Now that the investment clarion has been sounded, investors may wish to do their own homework for evaluating candidates for investment. Among the several dozen decent publicly traded companies how does one decide which ones to invest in?
While not an exhaustive list, here are some things every investor ought to keep in mind. Follow these rules, and your chances of getting in trouble will be greatly diminished.
Ask and answer the following questions:
1. Where Are The Operations Located?
In my opinion, the biggest risk currently is geo-political. Some countries are dependent on their mining industries and are not terribly interested in having foreign interests, i.e. us, coming in and pillage their resources for our own profit. The risk is nationalization.
A recent case is that of Crystallex International Corporation (KRY), whose mining interests were nationalized by Venezuela. KRY stock sold for more than $4 per share as recently as 2007, before losing a mind-numbing 98% of value to hit 10 cents per share. It has recovered somewhat to trade at $0.45 today.
Personally, I prefer to stick to North American companies which operate in some combination of Canada, the United States and Mexico. I tend to avoid companies with the bulk of their operations in Africa, whose countries tend to be perpetually unstable and subject to ethnic conflicts and new governments. It's impossible to predict which country in what continent will be unsafe, so I stick to where I believe the business environment will not be subject to change without warning.
2. What Aspect Of Mining Is The Company Involved With?
The junior mining sector is basically divided into explorers, developers and producers. The explorers are like oil wildcatters. They can have the greatest gains and the most severe losses. Some junior explorers to consider are U.S. Gold Corporation (UXG), Explor Resources Inc. (EXSFF) and Vista Gold Corporation (VGZ).
Most explorers wish to develop their projects, but some don't. Vista Gold successfully developed its Nevada-based operations to form Allied Nevada Gold Corp. (ANV), which was later spun-off to shareholders at a tremendous profit.
The key risk to an explorer is that its projects turn out to be not viable economically. NovaGold Resources, Inc. (NG), which has a 50% interest in the Galore Creek project, had to suspend development in late 2007 as cost estimates proved way too low. The stock lost 99% of its value from more than $20 per share to about 25 cents in one year.
3. Is The Company Profitable?
The only companies that can report profits are producers. Some geo-politically safe producers include Aurizon Mines Ltd. (AZK), New Gold Inc. (NGD), ECU Silver Mining Company (ECUXF) and Hecla Mining Company (HL). Each of these is profitable and getting more so, based on recent financial reporting.
Given the very favorable mining economics prevailing today, the list above is far from extensive.
4. Is There An Asset Play?
Some companies are primarily an asset play. They hold already drilled and largely delineated projects. Probably the best asset play out there is Seabridge Gold (SA), which boasts more than 60 million ounces of economically viable Gold, in addition to a slew of other minerals such as Copper.
Producers can also be terrific asset plays. ECU is not only currently producing and profitable, it also boasts what is now the 4th largest resource base of Silver, at a fraction of the market capitalization of high-quality giants such as Silver Wheaton Corp. (SLW) and Pan American Silver Corp. (PAAS).
5. Does The Company Have Sufficient Financial Resources?
Miners who are not generating cash flow are dependent on the capital markets. The financial meltdown of 2008-2009 placed these companies under extreme financial duress. Developing, drilling and exploring is capital-intensive and requires regular infusions.
It's important to note both how much liquid resources a company has and its offsetting debt obligations. If too much debt is coming due and the financial markets are frozen, the company may have to raise additional funds at extremely bad terms. Companies with limited financial resources got particularly bludgeoned in the 2008-2009 meltdown.
6. Is This Company Likely To Acquire Or Be Acquired?
Undoubtedly, as the mining industry starts to boom, there will be a slew of mergers and acquisitions. Any company making an acquisition will typically do a "stock-for-stock" transaction, which will dilute the acquiror while paying a premium to the acquiree.
This is why I tend to avoid the larger companies. To remain competitive, it's more cost-effective to acquire in-ground assets than to go through a long and expensive exploration, drilling and development process. Existing projects have far less risk.
The companies most likely to acquire are primarily the majors such as Newmont Mining Corporation (NEM), Barrick Gold Corp. (ABX), Yamana Gold Inc. (AUY) and Goldcorp. Inc. (GG). Even higher-quality intermediate producers such as IAMGold Corporation (IAG) or Eldorado Gold Corp. (EGO) can be expected to join the acquisition race.
If you hold a company that gets acquired, you receive an instant windfall. While you may be disappointed that the ride to much higher prices has been cut short, you can easily re-deploy the gains you just received in another junior.
Naturally, this is just a brief checklist of the items to look into prior to making a sizable investment. There are many more items to consider such as quality of management and liquidity of the stock. And, a technical review of the stock would also be a very important criteria.
