Still Bullish On Gold & Coal, Alpha Natural Resources ANR Seabridge Gold SA Undervalued Radar Stocks Commodities

Alpha Natural Resources nyse:ANR - I made the mistake of not recommending this stock in my last post.  ANR is up 15% since October 11th.  Though the company's balance sheet still needs some tweaking, it's already showing signs of improvement (good quick ratio (short term equity to debt ratio), quarterly earnings losses not as bad as they used to be, metallurgical coal market is picking up / ANR is the leading producer of this type).

A third of company revenue comes from outside the US where demand will continue to be strong (doesn't have to deal with the Environmental Protection Agency EPA).

On reserves alone, the company's valuation is in the billions.  In 2011 after acquiring Massey Coal, the company was worth more than $10 billion - it is now a measly $434 million.  So what went wrong ?  the debt it absorbed when it acquired Massey was substantial and just after making the deal the company was faced with a series of write-downs which took away its profitability and damaged its reputation.  Some of that stems from an overall decline in the coal price, but not all of it ;

Rumors of an Obama war on coal have been rampant but have yet to come to fruition - in some states coal is just too important to simply phase out.  ANR is a major producer of thermal coal (used in electricity generation) and it relies heavily on sales of this in states like Kentucky - Obama recently mandated a 30% cut in carbon emissions by fuel burning power plants by 2030.  The easiest way for the states to accomplish this is to completely overhaul the way power plants generate electricity in states like Kentucky where thermal coal is the number one source of electricity.

However, given that public opinion is against it (full implementation will cost a quarter of a million jobs) and that democrats have a strong interest in winning Kentucky, it seems unlikely that those radical changes will be implemented anytime soon.  Add to that the higher costs associated with using natural gas (9c per kWh) and renewables (23c per kWh vs 4c for coal) to make electricity and you have a lot of reasons to invest in undervalued coal stocks like ANR.

The Gold Price Fell 5.4% In September Then Another 4.6% In October = Down US $126 In Just 61 Days !  

It's not just equities and the dollar that are pressuring the price of gold.

gold: not as popular among hedge funds

Total holdings by gold exchange traded funds (ETP) is now at the lowest level since 2009.
SPDR Gold Trust GLD is the largest physically backed gold ETF (two-fifths of industry holdings) - SPDR net holdings are at their lowest level since 2008.

It doesn't matter whether it's for jewellery or bullion, gold demand worldwide has been down for the better part of this year.
In the first and second quarters it was probably the price that turned consumers off (remained in a tight range between $1250 and $1310 after hitting $1385 in late March 2014), and with currencies such as the Indian Rupee and Canadian Dollar nearing four year lows against the greenback, the price may have just been too high.  In Q1 demand fell -26%, Q2 -16%.

A Reason To Be Bullish - India

The Indian festival of Diwali is a big reason India is the world's largest market for gold (#2 in 2013 but #1 in 2Q2014).  Last year, demand for gold during Diwali was down -33%, but this year jewelry sales are up +20% !

2014 Diwali : the price for 10 grams of gold averaged 27.5th rupees which is 15% less than in the previous year (32.5th).

Gold Price In US Dollars                                        
sept 2013 1392.25 -> 1326.50  -4.7%         sept 2014 1286.50 -> 1216.50 -5.4%
oct   2013 1290.75 -> 1324.00 +2.6%         oct  2014 1216.50 -> 1160.40 -4.6%

I'm Still Bullish

Though recent trends point to a bear market I remain somewhat bullish, at least for the long run.  US dollar, though up has been unsteady.  It appears to be stronger versus the key reserve currencies yuan, yen, Canadian $, Australian $, Euro, but I don't consider the current level to be sustainable.
US economic growth forecasts remain subdued, the effects of a strong dollar can wreak havoc on exports of US products since prices get more expensive in other currencies (why China has long maintained a low yuan policy).  Also, less exports tip the US trade imbalance even more in China's favor - this will stunt jobs growth as companies would rather pay employees in a cheaper currency. With QE3 down to only $15 billion a month from a high of $85 billion a year ago, any growth the US experienced earlier this year could disappear just as quickly as it appeared (less stimulus / harder for small businesses to borrow).

German Government Relies On BlackBerry, Pretium Resources Proves Seabridge Gold Underpriced, Oil Stocks (CPE)

         BlackBerry (bbry) gains on rumours that German government and possibly others remain more committed than ever to BlackBerry devices - a few months ago they ordered 40,000 q10/z10 units.  Apparently NSA snooping isn't being tolerated at all in Germany, and that has led to a government-wide ban on the iPhone.  Two reasons for this 1) Germany-based firm secusmart has created a micro sd card that, when used on a BlackBerry device, renders the phone impenetrable (enhances BlackBerry security via encryption technology) .. would take a minimum of 149 years to hack.  2) Apple's iPhone servers are located in the US where NSA has governmental authority .. unrestricted access to private information  3) Germany's federation office for information security (BSI) has developed software that must be used in government employee phones.  Apple's devices aren't compatable with secusmart software.

on the flipside
Could the NSA access BlackBerry servers via relationship with government ? The Canadian government helped the NSA collect information during the 2010 Toronto G8 summit.  This leads to other concerns:  Does the Canadian government have unrestricted access to BlackBerry servers in Ontario ? We know that a big reason BlackBerry is off the market is because the government won't ok such a deal if it involves a foreign company such as Lenovo, this leads us to believe that the government of Canada does have a certain level of influence over BlackBerry.

