Where to be when #gold equities bounce

From Dundee, their thoughts on how to position yourselves for any rally in the gold equities.  Developers/Explorers outperform, followed by the intermediate producers.  No mystery here.  If seeking greater security in a senior gold while still capturing very significant upside, Goldcorp.

 

Background:

 The S&P/TSX Global Gold Index closed yesterday at 250.64, levels last seen in December 2008, and the gold equities have been tracking steadily downward since the end of September 2012 (down 29% from September 21 to the present day, and gold down 11% over the same time horizon). Although it may take time, we expect the gold equities to come back to favour as, 1) the hype associated with the "great rotation" cools, 2) US budget issues persist throughout 2013, 3) the fear of global currency wars continues, and 4) our expectation for inflation over the next few years.  

 

Purpose: We decided to analyze which tier of gold equities performed best over the two rally periods in 2012 (from May 15 to June 5, and from July 23 to September 21), to help investors position their portfolios in such a way to reap the greatest benefits from a pop in the gold equities.

 

Conclusion: The developer/explorer group has the strongest performance in the two recent rally periods, followed by the intermediates, seniors, junior producers, and finally, gold. 

It is interesting to note that the performances in both rally periods were similar, in that the developers/explorers led the way, followed by the intermediates, and the bullion was the consistent laggard, adding some weight to the conclusion that developers/explorers could be the place to park some money. We maintain that the developer/explorer group we have under coverage/Under Review are best in class, with high quality management teams and assets, and many have financing in place to continue work despite volatile market conditions.

 

We divided the gold stocks into four categories: seniors, intermediates, junior producers and developers/explorers. We used the stocks we have under formal coverage and Under Review (table below).

 

Rally period #1 (May 15 – June 5): Developers/Explorers Outperform

 

Rally period #2 (July 23 – September 21): Developers/Explorers Outperform

 

Honing in on the Senior Gold Producers:

 

If seeking greater security in a senior gold while still capturing very significant upside, Goldcorp (Under Review, last close C$33.23) outperformed Barrick (Under Review, last close C$29.64) and Kinross (Under Review, last close C$7.97) in the two rally periods in 2012. We continue to favour Goldcorp among the senior gold producers, especially after attending their Investor Day last week.

 

Reasons we like Goldcorp:

-          High quality management team that communicates clearly their upcoming opportunities and challenges

-          The company is on track with its three development projects: Cerro Negro (first prodn late-2013, commercial 2014), Eleonore (first production late-2014, full ramp end-2017) and Cochenour (full ramp up late-2015)

o   Combined, the projects should contribute over 1.3MM oz in their first five years of production

-          Long-term water strategy study to be complete H1 2013 (affecting Penasquito primarily, but also the nearby Camino Rojo development project)

-          Notable exploration upside at Cerro Negro, Camino Rojo and Penasquito

 

Rally period #1 (May 15 – June 5): Goldcorp outperforms

 

Rally period #2 (July 23 – September 21): Goldcorp outperforms again

 

Appendix

Companies included in the analysis:

Source: Bloomberg, Dundee Securities

 

Rally periods from the beginning of 2012 until the present day (green-hashed lines illustrate the rallies)

 Source: Dundee Securities

Friedland`s bullishness lightens PDAC mood - PDAC International Convention - Mineweb.com Mineweb

Friedland's bullishness lightens PDAC mood

PDAC International Convention

Ivanplats CEO, Robert Friedland sees a big opportunity to fill a coming void in the market, with the majors hunkering down and shelving major projects after several ousted their CEOs.

Author: Euan Rocha and Rod Nickel
Posted: Wednesday , 06 Mar 2013 TORONTO (Reuters) -
Leave it to the irreverent Robert Friedland to brighten the mood of a mining conference in the throes of a deep, collective depression.
The outspoken financier, known for his talent for picking winners in a risky business, made a rare public appearance on Monday to trumpet his latest venture, Ivanplats Ltd.