Great fortunes can be made in the next several months for investors who can make good decisions as to the horses they choose to get them to the finish line. Most important is to avoid the big loss. Another obvious factor to incorporate is good diversification. For those investors who are not comfortable with making these choices, an excellent vehicle which includes 40 juniors and intermediates, is the Exchange-Traded Fund GDXJ.
Marko's Take
Showing posts with label Goldcorp. Show all posts
Showing posts with label Goldcorp. Show all posts
Tuesday, June 22, 2010
Monday, May 10, 2010
U.S. Gold Corporation: A Junior Explorer Ready To Go Big Time
While the Euro-Zone's problems continue to make the headlines, investors should NOT lose sight of the emerging opportunity in the precious metals market and junior miners. Against a backdrop of a 1,000 point intra-day loss in the Dow Jones Industrial Average last Thursday, GOLD surged above the $1,200 level as it begins the long-awaited hyperbolic growth phase.
That said, we wish to continue our series on junior precious metals companies with incredible promise to make huge gains in this very exciting phase of the bull market. Today's featured company is U.S. Gold Corporation (UXG), an American-based explorer with significant land holding in Nevada and Mexico. UXG continues to report excellent drilling results and appears poised to take this relatively unknown company to the next level.
Rob McEwen, Chairman and CEO of US Gold, is also the Company's largest shareholder with 21% of the stock and does not draw a salary. Previously, McEwen was the founder and former Chairman and CEO of Goldcorp Inc. (GG), where its Red Lake Mine in northwestern Ontario, Canada is still considered to be the richest gold mine in the world.
During his tenure at Goldcorp, McEwen transformed the company from a collection of small companies into a mining powerhouse, growing its market capitalization from US $50 million to approximately $8 billion. The shares of the Company produced a compounded annual growth rate of 32%.
UXG's Nevada holdings are concentrated in the Cortez Trend - of the Battle Mountain-Eureka Gold Belt that includes American Barrick's (ABX) Cortez (35 million ounces of gold) to the north and the Ruby Hill mine (4 million ounces) to the south. US Gold's combined properties on the Cortez Trend sit 10 miles south of Barrick's recent discovery.
While the Cortez Trend remains under-developed, recent discoveries indicate that it could rival the famous Carlin Trend which is located approximately 30 miles to the northeast where reserves and mineralized material are estimated to be 180 million ounces.
The Company also owns approximately 500,000 acres of mineral rights in Mexico's Sinaloa State. Exploration work was initiated in early 2008 and has produced encouraging results including the exciting El Gallo discovery announced in November 2008.
McEwen believes that GOLD will rise to $2,000 per ounce this year and to an ultimate high of $5,000. Sounds pretty familiar. Could he be a reader of Marko's Take?
The company's investor presentation could be accessed by clicking here http://www.usgold.com/presentation/pdf/24.pdf.
According to UXG's most recent financial statements for the quarter ended March 31, 2010, liquidity was ample with more than $35 million in cash, short-term investments and GOLD bullion. The Company is debt-free.
As an asset play, UXG's value should be viewed based on its resources. All holdings have been independently audited with an "NI 43-101" - a national instrument for the Standards of Disclosure for Mineral Projects. The Instrument is a codified set of rules and guidelines for reporting and displaying information related to mineral properties owned by, or explored by, companies which report these results on stock exchanges.
According to the most recent review, UXG has "measured and indicated" holdings of 3.3 million ounces of Gold, primarily in Nevada and 9.8 million ounces of Silver in Mexico. Based on 122 million shares outstanding and current prices of the metals, this reveals an asset value of approximately $30 per share. UXG closed Friday at $3.27 per share.
Naturally, this valuation doesn't include the costs of development and mining, nor does it include the potential value of FUTURE discoveries. Since 2007, "measured and indicated" Gold resources in Nevada have nearly tripled! Given the prodigious history of the Cortez Trend, further resource discoveries would seem highly likely. The company intends to invest $18 million in the coming year to add to its resource base.
UXG is traded on the Amex and is quite liquid - trading approximately 1 million shares per day. The Company intends to list on the NYSE as soon as it can.
As a disclosure item, I hold some UXG. This stock is not for the feint of heart. The stock traded at nearly $7 per share in late 2007 before declining to about $.50 at the bottom of the financial crisis in late 2008. This stock should only be considered by aggressive holders with a high tolerance for risk.
Marko's Take
Everything you never wanted to know about Social Security is revealed on our latest You Tube video which can be accessed here http://www.youtube.com/markostaketv#p/u/0/twFn9XyP2rI. Our subsequent video, to be released in the next week, will propose a 7-step solution to the Social Security mess. For information on "Peak Oil", the Federal Reserve, Income Taxes and a mock "State of The Union" address, you can access all by clicking here http://www.youtube.com/markostaketv.