Gold Silver stock doubles on news of higher than expected pre-production

Nov 21-22 Pretium Resources (tsx|pvg) stock climbs 80% on news that initial ore samples taken from the area known as 'Valley of the Kings' within the company's flagship Brucejack gold mine in British Columbia, yielded higher than expected gold grades:  19% higher to be exact (16g vs expected 13g per ton).  That translated into 4200 ounces of gold, 3500 ounces of silver.  The mine won't begin commercial production until 2016.  Reserves estimated at 7 million ounces of gold, 35 million ounces of silver.

That makes my favorite gold mining stock Seabridge Gold (SEA) even more enticing.  You see, Seabridge has 5X as much gold and silver at neighbouring mine Kerr-Sulphurates-Mitchell.  Higher gold grades at Brucejack probably means higher gold grades at KSM !  Either way, Seabridge Gold has to be on your stock radar .. has much more gold than Pretium Resources at a property that is only miles away .. any company looking to develop Brucejack is going to take an interest in KSM.  Future news regarding development at KSM will have a huge impact on Seabridge stock.  With Brucejack prepping for 2016, it's only a matter of time until the focus shifts to KSM.

Watch Out: New tax on gold in India will affect gold demand

Two months ago, in September India raised the duty tax on imports of gold jewelry from 10% to 15%.   Unsurprisingly Thailand, a major source of India's gold (3% of Thailand -India trade) initially objected to the tax hike however by the end of October, Thailand agreed to abide by the new rules after India threatened to suspend imports of gold jewelry from the country.  India also introduced a tax of 10% on gold bullion.

The new tax on Indian gold imports will eventually have a significant affect on world gold consumption:  Last year, India was the primary driver of gold demand - the country accounted for a fifth of gold consumption worldwide (864 tonnes out of 4405 tonnes total; 11% more than China).

Sears Canada being run into the ground by parent Sears Holdings ? (owns 51%; Sears Canada closes)

Over the last five weeks, Sears Canada raised $695 million in two seperate deals that saw the 61 year-old retailer sell a number of its core, revenue generating stores.  In the $380 million October 29 deal, Sears gave up its most profitable location in Toronto's Eaton Centre (335 employees there alone, store is so big mall gets its name from previous tenant Eatons) and one of its biggest stores in Western Canada (Richmond BC).  What's most alarming about the deal is this:

Seabridge Gold (SA) Hecla Mining Company (HL) May Draw Interest; reserves,production,mining

                      Seabridge Gold (tsx:sea) and Hecla Mining Company (nyse:hl) are two companies that investors can't seem to figure out.  Prior to the temporary shutdown of Lucky Friday, Hecla was one of if not the largest pureplay silver producer in the United States.  After the Lucky Friday incident, investors fled the company resulting in an immediate loss of 30% of its silver output, half of its lead output and some of its reputation.  But today, Hecla is reporting not only that it will restart Lucky Friday within half a year but also that it will be expanding it with the construction of a fourth shaft which will lengthen mine life, possibly to 30 years.  With $233 million in cash equivalents Hecla is also active in the M&A department;  Hecla laid out $110 million for US Gold & Silver back in July 2012 (which was turned down).  The bad news for the company ?  Total operating expense last quarter was steady with the previous four quarters even though revenue was way down (averaged $108.105m over those quarters but just $67.02m in the last).  Not all was bad though, Hecla did manage to double dividends q2q (2c per share up from 1c despite eps being only 1c).

Seabridge Gold really is A gold mine !

According to the company's second quarter report it "will continue to advance its two major gold projects, KSM and Courageous Lake in order to either sell them or joint venture them towards production with major mining companies."  
Ivanhoe Mines potential ?
Ivanhoe Mines (now Turqoise Hill Resources) more than quadrupled in value after Rio Tinto took interest in it.  Whether or not Seabridge does the same the fact remains it controls 100% of what will someday be Canada's largest gold mine.
Three days after releasing the last quarterly report, on September 5, 2012 Seabridge released data from exploration drilling done last summer.  Drilling revealed veins with the highest gold grades found to date !  The findings are sure to bring KSM's 2P gold reserves closer to 40 million ounces (was 38.2m according to last estimate done).  Over the entire deposit, the average gold grade is 0.55 grams per tonne but at a 2 meter intercept, one of the newest holes drilled revealed 66.7 grams of gold per tonne in addition to 287 grams of silver !! (average grade over the entire hole was 8.94 g gold, 41.6g silver).
Seabridge also revealed that it is only focused on KSM and Courageous Lake which is why it's in the process of divesting all other assets (big chunk let go last quarter in Red Mountain Project) but don't be fooled into thinking it's letting go of all other interests;  When it sold Red Mountain and various Nevada projects, in addition to cash Seabridge Gold received more than 4 million shares of each company.  So, when those other projects pan out (no pun intended) Seabridge will realize even more in return not that it isn't already giving investors a healthy return (sept 5 - oct 4 : +15.05%, july 5 - oct 4 : +30.16%).  Bad News:  No production means no dividends.