It was a star turn by a man apparently unburdened by self-doubt or any lack of confidence in the industry's resilience.
Friedland's company, one of a handful of initial public offerings in the mining industry last year, owns South Africa's Platreef, a project rich in platinum, palladium, gold, rhodium, nickel and copper.
Ivanplats owns the "largest mechanizable, ethical precious metal discovery in the world," Friedland said at the Prospectors and Developers Association of Canada convention in Toronto, promising that the geological nature of the deposit would allow for more humane working conditions than those in rival South African mines.
"We've discovered something that is very good," he said, "We're quite confident that the nickel and copper values are double what we would need to recover, gold, platinum, rhodium and palladium at a negative cost."
Friedland's sheer enthusiasm seemed out of step with the predominant mood at this year's PDAC, where talk has often focused on the dearth of financing for mining projects amid cost overruns, multi-billion dollar writedowns and stagnant metal prices.
Friedland sees a big opportunity for Ivanplats to fill a coming void in the market, with the majors hunkering down and shelving major projects after several ousted their CEOs.
"We're in a world where all of the CEOs of major miners have had their heads cut off ... So these major mining companies are now being run by people who are inherently risk averse," said Friedland. "That means there is going to be less metal around in five years."
Friedland, who also gave the keynote address at the Canada-Southern Africa Chamber of Business on Tuesday, vowed that the industry would emerge from its funk, as the rise of mega-cities around the world drives metal demand.
"The whole planet Earth is going urban," he said.
LIVING LEGEND
No matter how controversial his remarks, Friedland's reputation alone wins him a ready audience.
Now 62, Friedland, made a name in 1996 by selling a then-undeveloped Canadian nickel-copper project called Voisey's Bay for C$4.3 billion ($4.2 billion).
He solidified his near-legendary status within the mining industry with Ivanhoe Mines, a vehicle he used to promote and build the massive Oyu Tolgoi copper-gold mine in Mongolia. Last year, mining giant Rio Tinto acquired a majority interest in Ivanhoe, now called Turquoise Hill Resources.
That deal allowed Friedland to concentrate on Ivanplats, taking it public in 2012 in one of the most closely followed IPOs of the year. The partial offering, which raised about C$300 million, pegged the value of Ivanplats at over C$2.5 billion.
The Chicago-born billionaire is known almost as much for his showmanship as for his track record in spotting the potential of some of the world's biggest deposits.
In keeping with style, Friedland peppered his convention speech with jocular asides and digs at other mining companies.
"I remember Bre-X quite well," said Friedland, referring to a multibillion-dollar mining scam during the 1990s. "It was a 100 million ounce deposit, but (Platreef) is much bigger than that and it has the distinct added advantage of being real."
Friedland, a Boston-area native who now lives in Singapore, said Platreef contains some 75 million to 100 million ounces of precious metals.
"ETHICAL PLATINUM"
He said Platreef was superior to some of Anglo American Plc's costly, deep underground platinum mines, where critics say that extreme heat and a cramped environment make working conditions difficult.
"Anglo is like a man with one foot in a bucket of ice and another foot in a bucket of hot coals," he said, suggesting the rival South African miner faces a dilemma in trying to sell platinum produced under such conditions. In addition to jewelry, platinum is used to make catalytic converters for cars.
"If you're the Toyota Motor Company, you can't sell a yuppie a Prius in California based on this activity," said Friedland. "You already have the concept of ethical diamonds ... similarly we now have the concept of ethical platinum, so this is going the way of the dodo bird."
Friedland has promised that Ivanplats will shake up the mining sector, as the Platreef operation can be fully mechanized and would not require thousands of workers to work in inhospitable conditions deep underground.
The Platreef project is 90 percent owned by Ivanplats. A consortium of Japanese companies paid about $290 million to acquire the remaining 10 percent.
COPPER BONANZA
Friedland also praised Ivanplats' Kamoa opper project in the Democratic Republic of Congo, which he believes could turn out to be the "richest copper discovery in the world."
"This little puppy is only a couple of years old and it is quite a spirited little discovery, and it is definitely a candidate to surpass El Teniente," he said, referring to Chilean miner Codelco's massive underground copper mine.
Despite the attributes of Ivanplats' projects and Friedland's promotion skills, the company's shares have not escaped the downdraft that has weighed on the mining sector this year. Ivanplats shares, which rose as high as C$5.45 early this year, have fallen back to C$4.09 a share.
Friedland said Ivanplats is now "scheming" on ways to push its share price higher, hinting that the company may explore a deal to sell a small stake in Kamoa - potentially boosting its valuation.

Friedland`s bullishness lightens PDAC mood - PDAC International Convention - Mineweb.com Mineweb

The MasterMetals Blog

#Gold Miners Come Clean on Costs After Lost 6 Years: Commodi

pledging to report costs more accurately as part of its efforts to win back investor confidence.

Gold Miners Come Clean on Costs After Lost 6 Years: Commodities
2013-02-27 03:31:52.849 GMT

By Liezel Hill
Feb. 27 (Bloomberg) -- The gold-mining industry, which has underperformed the precious metal for each of the past six years, is pledging to report costs more accurately as part of its efforts to win back investor confidence.
Barrick Gold Corp. and Goldcorp Inc., the two biggest producers by market value, have begun reporting "all-in sustaining costs" for the first time. The new measure averaged
$941 an ounce between the two companies in the fourth quarter.
That's 50 percent higher than the $626 average so-called cash cost they disclosed in the preceding three months.
The largest gold companies are seeking to lure investors back to the $300 billion industry after a string of money-losing multibillion-dollar takeovers and over-budget projects. Barrick and its competitors are vowing to focus on margins and to get a grip on soaring production costs, rather than boosting output.
Gold producers "have really done themselves a huge disservice by effectively walking around for the last 12 years promoting the gross margin as opposed to the net or the operating margin," said Joseph Wickwire, the Boston-based manager of Fidelity Investments' $2.9 billion Select Gold Portfolio fund. "The managements and the boards of the gold companies really have no one to blame but themselves for some of the negative sentiment and disappointment."
Earnings statements had previously carried so-called cash costs, based on a standard developed in the 1990s that excludes expenses such as exploration and waste-rock removal.