That said, we wish to continue our series on junior precious metals companies with incredible promise to make huge gains in this very exciting phase of the bull market. Today's featured company is U.S. Gold Corporation (UXG), an American-based explorer with significant land holding in Nevada and Mexico. UXG continues to report excellent drilling results and appears poised to take this relatively unknown company to the next level.
Rob McEwen, Chairman and CEO of US Gold, is also the Company's largest shareholder with 21% of the stock and does not draw a salary. Previously, McEwen was the founder and former Chairman and CEO of Goldcorp Inc. (GG), where its Red Lake Mine in northwestern Ontario, Canada is still considered to be the richest gold mine in the world.
During his tenure at Goldcorp, McEwen transformed the company from a collection of small companies into a mining powerhouse, growing its market capitalization from US $50 million to approximately $8 billion. The shares of the Company produced a compounded annual growth rate of 32%.
UXG's Nevada holdings are concentrated in the Cortez Trend - of the Battle Mountain-Eureka Gold Belt that includes American Barrick's (ABX) Cortez (35 million ounces of gold) to the north and the Ruby Hill mine (4 million ounces) to the south. US Gold's combined properties on the Cortez Trend sit 10 miles south of Barrick's recent discovery.
While the Cortez Trend remains under-developed, recent discoveries indicate that it could rival the famous Carlin Trend which is located approximately 30 miles to the northeast where reserves and mineralized material are estimated to be 180 million ounces.
The Company also owns approximately 500,000 acres of mineral rights in Mexico's Sinaloa State. Exploration work was initiated in early 2008 and has produced encouraging results including the exciting El Gallo discovery announced in November 2008.
McEwen believes that GOLD will rise to $2,000 per ounce this year and to an ultimate high of $5,000. Sounds pretty familiar. Could he be a reader of Marko's Take?
The company's investor presentation could be accessed by clicking here http://www.usgold.com/presentation/pdf/24.pdf.
According to UXG's most recent financial statements for the quarter ended March 31, 2010, liquidity was ample with more than $35 million in cash, short-term investments and GOLD bullion. The Company is debt-free.
As an asset play, UXG's value should be viewed based on its resources. All holdings have been independently audited with an "NI 43-101" - a national instrument for the Standards of Disclosure for Mineral Projects. The Instrument is a codified set of rules and guidelines for reporting and displaying information related to mineral properties owned by, or explored by, companies which report these results on stock exchanges.
According to the most recent review, UXG has "measured and indicated" holdings of 3.3 million ounces of Gold, primarily in Nevada and 9.8 million ounces of Silver in Mexico. Based on 122 million shares outstanding and current prices of the metals, this reveals an asset value of approximately $30 per share. UXG closed Friday at $3.27 per share.
Naturally, this valuation doesn't include the costs of development and mining, nor does it include the potential value of FUTURE discoveries. Since 2007, "measured and indicated" Gold resources in Nevada have nearly tripled! Given the prodigious history of the Cortez Trend, further resource discoveries would seem highly likely. The company intends to invest $18 million in the coming year to add to its resource base.
UXG is traded on the Amex and is quite liquid - trading approximately 1 million shares per day. The Company intends to list on the NYSE as soon as it can.
As a disclosure item, I hold some UXG. This stock is not for the feint of heart. The stock traded at nearly $7 per share in late 2007 before declining to about $.50 at the bottom of the financial crisis in late 2008. This stock should only be considered by aggressive holders with a high tolerance for risk.
Marko's Take
Everything you never wanted to know about Social Security is revealed on our latest You Tube video which can be accessed here http://www.youtube.com/markostaketv#p/u/0/twFn9XyP2rI. Our subsequent video, to be released in the next week, will propose a 7-step solution to the Social Security mess. For information on "Peak Oil", the Federal Reserve, Income Taxes and a mock "State of The Union" address, you can access all by clicking here http://www.youtube.com/markostaketv.
Thursday, April 29, 2010
American Barrick Follows Newmont Mining With Blowout Earnings
Now that earnings season is in full swing, precious metals miners are continuing to report excellent earnings. Yesterday, giant American Barrick (ABX) reported, followed by Goldcorp. (GG) and Hecla Mining Company (HL).
ABX reported record first quarter net income of $758 million ($0.77 per share), an increase of nearly 150% from the first quarter of 2009. The increase was attributable to higher production and sales in conjunction with lower total cash costs and higher realized prices for both gold and copper. Operating cash flow more than tripled to a record $1.05 billion from $349 million in the same prior year period.