Watch Out !  Seabridge Comes With Risks
Core assets Kerr-Sulpherets-Mitchell (BC) and Courageous Lake (NWT) are located in regions where aboriginal groups also have land.  The First Nations people could be entitled to key land and thus other agreements may need to be reached.  Shifts in political conditions and/or regulations (environmental laws, tax laws) could impact the company's ability to continue developing either project.  Right now though everything appears to be stable and, considering exploration at KSM has been ongoing for more than six years without any major disputes, I'd say the rewards outweigh the risks.
Notes:  Last quarter, cash resources declined by -$19 million due to advancements at KSM and Courageous Lake - Courageous Lake 2P reserves surpass 6 million ounces - All of KSM's 10.3 million ounces of proved reserves reside in the Mitchell open pit deposit (including probably it's 27.5m) - 10.2 million ounces in probable gold reserves must be mined from a block cave (Mitchell 7.4m, Iron Cap 2.8m) - Iron Cap is the newest of the four deposits (added May 2011).

Hecla Mining Company

      Hecla stock price has been on the upswing since September 13, 2012 (+10% that day while adding modestly to that gain since then).  On August 7, 2012,  the week before it acquired an interst in Dolly Varden Corporation, Hecla Mining Company reported on the 1st half / 2nd quarter of 2012.  The results were mixed;  On the one hand Greens Creek produced less: 1.365043 million ounces of silver down from the previous year (1.5m ounces), steady with the previous quarter (1.328704m oz) while on the other hand the cash cost per ounce of silver produced was down significantly from the prevous quarter ($2.24 --> $1.03 /oz).  So why the 49.7% q2q drop in gross profit ?  A couple reasons;  Average realized silver price down -26.1% between last two quarters (1st and 2nd) $36.59 --> $27.05.  Production was steady but payable ounces was not;

Payable silver sunces sold: 1,133,764 oz (-39.7% vs 2q11, -20.6% vs 1q12).  Gold, lead, zinc

Gold Update Seabridge Gold SA, Kinross Gold KGC, World Gold Production Up & Oil; 2012 Will Be A Volatile Year For Stocks Hecla Mining HL, Airline Stocks

     If the first two months are any indication, 2012 will be a very busy year for investors. Just when you think you're ahead of the game some external, unaccounted-for factor changes everything. It can be reassuring though, knowing that everyone has to adjust their portfolios accordingly. Take for example the airline industry;

Over the last month (Feb - Mar) the price of WTI oil shot up 11% from just under $99/bbl to $109/bbl. Consequently, brent crude hit a 43-month high of $128.40/bbl on March 1, 2012.  How did that affect airline stocks? They were BATTERED more than the fish at Red Lobster! Over the last month United Continental Holdings Inc (nyse:UAL) was -16%, Delta Air Lines (DAL) -14%, Lufthansa (DLAKY) -7%, negatives across the board all because of the price of oil. What's more, oil could soar even higher if Iran chooses to close the Strait of Hormuz because the Strait is used to transport 7% of the world's oil; Closure of the Strait of Hormuz is entirely possible now given that Europe has implemented an embargo on Iranian oil (supplied 4% of Europe's demand last year) and that it's already dealing with the toughest sanctions the West can impose on it (Iran is now demanding payment for its oil in gold). sidenote: India is one of a few countries that still imports oil from Iran.

Canadian bank stocks proving their value once again !  The two largest by size, Royal Bank of Canada (RBC) and Toronto-Dominion Bank (TD) raised dividends despite profits being lower.  At RBC the dividend increase was 5.6% bringing it up to 0.57/share in the latest quarter (eps was down 4.7% to $1.21/share).  At TD, the 1Q2012 showed mixed results.  Though TD earnings dropped marginally (-0.01/share to $1.55) revenue grew 3.3% to $5.64B.  Though profits did not grow the bank continued to hand out larger dividends (+4c quarterly to 0.72).

Also making news is SNC-Lavalin.  Partnered with Aecon, SNC won a $600M contract to refurbish Ontario, Canada's Darlington nuclear station.  That pushed the stock up 2.2% in just the last day helping it to climb over the $6B level of capitalization.  Prior to the news, the stock was reeling (lost $1.6B about 1/5th of its market cap in just the last couple days) because of reports of undocumented payments unrelated to company projects eroding away at 2011 profits.

