amazing upside. Mega due dilligence required. It's a space that has been beaten down for years as the price of gold languished and seed capital was scarce. As a result the companies that survived the bad times are the ones most likely to succeed in the current and projected price environment.

Personally I have been involved in this space increasingly the last 18 months or so and have made some spectacular investments, and strangely, zero losses. I'll throw out some names with the understanding that I don't recommend these types of companies to anyone that is not prepared to do their own due diligence... you need to learn about mining, micro cap finance, etc. These are in no way traditional "value" stocks.

When investing here you also need to consider political risk as a lot of exploration is done out on the edges of the world... we are in an era of Peak Gold (at least peak cheap gold).

I have had success and still hold - EPZ (Esperanza) - MRZ(Mirasol) - NCG(North Country) - NIB (polymetalic, yet to move) - SGR SAN Gold - MAW(Mawson Gold) - CDE (Couer D'elaine) -SOL (Soltoro) -MAD (Miranda)....TAS (Terra Ventures uranium/gold play)

 

These are only a few of the myriad of success stories of the last few months... some will undoubtedly be weeded out with time and any reversal in the gold/silver price trend.

 

There are also companies who have purchased royalty interests in various producers and trade on the P/E of the income stream.

Franco Nevada comes to mind.. there are others and new players... DD here may yield some great investments.

[Guest Bronco]

Thanks for the great post...seriously.

 

I guess I am still confused.  Just looked as Barrick.  $50B market cap (at least reported on my screen).

 

Seems they generated cash of $3B thru 9 months, and had cap-ex of $2B. 

 

Issuance of stock and debt every year.  I guess what I would need to research is how much of the $2B in maintenance cap-ex versus a 1 shot deal.  Still, the numbers aren't adding up to me.  Seems like if cap-ex declined and prices soared, there may be some leverage.  I don't know.

 

I'll keep looking / learning.  Again, your post was great.  However, right now I would rather own the shiny stuff itself.

[Guest broxburnboy]

Thanks for the great post...seriously.

 

I guess I am still confused.  Just looked as Barrick.  $50B market cap (at least reported on my screen).

 

Seems they generated cash of $3B thru 9 months, and had cap-ex of $2B. 

 

Issuance of stock and debt every year.  I guess what I would need to research is how much of the $2B in maintenance cap-ex versus a 1 shot deal.  Still, the numbers aren't adding up to me.  Seems like if cap-ex declined and prices soared, there may be some leverage.  I don't know.

 

I'll keep looking / learning.  Again, your post was great.  However, right now I would rather own the shiny stuff itself.

 

The large caps have to keep their production profile growing.. hence the large capex ... the capex ends up as increased book value as gold-in-the-ground inventory. You might be happier with the Royalty cos. like Franco Nevada et al.