Gold production was up 19% to 2.08 million ounces at total cash costs of $442 per ounce, which was $42 per ounce below prior year period total cash costs. The Company is on track with its guidance to increase production in 2010 to 7.6-8.0 million ounces at lower total cash costs of $425-$455 per ounce.
ABX continues to maintain a strong financial position and the industry's only 'A' credit rating with quarter-end cash of $3.5 billion, an undrawn credit facility of $1.5 billion, robust operating cash flow and excellent access to debt markets.
Goldcorp said on Wednesday its adjusted profit slipped by 3.9%, missing analysts' estimates, as the timing of sales and the stronger Canadian dollar raised costs and offset the impact of higher gold prices. However, this was in large part the result of a non-cash foreign exchange loss of $211.8 million on a translation of future income tax liabilities.
Stripping out the charge, adjusted profit was $162.7 million, or 22 cents a share, down from $169.3 million, or 23 cents per share in the year-before period. Nevertheless, GG remains on track.
Revenue rose 20% to $750.3 million as realized gold prices rose 21.7% to $1,110 an ounce. Cash costs per ounce climbed to $325 per ounce from $288, when using by-product metals production as a cost offset.
The strong year-over-year gains by the Canadian dollar and Mexican peso stripped a total of $25.9 million from the bottom line, while results were also hurt by delayed sales at the Red Lake mine in Canada and a port strike that delayed gold and copper sales at the Alumbrera mine in Argentina.
Hecla Mining reported net income applicable to common shareholders of $18.4 million or 8 cents per share during the first quarter of this year, a substantial increase from the $3.9 million or 2 cents per year reported during the first quarter of 2009.
The company is maintaining its previously announced full-year production guidance of 10 million to 11 million ounces of silver with cash costs in the range of $1.90 to $2.25 per ounce. Hecla is debt-free with $116 million of cash.
As GOLD gets primed to enter its hyperbolic growth phase, excellent revenue growth and profits are being realized. Unlike the NASDAQ bubble, the mania phase in miners will be supported by bona-fide fundamentals.
Marko's Take
Please visit us on You Tube at http://www.youtube.com/markostaketv. Our latest video on the Legality Of The Personal Income Tax can be accessed by clicking here (http://www.youtube.com/markostaketv#p/u/0/1TInKnCIikg).
ABX reported record first quarter net income of $758 million ($0.77 per share), an increase of nearly 150% from the first quarter of 2009. The increase was attributable to higher production and sales in conjunction with lower total cash costs and higher realized prices for both gold and copper. Operating cash flow more than tripled to a record $1.05 billion from $349 million in the same prior year period.
Gold production was up 19% to 2.08 million ounces at total cash costs of $442 per ounce, which was $42 per ounce below prior year period total cash costs. The Company is on track with its guidance to increase production in 2010 to 7.6-8.0 million ounces at lower total cash costs of $425-$455 per ounce.
ABX continues to maintain a strong financial position and the industry's only 'A' credit rating with quarter-end cash of $3.5 billion, an undrawn credit facility of $1.5 billion, robust operating cash flow and excellent access to debt markets.
Goldcorp said on Wednesday its adjusted profit slipped by 3.9%, missing analysts' estimates, as the timing of sales and the stronger Canadian dollar raised costs and offset the impact of higher gold prices. However, this was in large part the result of a non-cash foreign exchange loss of $211.8 million on a translation of future income tax liabilities.
Stripping out the charge, adjusted profit was $162.7 million, or 22 cents a share, down from $169.3 million, or 23 cents per share in the year-before period. Nevertheless, GG remains on track.
Revenue rose 20% to $750.3 million as realized gold prices rose 21.7% to $1,110 an ounce. Cash costs per ounce climbed to $325 per ounce from $288, when using by-product metals production as a cost offset.
The strong year-over-year gains by the Canadian dollar and Mexican peso stripped a total of $25.9 million from the bottom line, while results were also hurt by delayed sales at the Red Lake mine in Canada and a port strike that delayed gold and copper sales at the Alumbrera mine in Argentina.
Hecla Mining reported net income applicable to common shareholders of $18.4 million or 8 cents per share during the first quarter of this year, a substantial increase from the $3.9 million or 2 cents per year reported during the first quarter of 2009.
The company is maintaining its previously announced full-year production guidance of 10 million to 11 million ounces of silver with cash costs in the range of $1.90 to $2.25 per ounce. Hecla is debt-free with $116 million of cash.
As GOLD gets primed to enter its hyperbolic growth phase, excellent revenue growth and profits are being realized. Unlike the NASDAQ bubble, the mania phase in miners will be supported by bona-fide fundamentals.