The World is Producing More Gold but also Consuming More (led by China, Germany and Thailand)
     In 2011, 11 of the world's 14 leading gold producing regions raised their output according to the US Geological Survey's 2012 Mineral Commodity Summaries, which isn't surprising considering the 28% jump in gold price (and cash costs, accordingly).  On the year, world primary production was up 5.5% to 2700 tons (86.4M ounces).  The world's 14 major producers accounted for 76.7% of output down from 78.2% in 2010.  Although production in China was higher, the growth was not as great as it had been over the last couple years (+2.9% compared to +22.0% for #8 Ghana, +20.9% for #7 Canada and +16.4% for #11 Mexico).  South Africa is home to 11.8% of the world's gold reserves (2nd overall behind Australia) but was the source of only 7% of production in 2011 bringing its overall rank down to 5 from 1 in 2007.  Why the drop for South Africa?  Because of ridiculously high production costs; South Africa has the unfavorable distinction of being the most expensive country to produce in (among major producing regions).
When investing in gold mining companies be sure to have companies with projects in Australia high on you list (ie BHP Billiton - Olympic Dam).  Australia was the source of only 10% of global production last year but is home to 15% of reserves meaning growth will happen.  Production costs (South Africa) and barriers to entry (China) are also not as problematic in Australia.  In late 2011 China began drafting new standards for the gold industry which could have a significant effect on both investment and production in the country.

Most of China's gold output comes from small companies but the new standards will eliminate some of them while at the same time, making it more difficult for new companies to enter the industry.
With regards to the United States, the gold supply and demand situation there is not as dire as one would expect.  In 2011 GOLD CONSUMPTION ACTUALLY FELL -17% to 194.9 tonnes (2nd consecutive year that US gold demand dropped).  That's in stark contrast to China (+22% to 811.2 tonnes) and Germany (+26% to 159.3 tonnes). Global consumption of gold in 2011 was 4067.1 tonnes, highest since 1997. Interestingly in Thailand (#7 consumer) where total consumption grew +57% to 108.9 tonnes, jewelry only accounted for 3.8% of the total (fell 34% on the year) but bar and coin demand +66% to 104.8 tonnes. The top six consumers remained the same,

Investing in gold: Mining Companies
Did you know? Mining companies are actually LOSING CAPITAL TO ETF'S !  According to Bank of Montreal analyst Peter Miller ETF's are a "hoover of capital and competition for the gold companies".  To regain investor confidence (and capital) many producers are hiking up dividends.  I think that mining stocks present a unique opportunity for investors at the moment.  Yamana is raising quarterly dividends by 10%.

With regards to gold producers, 2011 wasn't as profitable as one would expect.  At Newmont Mining and Goldcorp, 2 of the 4 largest by market cap, net earnings were lower despite record breaking revenue.  Part of the reason has to do with rising cash costs; +12.5% to $460 at Barrick Gold, +20.5% to $591/oz at Goldcorp (though lower from $270 to $223 when by products are taken into account), +40% at Australia's Newcrest, since 2009 +29.7% at Yamana Gold.  Higher mining costs are atributable to increasing equipment, labor and raw material costs. Higher gold and silver prices buffered the effects of higher costs however companies need to do more to translate sales growth into earnings growth. The higher gold price allowed even AngloGold Ashanti to add to reserves; Anglogold's reserves went up 4.4M ounces bringing the total to 75.6M ounces; 3.7M of the 4.4M oz added came due to higher prices making extraction from ore at Vaal River economically viable (3.2M oz) and 0.5M oz attributable to improved ore reserve price at Geita.

South America increasingly important to major gold miners - Gold Fields will get 20% of its 2015 gold production from that region, up from 10% in 2011, 2% in 2008.  In 2011 Gold Fields produced 3.697m ounces of gold which is 4.0% less than in 2010 (3.851m ounces) but it did receive 28.6% more for each ounce of gold ($1569 vs $1220).  Barrick Gold's huge project Pascua Lama is in Argentina.  Goldcorp's largest venture is the Penasquito mine in Mexico.

Undervalued Mining Companies

Seabridge Gold (tsx: SEA) - In February released its 2012 Operations Overview and the new data is impressive to say the least (maybe that's why the stock is UP +8% since February 13, still down though over 20% last 6 months because of increased volatility in metal prices (even Barrick Gold is down 10% over six months).  Its flagship project, KSM has 2P reserves of 38.5M ounces for gold, 9.985B pounds for copper, 214M ounces of silver and 257M pounds of molybdenum;  That means it has more gold than world renown projects Pueblo Viego, Penasquito and possibly even Ivanhoe Mine's mega project Oyu Tolgoi (46.4M ounces of gold) if KSM reserves are increased in April which is likely given the successful M&I drilling results reported by the company on February 8, 2012.  Reserves in situ value is about 15% greater than Goldcorp's Penasquito and Seabridge's enterprise value per ounce of reserves is only $21 ! which is ridiculously low considering it's $1200 at Canada's other major gold junior-mid cap company AuRico.  At Detour Gold and Osisko Mining enterprise value/oz is around $400.  Don't forget that KSM isn't the only major Seabridge project, there's also Courageous Lake (8M oz M&I 16 year mine life). Because reserve grade is relatively low the company will benefit from rising metal prices moreso than say Yamana Gold.

The same month, on February 8, 2012 measured and indicated resources at KSM improved by 3.7 million ounces for gold (to 49.0 million ounces) meaning that drill results continue to be successful.  What it also means is that the company's next report on proven and probable reserves (April 2012) will likely indicate further increases in 2P reserves, past the current estimate.  In the February report, Seabridge Gold estimates annual production at KSM will be 854,000 ounces (gold), 166 million pounds (copper), 2.9 million ounces (silver), 1.1 million pounds (molybdenum) for the first seven years (the mine has a 52 year mine life, molybdenum production will actually grow after the first seven years).  Base cash cost will be $231/oz which is even lower than Goldcorp ($300).