Margin Compression

The 55-member S&P/TSX Global Gold Sector Index trailed gold each year in 2007 through 2012. The index declined 6.9 percent during that period while gold futures more than doubled in New York. Gold traded at $1,612.20 an ounce at 12:27 p.m. in Tokyo.
Gold has advanced for 12 successive years, driven at least in part by demand from investors looking for a store of wealth amid concern about inflation. Despite benefiting from that rally, gold producers' margins have come under pressure from rising prices for labor, equipment and raw materials.
The average cash cost of 10 of the biggest gold miners was
$694 an ounce in the third quarter, 49 percent higher than in the same period two years earlier, according to data compiled by Bloomberg. The average gold price rose 35 percent in the same comparison.
"Everyone was trying to run through the funnel of building these new projects as big as you can, as fast as you can,"
Kinross Gold Corp. Chief Executive Officer J. Paul Rollinson said in an interview Feb. 13. "There was huge competition for people, competition for steel, competition for tires and spare parts."

Ballooning Budget

Barrick's gross margin, expressed as a proportion of sales, was 47 percent in 2012, while its operating margin was 39 percent, according to data compiled by Bloomberg.
"The costs of running this business are higher than it looks and that's how we need to manage this business going forward," Barrick CEO Jamie Sokalsky said at a Jan. 29 conference in Toronto.
Sokalsky has been expounding his strategy since taking charge in June, when Barrick fired his predecessor Aaron Regent, citing a disappointing share-price performance. The Toronto- based company saw the cost estimate for its Pascua-Lama mine balloon to as much as $8.5 billion in 2012, from as much as $3.6 billion in 2011.

Fired CEOs

Regent was among at least six CEOs of North American gold producers to either announce their departure or be fired in the past year. Kinross, which fired Rollinson's predecessor Tye Burt in August, has taken more than $5.5 billion of writedowns on Mauritanian assets the Canadian company acquired as part of its
C$8 billion ($7.8 billion) takeover of Red Back Mining Inc. in 2010.
As gold miners pursued additional ounces at the expense of profit margins, investors instead plowed billions of dollars into gold-backed exchange traded funds. The weight of gold behind those ETFs, which include the $64.9 billion SPDR Gold Trust, has quadrupled to 2,530 tons since the start of 2007, according to data compiled by Bloomberg.
The boom in ETFs may now be at an end, with physical holdings poised for the biggest monthly decline since 2008. The gold cycle has probably turned as the recovery in the U.S.
economy gathers momentum and investment holdings shrink, Goldman Sachs Group Inc. said in a Feb. 25 report. Still, it's not yet clear whether gold miners will benefit from the change in sentiment.

Predictability, Rigor

"I don't think the industry has done anything to persuade some of those investors that hold, for example, gold ETFs to buy gold shares instead," said Neil Gregson, who manages about $5 billion in natural resources equities at JPMorgan Asset Management in London. "Our allocation to gold equities is now down to 20 percent, which is the lowest we've been certainly since I've been here in the last 2 1/2 years."
To be sure, while the gold industry has traditionally emphasized cash-cost figures, the other components of all-in costs were available in financial reports, Gregson said. Gold companies have diverged since the 1990s in terms of which cost items they included, Goldcorp CEO Chuck Jeannes said in a Feb.
25 interview.
"What we are trying to do is bring back some predictability and rigor," he said.
There's still no universal agreement on the new all-in costs. Members of the World Gold Council, a London-based industry group, are working on issues such as how to treat byproduct revenue, interest expenses and profits on energy hedges, said Agnico-Eagle Mines Ltd. CEO Sean Boyd.

More Realism

Mining companies are hoping that it's governments and not just investors who pay attention to the new all-in costs, Gold Fields Ltd. CEO Nick Holland said in a Feb. 4 interview. Gold more than quadrupled in the last 10 years and reached a record
$1,923.70 an ounce in September 2011, encouraging some countries to seek a greater share of profits.
The Dominican Republic's congress said last month it will review and may change a contract with Barrick over the development of a $4 billion mine. Burkina Faso is among countries that have amended royalty and tax regimes.
"It could be positive for getting more realism into governments about how much tax they really should be levying on us," Holland said. "There's not the super profits that you'd have them believe you're making."

For Related News and Information:
Barrick news: ABX CN <Equity> CN <GO>
Top commodity news: CTOP <GO>
Bloomberg Industries precious metals analysis: BI PMETG <GO> Top metals stories: METT <GO>

--With assistance from Paul Burkhardt in Johannesburg. Editors:
Simon Casey, Todd White, Steven Frank

To contact the reporter on this story:
Liezel Hill in Toronto at +1-416-203-5727 or lhill30@bloomberg.net

To contact the editor responsible for this story:
Simon Casey at +1-212-617-3143 or
scasey4@bloomberg.net