Marko's Take
Please visit us on You Tube at http://www.youtube.com/markostaketv. Our latest video on the Legality Of The Personal Income Tax can be accessed by clicking here (http://www.youtube.com/markostaketv#p/u/0/1TInKnCIikg).
Monday, April 5, 2010
Gold Market Pulls Double-Reverse: Time To Re-Enter
Not long ago, the Gold and precious metals market looked ready to surprise some of us Gold Bulls and do a face plant into the concrete. Just as things started to look dicey, we got faked-out and called for a move into cash (http://markostake.blogspot.com/2010/03/gold-market-update-time-to-go-to-cash.html).
Now it looks like Gold has pulled off a stunningly successful "double-reverse". For those not familiar with football parlance, a double-reverse is a manoeuver designed to switch directions twice in one play. First, the play has you looking right, then left, then right again. If you don't know its coming, you get faked out of your shoes.
And so it appears with Gold and Precious Metals stocks. Just as it looked like we would get a completely surprising market reversal to the downside, the market held, gathered strength and now all signs point to a renewal of the upside hyperbolic mania that we were looking for all along.
All the market did was what it was SUPPOSED to do. Like an illusionist, it diverted our attention while it pulled of its seemingly amazing trick.
The GOOD news is that re-entry here with Gold near the $1,125-$1,130 level leaves PLENTY of upside, especially if our longer-term projection of $5,000 is met. The important thing is not to fall in love with either a market outlook or individual postions and stay with the "weight of the evidence". That evidence now is screaming BUY again.
Especially telling was the sudden surge in the Gold Bugs index on Thursday, also known as the HUI. The HUI surged a whopping 5% indicating an investor stampede back into precious metals stocks. In additon, some key chart patterns were resolved in a bullish manner. Can't fight the tape!
So, now that the market has successfully faked us out, it's time to re-enter. We did a series, a couple of weeks back on a number of promising stocks and we would suggest a review of these if you're interested in selecting some appropriate candidates. The links are provided below.
The individual stock reviews of Vista Gold, Tara Minerals, Samex Mining, Seabridge Gold, Hecla Mining, and ECU Silver Mining can be accessed by clicking on the following links:
(http://markostake.blogspot.com/2010/03/vista-gold-explorer-worth-exploring.html)
(http://markostake.blogspot.com/2010/03/tara-minerals-on-tear.html)
(http://markostake.blogspot.com/2010/03/samex-mining-grand-slam-ex.html)
(http://markostake.blogspot.com/2010/03/seabridge-gold-how-to-buy-gold-for.html)
(http://markostake.blogspot.com/2010/03/hecla-mining-at-119-years-old-producing.html)
(http://markostake.blogspot.com/2010/02/ecu-silver-mining-as-good-as-it-gets_7745.html)
(http://markostake.blogspot.com/2010/03/major-gold-producers-deliver-stellar.html)
In the days ahead, we'll cover more individual stocks of interest.
For now, ignore last week's man behind the curtain, and listen to THIS WEEK'S man behind the curtain!
There's a great opportunity looming ahead of us and lot's of time to board the train and enjoy a great ride.
Marko's Take
Please visit our new YouTube channel at http://www.youtube.com/markostaketv.
Now it looks like Gold has pulled off a stunningly successful "double-reverse". For those not familiar with football parlance, a double-reverse is a manoeuver designed to switch directions twice in one play. First, the play has you looking right, then left, then right again. If you don't know its coming, you get faked out of your shoes.
And so it appears with Gold and Precious Metals stocks. Just as it looked like we would get a completely surprising market reversal to the downside, the market held, gathered strength and now all signs point to a renewal of the upside hyperbolic mania that we were looking for all along.
All the market did was what it was SUPPOSED to do. Like an illusionist, it diverted our attention while it pulled of its seemingly amazing trick.
The GOOD news is that re-entry here with Gold near the $1,125-$1,130 level leaves PLENTY of upside, especially if our longer-term projection of $5,000 is met. The important thing is not to fall in love with either a market outlook or individual postions and stay with the "weight of the evidence". That evidence now is screaming BUY again.
Especially telling was the sudden surge in the Gold Bugs index on Thursday, also known as the HUI. The HUI surged a whopping 5% indicating an investor stampede back into precious metals stocks. In additon, some key chart patterns were resolved in a bullish manner. Can't fight the tape!
So, now that the market has successfully faked us out, it's time to re-enter. We did a series, a couple of weeks back on a number of promising stocks and we would suggest a review of these if you're interested in selecting some appropriate candidates. The links are provided below.