This company screams undervalued.  How does a company with 40M ounces of 2P gold reserves (more than Yamana Gold, Agnico-Eagle Mines) at just one of its projects have a market cap under $1 billion ?  Royal Gold has shown confidence in the company's numbers (invested $100m in Seabridge last year).  The construction costs remain quite high but I think that $2000 gold (when it happens) will open up more financing options (like Eldorado Gold recently got from Qatar Holdings).  Consider this:  2 years ago when gold prices were a lot lower, Barrick Gold paid Kinross Gold $475m ($455m cash) for 25% interest in the Cerro Casale gold copper project which has only 60% as much gold as KSM.  That would value KSM at over 3X Seabridge Gold's market cap at present.

Hecla Mining Company (nyse: HL) - On January 11, 2012 Hecla announced that the Lucky Friday Mine in Idaho which produced 31.5% of the company's 9,498,337 ounces of silver in 2011, will be shut down for the entire 2012 year.  The day of the announcement the stock fell 18.7% from $5.67 --> $4.61.  All this because of a December 2011 accident at Lucky Friday in which a number of employees were injured when the mine collapsed (including a couple fatalities).  You can be sure that whatever structural problems caused the collapse will be dealt with quickly (only two months was needed to fix the problem, the 12 month closure is due to new inspections and safety procedures required by federal regulators;  A group of shareholders even tried to sue the government over the closure).  Hecla wasn't the only miner that suffered fatalaties last quarter, 6 people died in accidents at three AngloGold Ashanti mines.

Though Lucky Friday is the source of only 31% of silver output (0% for gold) and 30% of 2P silver reserves, it's Hecla's only source of proven silver reserves (~21 million ounces);  In 2011 it was the source of all of Hecla's total increase in 2P silver reserves (+7 million ounces), so it remains a significant growth project for the company.  Lucky Friday also makes the company more diversified, being home to three-quarters of its 1.5 million ton lead resource.  The other operating mine, Green's Creek was purchased from Rio Tinto in 2008.

There are many reasons to like Hecla Mining

* The price of silver jumped 74.2% in 2011, single handedly causing Helca's profit to grow 286% to $150.6M.  Revenue reached a record high of $477M even though it sold 13.3% less silver; in fact sales of all four metal types were down (-17.5% for gold, -16.6% for lead, -12.4% for zinc).  The company's stock value is down -50% from a year ago even though revenue and profit is up significantly;  Even considering the 30% drop in silver production, next year company profits probably won't be less than they were in 2010 with high commodity prices a mainstay.
* The company has no debt and nearly $290M in cash and cash equivalents.
* Lucky Friday structural damage only needs two months to fix.
* Hecla Mining has three other significant projects at San Sebastien, San Juan and Noonday.  Company's valuation at present definitely isn't giving any of those projects respect.

Thompson Creek Metals (tsx: TCM) - The stock has been in selloff mode for the better part of a week after the company reported that the Mt. Milligan project will cost more than previously thought.  That prompted TD Bank to downgrade it.

Barrick Gold - Pueblo Viejo (60%) and Pascua Lama mines will begin producing in 2012/2013.  When fully operational (2016) the mines will add 1.5 million ounces of annual output to Barrick Gold's current production of 7.68 million ounces.  Pueblo Viejo is 90% complete.  Barrick profited 25% more in 2011 than it did last year ($4.48 billion, $$4.67 billion adjusted).  In February Barrick exited Russia when it sold off its last remaining asset there (25% interest in Highland Gold).

Goldcorp - 2011 production was 2.5147 million ounces.  By 2016 production will rise to 4.2 million ounces.  Revenue grew by 43% in 2011 more than any other top 10 gold miner.  El Morro in Chile ($3.9b project) is one of the reasons for the higher output projection.

Newcrest Mining - 515,000 oz of gold in 2011 came from the Telfer mine representing about 20% of company total (Telfer is home to 14.9% of its 79.1M oz of reserves, 7.7% of the 8.36M tonnes of copper reserves).  Total company production in the 2Q2012 FY (ending December 2011) was 579,023 oz down 19.9% qoq, the quarter before that 1Q2012 output was down 16% to 587,296 oz.  Over the last two quarters production from Telfer was down 50,000 oz.  2011 calendar year production increase comes entirely from the Lihir Gold acquisition.