The individual stock reviews of Vista Gold, Tara Minerals, Samex Mining, Seabridge Gold, Hecla Mining, and ECU Silver Mining can be accessed by clicking on the following links:
(http://markostake.blogspot.com/2010/03/vista-gold-explorer-worth-exploring.html)
(http://markostake.blogspot.com/2010/03/tara-minerals-on-tear.html)
(http://markostake.blogspot.com/2010/03/samex-mining-grand-slam-ex.html)
(http://markostake.blogspot.com/2010/03/seabridge-gold-how-to-buy-gold-for.html)
(http://markostake.blogspot.com/2010/03/hecla-mining-at-119-years-old-producing.html)
(http://markostake.blogspot.com/2010/02/ecu-silver-mining-as-good-as-it-gets_7745.html)
(http://markostake.blogspot.com/2010/03/major-gold-producers-deliver-stellar.html)
In the days ahead, we'll cover more individual stocks of interest.
For now, ignore last week's man behind the curtain, and listen to THIS WEEK'S man behind the curtain!
There's a great opportunity looming ahead of us and lot's of time to board the train and enjoy a great ride.
Marko's Take
Please visit our new YouTube channel at http://www.youtube.com/markostaketv.
Sunday, March 14, 2010
Hecla Mining: At 119 Years Old Producing Record Cash Flow!
Last Friday, we discussed the magnificent earnings results starting to be recorded by the major precious metals miners Goldcorp (GG), Newmont Mining, (NM), and American Barrick (ABX)(http://markostake.blogspot.com/2010/03/major-gold-producers-deliver-stellar.html) and how this is so bullish for the mining sector.
However, phenomenal results have been delivered by the juniors as well. In today's piece, we're going to take a look at a junior silver miner not only hitting a home run in operations, but attractively priced to give investors some major potential upside.
First a disclosure: I currently own a position in Hecla Mining Company (HL). Having said that, I own this position for very good reasons.
Hecla Mining Company (HL) was established in 1891 in northern Idaho's Silver Valley, making it the oldest U.S.-based precious metals mining company in North America and the largest producer of silver in the U.S. Headquartered in Coeur d’Alene, Idaho, this international, publicly traded company is 119 years old.
Hecla mines, processes or explores for silver and gold in the U.S. and Mexico. The company currently produces silver from two silver mines, Greens Creek and Lucky Friday. In 2009, the Greens Creek mine in Alaska, which is the sixth largest silver mine in the world, produced 7.5 million ounces of silver; the Lucky Friday mine in northern Idaho produced 3.5 million ounces. Hecla has two development projects, San Juan Silver in Colorado and San Sebastian near Durango, Mexico.
Approximately 70% of the Greens Creek Mine was acquired from Rio Tinto in April, 2008, for $750 million. The size of the acquisition, coupled with the timing, nearly brought Hecla to insolvency. The purchase closely coincided with the peak in precious metals prices and the subsequent freeze in capital markets resulting from the financial meltdown in late summer and fall 2008. As a result, Hecla was forced to sell stock at extremely depressed levels to raise cash - creating substantial dilution just as operations were hammered by falling Silver and Gold prices.
In the 6-month period from late April 2008 to November 2008, the company's stock fell by a mind-numbing 90% to a low of $1.40. As operations suffered and capital markets were inaccessible, repayment of the bank debt taken out to complete the deal with Rio Tinto was in substantial doubt.
Since then, Hecla has staged an incredible turnaround and is now poised to handsomely reward shareholders.
Results for full year 2009 were nothing short of stellar. Operating cash flow was an all-time record of $115 million. Silver production came in at 10.9 million ounces - a 26% increase over 2008. Gold production increased to more than 67,000 ounces.
More importantly, the Company reduced cash costs 55% to $1.91 per ounce from the prior year. As a result, Hecla's net income increased to $54.2 million, the third highest in Hecla's history. Revenues were $313 million - an all-time annual record.
As a result, the Company was able to repay $161.7 million of bank debt taken on in the acquisition of Green's Creek and establish a new $60 million credit facility.
In the fourth quarter of 2009, Hecla recorded a gross profit of $36 million, the second highest quarter in Hecla's history. Net income came in at $0.11 per diluted share. Annualized, this would give Hecla a very attractive Price to Earning Ratio (P/E) of about 12-13, given the closing price of the stock on Friday of $5.50.
Hecla Mining is one of the most attractive junior producers and has virtually no geo-political risk given its operations in Idaho and Alaska. Given its still very attractive price, which is still less than half its $12 peak in 2008, this company should be considered in any portfolio of junior Gold and Silver miners.
Marko's Take
Next week we begin production of 5 new video blogs soon to be added to our YouTube collection. Our channel can be accessed at http://www.youtube.com/markostaketv.
However, phenomenal results have been delivered by the juniors as well. In today's piece, we're going to take a look at a junior silver miner not only hitting a home run in operations, but attractively priced to give investors some major potential upside.
First a disclosure: I currently own a position in Hecla Mining Company (HL). Having said that, I own this position for very good reasons.
Hecla Mining Company (HL) was established in 1891 in northern Idaho's Silver Valley, making it the oldest U.S.-based precious metals mining company in North America and the largest producer of silver in the U.S. Headquartered in Coeur d’Alene, Idaho, this international, publicly traded company is 119 years old.
Hecla mines, processes or explores for silver and gold in the U.S. and Mexico. The company currently produces silver from two silver mines, Greens Creek and Lucky Friday. In 2009, the Greens Creek mine in Alaska, which is the sixth largest silver mine in the world, produced 7.5 million ounces of silver; the Lucky Friday mine in northern Idaho produced 3.5 million ounces. Hecla has two development projects, San Juan Silver in Colorado and San Sebastian near Durango, Mexico.
Approximately 70% of the Greens Creek Mine was acquired from Rio Tinto in April, 2008, for $750 million. The size of the acquisition, coupled with the timing, nearly brought Hecla to insolvency. The purchase closely coincided with the peak in precious metals prices and the subsequent freeze in capital markets resulting from the financial meltdown in late summer and fall 2008. As a result, Hecla was forced to sell stock at extremely depressed levels to raise cash - creating substantial dilution just as operations were hammered by falling Silver and Gold prices.
In the 6-month period from late April 2008 to November 2008, the company's stock fell by a mind-numbing 90% to a low of $1.40. As operations suffered and capital markets were inaccessible, repayment of the bank debt taken out to complete the deal with Rio Tinto was in substantial doubt.
Since then, Hecla has staged an incredible turnaround and is now poised to handsomely reward shareholders.
Results for full year 2009 were nothing short of stellar. Operating cash flow was an all-time record of $115 million. Silver production came in at 10.9 million ounces - a 26% increase over 2008. Gold production increased to more than 67,000 ounces.
More importantly, the Company reduced cash costs 55% to $1.91 per ounce from the prior year. As a result, Hecla's net income increased to $54.2 million, the third highest in Hecla's history. Revenues were $313 million - an all-time annual record.
As a result, the Company was able to repay $161.7 million of bank debt taken on in the acquisition of Green's Creek and establish a new $60 million credit facility.
In the fourth quarter of 2009, Hecla recorded a gross profit of $36 million, the second highest quarter in Hecla's history. Net income came in at $0.11 per diluted share. Annualized, this would give Hecla a very attractive Price to Earning Ratio (P/E) of about 12-13, given the closing price of the stock on Friday of $5.50.
Hecla Mining is one of the most attractive junior producers and has virtually no geo-political risk given its operations in Idaho and Alaska. Given its still very attractive price, which is still less than half its $12 peak in 2008, this company should be considered in any portfolio of junior Gold and Silver miners.
Marko's Take
Next week we begin production of 5 new video blogs soon to be added to our YouTube collection. Our channel can be accessed at http://www.youtube.com/markostaketv.
Friday, March 12, 2010
Major Gold Producers Deliver Stellar Earnings
Yesterday, precious metals behemoth Goldcorp (GG) reported excellent results for the quarter ended December 31, 2009, joining fellow "Big Three" majors Newmont Mining (NM) and American Barrick (ABX) in "showing precious metal mining company investors the money". Finally!
Long suffering investors in precious metals mining stocks have had their patience tried by the underperformance of the underlying stocks versus that of the metals themselves. The reasons were not that complex: gold and silver miners' profitability was lagging - which might be expected given the higher prices of gold and silver themselves.
The reasons for lagging profitability were varied - including losses from ill-advised hedges to higher input costs, especially oil. Mining is particularly energy intensive and higher oil prices immediately impact the bottom line. So, despite higher Gold and Silver price's helping revenue, margins were not improving as oil prices soared, especially in the commodity run-up in early 2008.
Since then, precious metal prices have crept higher, while oil has remained, for the time being, in a comfortable range near $80 per barrel, thus allowing margins to improve. In addition, the larger Gold and Silver miners, led by American Barrick, have undertaken the painful process of unwinding hedges, giving them more direct benefit from higher Gold prices. Thus, the foundation has been laid for better earnings, and, as a result, higher precious metals mining company prices.
Goldcorp announced record gold production of 2.42 million ounces during 2009 and generated operating cash flows of $1.2 billion, a 29% increase over 2008. Average realized gold prices per ounce were significantly higher during the quarter at $1,107 as compared to $797 a year earlier.