Kinross Gold - Yes it was hit with a $2.94 billion impairment charge stemming from an unexpected writedown on its Tasiast mine in Mauritania absorbed during the fourth quarter of 2011.  That effectively more than wiped out any profit the company was on track to make in 2011 (ended up losing just over $2B on the year).  But keep in mind the company's revenue (+31%), gold production (+13.0% to 2.6M oz), and cost of sales (+28% even though production up more than 30%, production cost of sales up 17.7% to $596/oz which is comparable to its peers in the industry).  Another telling statistic: cash margins up 32% to $906/oz ($965 in 4Q +23%), margins were also up 32% at America's largest gold miner Newmont Mining (Newmont's stock is up 16% last 12 months, Kinross is down -32% even though Newmont also suffered from a bad fourth quarter; -$1B losses at Newmont in 4Q2011 brining total profit for the year down to $366m).  Also to consider; Agnico-Eagle Mines took on a $644.9m writedown on its Meadowbank mine in the 4Q giving the company a net loss of $601.4m in the 4Q.  The mine plan had to be changed because of its 'high cost nature'.
Also, annual dividend was up 10% to record high 11 cents a share (though none was paid in the problematic 4th quarter).     The company was valued at $19B as recently as May 2011 which is almost 60% more than it is today.  That brings its market value per ounce of reserve to a near industry low $130/oz (compare that to Goldcorp's $618/oz at, $708/oz at Yamana Gold).  Cash flow from operating activities +40.3% to $1.8093b on the year, convinced yet?  Then consider the possible takeover offers.  European Goldfields which isn't even producing yet and has only a fraction as much gold as Kinross, recently got $2.5B from Eldorado Gold.  Kinross has low cash costs, lucrative projects (Cerro Casale) and a growing revenue stream and that makes it a lot more valuable in a M&A scenario.  CAPEX was +163% to $1.6515.
Don't forget that Kinross's current market cap of about $12B is about the same as it was before it acquired $7B Red Back Mining.

Eldorado Gold (nyse: EGO) - Coming off a record year for gold production (+4% to 658,652 oz), revenue (+33% to $1.042b) and even profit (eps +41.5% to 58c) while dividends more than doubled from 5c a share to 11c. Operating cash flow was also strong, up 40%. AND unlike the other major gold producers total cash costs only went up marginally ($382 --> $405). The European Goldfields acquisition will make it the biggest gold producer in Europe by 2015 (1.5m ounces a year) which couldn't come at a better time; European demand for gold is stronger than ever as is the price of gold.

New Gold (tsx: NGD) - In June 2012 its fourth operating mine will open.  That will push company production over 400,000 ounces for the first time.  Goldcorp's El Morrow (New Gold's interest is 30%) will reach full production in 2018 which should give the company an additional 150,000 ounces annually.

Newmont Mining - Gold reserves grew 9% in 2011 to 99M ounces a third of which is in Nevada, 17% in Africa.  Reserves were 93.5M one year earlier and 91.8M oz December 2009.  Biggest source of attraction at Newmont right now are the dividends, 4Q2011 quarterly dividend up 133% to 0.35 a share.

Also of interest:
-On March 1, 2012 Newcrest Mining, Australia's largest pureplay gold company began trading on the Toronto Stock Exchange.  It will be the 4th largest mining company with a listing in Toronto.
-USA has 3rd highest corporate tax rate in the world.

Diversified Investments Hon Hai Precision Industry, Seabridge Gold -sorry Motley Fool, Royal Gold

     With all the market turbulence it's imperative that investors not only diversify their stock portfolio but choose companies that are already diversified within themselves. Here are a few companies that fit the bill.

Hon Hai Precision Industry better known as Foxconn - This is the company that manufactures everything from the xbox game console for Microsoft to the iPhone4S for Apple as well as laptops for Hewlett Packard; Its HP laptop plant in Chong-qing that produces upwards of 20 million laptops annually, was built in 2009/2010 and made Hon Hai into one of the leading employers in China's 23rd largest mainland economy (where the electronics industry ranks first ahead of vehicle manufacturing). Keep in mind that each plant can have anywhere from a couple to 15 or even 20 factories, in fact Hon Hai's largest in Shenzhen is home to some 300,000 workers. In total Foxconn has factories in nine Chinese cities.

The technology industry has recorded massive growth over the last seven years led by Apple Inc (market capitalization 6X bigger today than it was in 2005 - 390 billion vs 65 billion) which is important to remember since Hon Hai plays an integral role in Apple's success (the iPad is made by Hon Hai at a plant in Chengdu, China, the iPhone4s is manufactured at the world's largest smartphone production facility, the 200,000 unit/yr plant at Science Park, Zhengzhou). In January 2012 it announced a plan to increase its workforce by ten times in a major Chinese manufacturing city, as well Hon Hai recently stated that it will be doubling the size of its flagship smartphone-manufacturing plant in Henan province with a $1.1B investment.
-The company is obviously preparing itseslf for huge jump in size and why not? the iPad holds anywhere from 60-90% of the global tablet market, a market which could grow by 42% in 2012 to 40 million units up from 29 in 2011. As of January 2012 Hon Hai's workforce numbers 1.2 million. On March 11, 2011 Hon Hai Precision Industry (Foxconn) had a market capitalization/valuation of $36.9 billion US dollars. (source: Forbes Global 2000 List 2011 Edition)

Hon Hai recently reported a 19.8% year-on-year jump in revenue to $92 billion over the 2011 calendar year (37% increase in December) boosted by especially strong results in the month of December (revenue in the fourth quarter alone was $30B). That's significant considering that Taiwan's other technology companies Quanta Computer, Compal Electronics and Acer, all reported decreases in revenue (-1% for Quanta to $60b, -21% for Compal to $23b, -23.5% for Acer to $12.4b). Hon Hai profited over $2.5B in 2010 only slightly higher than 2009. The company has $32.0B worth of assets. One thing that could become a problem for Hon Hai is fake Apple products in China. Since the iPhone4s launch was delayed in China, more fake products have been introduced to the market.