Adjusted earnings, which exclude non-cash foreign exchange gains and losses on future income tax liabilities, rose to $182.7 million during the quarter from $84.4 million a year ago.
According to analysts, the company is set to report earnings of $1.13 a share for 2010 and $1.67 a share for 2011, up from $0.49 in 2009. The stock has 13 buy, 6 hold and 1 sell rating, according to The Street's Analyst ratings guide.
Newmont Mining's report was just as phenomenal. The largest U.S Gold producer, NM reported quarterly earnings of $1.13 per share versus $0.01 in the similar quarter one year ago. For full-year 2009, Newmont posted profit of $1.3 billion, or $2.66 a share, up from $831 million, or $1.83 per share, a year earlier.
Sales revenue was $2.518 billion on the quarter, up 90%, also beating Wall Street expectations of $2.02 billion.
American Barrick reported quarterly earnings of $.60 per share - more than doubling last year's $.27 per share, citing higher realized Gold prices.
During the quarter, Barrick completed the elimination of its gold hedges based on an increasingly positive outlook for gold, using net proceeds from both equity and long-term debt offerings. In the last two years, Barrick has eliminated its legacy project gold hedge position of 9.5 million ounces at an average gold price of about $930 per ounce.
The process of restructuring operations to more fully take advantage of higher gold prices is paying unquestionable dividends. And, the last roadblock to better prices for precious metal's miners has been removed.
Marko's Take
For new readers, we have begun to convert some of our blogs to YouTube. They can be seen at http://youtube.com/markostaketv. For those of you mystified by the secretive Federal Reserve and what on Earth this institution is all about, our latest video has just been posted. We have another 5 episodes to be posted over the coming few weeks covering topics such as Social Security and the Personal Income Tax.
Long suffering investors in precious metals mining stocks have had their patience tried by the underperformance of the underlying stocks versus that of the metals themselves. The reasons were not that complex: gold and silver miners' profitability was lagging - which might be expected given the higher prices of gold and silver themselves.
The reasons for lagging profitability were varied - including losses from ill-advised hedges to higher input costs, especially oil. Mining is particularly energy intensive and higher oil prices immediately impact the bottom line. So, despite higher Gold and Silver price's helping revenue, margins were not improving as oil prices soared, especially in the commodity run-up in early 2008.
Since then, precious metal prices have crept higher, while oil has remained, for the time being, in a comfortable range near $80 per barrel, thus allowing margins to improve. In addition, the larger Gold and Silver miners, led by American Barrick, have undertaken the painful process of unwinding hedges, giving them more direct benefit from higher Gold prices. Thus, the foundation has been laid for better earnings, and, as a result, higher precious metals mining company prices.
Goldcorp announced record gold production of 2.42 million ounces during 2009 and generated operating cash flows of $1.2 billion, a 29% increase over 2008. Average realized gold prices per ounce were significantly higher during the quarter at $1,107 as compared to $797 a year earlier.
Adjusted earnings, which exclude non-cash foreign exchange gains and losses on future income tax liabilities, rose to $182.7 million during the quarter from $84.4 million a year ago.
According to analysts, the company is set to report earnings of $1.13 a share for 2010 and $1.67 a share for 2011, up from $0.49 in 2009. The stock has 13 buy, 6 hold and 1 sell rating, according to The Street's Analyst ratings guide.
Newmont Mining's report was just as phenomenal. The largest U.S Gold producer, NM reported quarterly earnings of $1.13 per share versus $0.01 in the similar quarter one year ago. For full-year 2009, Newmont posted profit of $1.3 billion, or $2.66 a share, up from $831 million, or $1.83 per share, a year earlier.
Sales revenue was $2.518 billion on the quarter, up 90%, also beating Wall Street expectations of $2.02 billion.
American Barrick reported quarterly earnings of $.60 per share - more than doubling last year's $.27 per share, citing higher realized Gold prices.
During the quarter, Barrick completed the elimination of its gold hedges based on an increasingly positive outlook for gold, using net proceeds from both equity and long-term debt offerings. In the last two years, Barrick has eliminated its legacy project gold hedge position of 9.5 million ounces at an average gold price of about $930 per ounce.
The process of restructuring operations to more fully take advantage of higher gold prices is paying unquestionable dividends. And, the last roadblock to better prices for precious metal's miners has been removed.
Marko's Take
For new readers, we have begun to convert some of our blogs to YouTube. They can be seen at http://youtube.com/markostaketv. For those of you mystified by the secretive Federal Reserve and what on Earth this institution is all about, our latest video has just been posted. We have another 5 episodes to be posted over the coming few weeks covering topics such as Social Security and the Personal Income Tax.
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