Royal Gold (MV 3.77B, 5-day -2.37%, 1 month -4.01%, 3 month +2.77%) Is one of the world's largest and most diversified royalty companies with direct exposure to many of the world's key mining operations through royalty agreements (buys the royalty usually before the mine enters production phase). It then collects royalties (in most cases net smelter return royalties) on the net revenue made from one of five precious or base metals (or all as in the case with Peñasquito). There is little risk considering it is not responsible for mining or exploration costs (like Silver Wheaton). Considering the fact that many of the mines are either not producing or in very early stages of production (Penasquito, Pascua Lama, Malartic) strong growth in revenue (& profit) is likely; unlike other mining stocks, for Royal Gold growth isn't contingent on metal prices (unless of course they collapse which is unlikely given that we're in a commodities bull market). In the 3rd quarter of 2011 Osisko Mining's Malartic gold property reached commercial production producing 73,814 ounces of gold and 40,000 ounces silver (Malartic is home to 10.71 million ounces of gold) - Royal Gold owns a 3% royalty on Malartic.
Diversification: The company remains gold-dominant but that's slowly changing with new base-metal mines coming on tap (like Goldcorp's billion ounce silver Penasquito mine in Mexico). During the 2011 fiscal year 64% of revenue came from gold which is down sharply from 81% in 2010 and 84% in 2009. In 2011 silver contributed 6% to revenue (up from 3% the two previous years), copper steady at 10%, nickel up significantly to 15% from 4% in 2010, 1% in 2009. Other minerals like zinc and potash made up 5% of revenue up from 3% and 1% in 2010 and 2009 respectively. Most of the royalty agreements are for 2-5% however a couple like Andacollo (1.6M oz of gold reserves) which is at 75%.
more on Royal Gold HERE including nickel, lead & zinc production data by mine by year updated to reflect 2011.

Financials: Stock is up 2.77% between Oct 17 and Jan 13 2012, up 7.98% during the six month period ended Jan 13 but down 9% in the month of December. Key royalty claims; 2% NSR claim on Canada's biggest gold/silver/copper/molybdenum project (KSM) purchased in 2011 for $160m; 2% claim on Goldcorp's only major silver mine Penasquito; Barrick Gold's Pascua Lama mine in Chile. In fiscal 2011 (ends in June) revenue was up 58.5% to US$ 216m which is great considering total operating expense was virtually unchanged at $97m pushing gross profit up 190.0%. The company profited 232% more ($71.39m) however dividends were up only 23.5% to 42 cents/share. Update second quarter 2012 fiscal year (ends December 2011): profit/earnings were a record for a quarter at $23.4M up 28% yoy or 42 cents a share on royalty revenues of $68.4M, up 22% qoq. For the 2012 half, net income was $45.9M (up 52.5%) or 83 cents a share (up from 55c) on revenue of $133.3M (up 31.07%). adjEBITDA was 90% of revenue in the second quarter or $62.1M up from $48.9M in 2Q2010. For the September-December 2011 period (2Q of the company's 2012 fiscal year) the price of gold increased 23% from $1367 to $1688 an ounce. The company recently paid $170 million on its debt (credit facility) expanding available credit under the facility to $225 million. $268.3 million was raised in an equity offering held in January 2012.

Royal Gold production update for 2012 Second Quarter
According to Goldcorp/operator of Penasquito (one of Royal Gold's most lucrative interests) gold production will be 425,000 ounces and silver production 26 million ounces for the 2012 calendar year. Malartic (1.0-1.5% nr) will produce between 610,000 and 670,000 ounces of gold in 2012. Barrick Gold's Pascua-Lama mine will bein producing during mid 2013 at 800,000 to 850,000 ounces a year in the first five years. Thompson Creek's Mt. Milligan (31% complete end of 2011) will begin producing 4th quarter 2013. Lac Cruces (produces copper cathode) will operate a 90% of design capacity in 2012, total production estimated to increase by 55% versus 2011 (calendar year). In the second quarter of 2012 Andacollo contributed $16.18 million of the comany's $68.84 million in royalty revenue which is 23.50% of the total up from 20.12%. The only other mine that contributed over 10% of RG's revenue is Voisey's Bay (2.7% net smelter return royalty) which gave the company 17.49% ($12.04M) of its second quarter 2012 revenue (up from $8.06M in the corresponding period of 2011). Royal Gold's four largest sources of revenue contribute 56% of revenue (second quarter 2012); total gold production by them was approximately 92,358 ounces of gold (up from 65,862 ounces) 27.4 million pounds of nickel (all from Voisey's Bay) in addition to Penasquito's output of 5.0m oz silver, 40.2m pounds lead, 78.4m pounds zinc. Quarter on quarter increases at Penasquito were mostly from zinc which was up 35.0%, silver was down 100,000 ounces but gold was up 23.8% or 13,052 ounces.


Seabridge Gold - Unlike Motley Fool I take a bullish position on the company. Since January 6 when Motley Fool considered a plunge in the stock Seabridge Gold is up 10% after being down more than 27% over the three months prior. Why has the stock underperformed in the long term? a couple reasons stand out. The spot price for gold is down 11.0% since early September, also down is silver (-29.1%), copper (-27.5% to $3.63/lb from $4.2 in September) and molybdenum. But unlike other metal companies Seabridge's long term valuation is predicated upon development of key mines Kerr-Sulphurets-Mitchell (capital cost is $4.7B) and Courageous Lake (capital cost is $1.26B).

When those projects do reach production-stage the company could become the next Ivanhoe Mines (keep in mind that royalty company Royal Gold has already committed $160m for a 2% nsr royalty on KSM). KSM is 100% owned by Seabridge and has a 52 year mine life (adjusted up in May 2011 from 37 yrs due to reserves increasing by 27% for gold and a whopping 61% for silver) and very low cash costs ($105/yr in the first seven years). Also of note: about half of the world's molybdenum production comes from China and China has at times threatened to limit production by labeling it a "national mining resource," which limits the export of the metal in the same fashion as rare earth elements and China can do that through its control of the China Molybdenum, the country's leading molybdenum producer. Seabridge is also exposed to Molybdenum having 257 million pounds of molybdenum in reserves.

Why have investors suddenly shown more interest over the last week? On January 10, 2012 the Courageous Lake property in the NWT added approximately 1.2 million ounces of gold to measured and

Big Exploration Companies Only An Investment Away From Becoming Major Industry Players

&nbsp&nbsp It seems weird when a company with more resources of a particular commodity isn't valued higher by the stock market (compare, for example Seabridge Gold or Northgate Minerals to Detour Gold; Cenovus Energy (oil) to Anadarko Petroleum). When companies aren't producing (such as the case with many big exploration companies) people are more skeptical of their estimates, especially if they don't have the financing in place to turn projects into operations; Ivanhoe Mines suffered from that for years before Rio Tinto confirmed the company's standing by calling Oyu Tolgoi 'the biggest copper resource in the world'. Examples of companies that have gotten away with lieing about resources include Greywolf Resources, a group of companies in Argentina which the president claimed in 2004, lied about reserves, even Shell has been caught but that was at a time when regulations industry-wide, were softer. Furthermore, energy consumption experienced the biggest yearly increase since 1973 in 2010, in 2010 it was up 5.6% largely due to China (up 11.2% surpassing the USA) and non-OECD nations (63% higher than 2000 levels). (World energy consumption up 5.6% in 2010, biggest rise since 1973: BP) Brazil, for example was on pace to import 50% more gasoline in 2011 than in 2010 (3.2M barrels Jan-Aug compared to 3.2M barrels Jan-Dec accounting for 5% of domestic fuel needs). In 2010 90% of cars sold in Brazil run on a combination of bio-fuel and gasoline but bio-fuel is getting more expensive: Sugar cane price is up 85% over the last year. (Brazil boom takes world fuel markets by surprise)


Here are three companies that I think would benefit from more investment and media exposure.

Meg Energy - Recoverable oil resource is close to 6 billion barrels. That's almost as much as Canada's biggest petroleum companies Suncor (7-8 billion, with a market value of over US$50 billion), and Canadian Natural Resources (over 6 billion, MV is over US$40 billion). Being heavy oil doesn't really make a difference anymore as synthetic oil is easier to produce and more widely used than it used to be (though oil prices need to be at least $50/bbl for it to be economically viable to produce but I don't think that level will be breached anytime soon). Phase 2B of the Christina Lake project has costs totaling $1.4 billion (about the same as MEG's total cash and cash equivalents) that will be spent in 2011. The biggest phase of the project (will increase production by 250,000 barrels per day or 7X more than what phase 2B will produce) is the third phase. You can imagine the price tag there, receiving regulatory approval shouldn't be a problem but more investment will probably be needed. The company recently reached $10 billion in market value and China's third biggest oil company has already invested in it so attracting more shouldn't be difficult, but when it's announced, individual investors could show a lot more interest. Update: In October 2011 JP Morgan, the world's #1 bank in terms of revenue, forecast oil at $121/barrel by 2013, at the same time it expects oil prodction that year to rise by about 2M bbls/d to 91 million barrels a day.
By 2045 oil sands will produce close to 11M bbls/d and that will continue for a century. Between 2012 and 2020 oil output from the tar sands will double (1.7 mbpd --> 3.4 mbpd) and triple in the next 25 years to 5.1 million barrels per day. Tar sands crude is over five times more expensive to extract than middle east oil however with oil prices up more than 400% since 2001 and Alberta continuing to charge one of the lowest royalty rates in the world (fell from $3 to $2/bbl between 2001 and 2009) there is much profit to be made.

Bankers Petroleum - Has interest in Europe's largest onshore oil field (7.5 billion barrels in place). 2P reserves are over 268 million barrels and rising fast (proved reserves up 30% in 2010), including stakes held