Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
The Past Stock Market Week Was More Important Than You May Understand - 31st Mar 20
Coronavirus - No, You Do Not Hear the Fat Lady Warming Up - 31st Mar 20
Life, Religions, Business, Globalization & Information Technology In The Post-Corona Pandemics Age - 31st Mar 20
Three Charts Every Stock Market Trader and Investor Must See - 31st Mar 20
Coronavirus Stocks Bear Market Trend Forecast - Video - 31st Mar 20
Coronavirus Dow Stocks Bear Market Into End April 2020 Trend Forecast - 31st Mar 20
Is it better to have a loan or credit card debt when applying for a mortgage? - 31st Mar 20
US and UK Coronavirus Trend Trajectories vs Bear Market and AI Stocks Sector - 30th Mar 20
Are Gold and Silver Mirroring 1999 to 2011 Again? - 30th Mar 20
Stock Market Next Cycle Low 7th April - 30th Mar 20
United States Coronavirus Infections and Deaths Trend Forecasts Into End April 2020 - 29th Mar 20
Some Positives in a Virus Wracked World - 29th Mar 20
Expert Tips to Save on Your Business’s Office Supply Purchases - 29th Mar 20
An Investment in Life - 29th Mar 20
Sheffield Coronavirus Pandemic Infections and Deaths Forecast - 29th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast - Video - 28th Mar 20
The Great Coronavirus Depression - Things Are Going to Change. Here’s What We Should Do - 28th Mar 20
One of the Biggest Stock Market Short Covering Rallies in History May Be Imminent - 28th Mar 20
The Fed, the Coronavirus and Investing - 28th Mar 20
Women’s Fashion Trends in the UK this 2020 - 28th Mar 20
The Last Minsky Financial Snowflake Has Fallen – What Now? - 28th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast Into End April 2020 - 28th Mar 20
DJIA Coronavirus Stock Market Technical Trend Analysis - 27th Mar 20
US and UK Case Fatality Rate Forecast for End April 2020 - 27th Mar 20
US Stock Market Upswing Meets Employment Data - 27th Mar 20
Will the Fed Going Nuclear Help the Economy and Gold? - 27th Mar 20
What you need to know about the impact of inflation - 27th Mar 20
CoronaVirus Herd Immunity, Flattening the Curve and Case Fatality Rate Analysis - 27th Mar 20
NHS Hospitals Before Coronavirus Tsunami Hits (Sheffield), STAY INDOORS FINAL WARNING! - 27th Mar 20
CoronaVirus Curve, Stock Market Crash, and Mortgage Massacre - 27th Mar 20
Finding an Expert Car Accident Lawyer - 27th Mar 20
We Are Facing a Depression, Not a Recession - 26th Mar 20
US Housing Real Estate Market Concern - 26th Mar 20
Covid-19 Pandemic Affecting Bitcoin - 26th Mar 20
Italy Coronavirus Case Fataility Rate and Infections Trend Analysis - 26th Mar 20
Why Is Online Gambling Becoming More Popular? - 26th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock Markets CRASH! - 26th Mar 20
CoronaVirus Herd Immunity and Flattening the Curve - 25th Mar 20
Coronavirus Lesson #1 for Investors: Beware Predictions of Stock Market Bottoms - 25th Mar 20
CoronaVirus Stock Market Trend Implications - 25th Mar 20
Pandemonium in Precious Metals Market as Fear Gives Way to Command Economy - 25th Mar 20
Pandemics and Gold - 25th Mar 20
UK Coronavirus Hotspots - Cities with Highest Risks of Getting Infected - 25th Mar 20
WARNING US Coronavirus Infections and Deaths Going Ballistic! - 24th Mar 20
Coronavirus Crisis - Weeks Where Decades Happen - 24th Mar 20
Industry Trends: Online Casinos & Online Slots Game Market Analysis - 24th Mar 20
Five Amazingly High-Tech Products Just on the Market that You Should Check Out - 24th Mar 20
UK Coronavirus WARNING - Infections Trend Trajectory Worse than Italy - 24th Mar 20
Rick Rule: 'A Different Phrase for Stocks Bear Market Is Sale' - 24th Mar 20
Stock Market Minor Cycle Bounce - 24th Mar 20
Gold’s century - While stocks dominated headlines, gold quietly performed - 24th Mar 20
Big Tech Is Now On The Offensive Against The Coronavirus - 24th Mar 20
Socialism at Its Finest after Fed’s Bazooka Fails - 24th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock and Financial Markets CRASH! - 23rd Mar 20
Will Trump’s Free Cash Help the Economy and Gold Market? - 23rd Mar 20
Coronavirus Clarifies Priorities - 23rd Mar 20
Could the Coronavirus Cause the Next ‘Arab Spring’? - 23rd Mar 20
Concerned About The US Real Estate Market? Us Too! - 23rd Mar 20
Gold Stocks Peak Bleak? - 22nd Mar 20
UK Supermarkets Coronavirus Panic Buying, Empty Tesco Shelves, Stock Piling, Hoarding Preppers - 22nd Mar 20
US Coronavirus Infections and Deaths Going Ballistic as Government Start to Ramp Up Testing - 21st Mar 20
Your Investment Portfolio for the Next Decade—Fix It with the “Anti-Stock” - 21st Mar 20
CORONA HOAX: This Is Almost Completely Contrived and Here’s Proof - 21st Mar 20
Gold-Silver Ratio Tops 100; Silver Headed For Sub-$10 - 21st Mar 20
Coronavirus - Don’t Ask, Don’t Test - 21st Mar 20
Napag and Napag Trading Best Petroleum & Crude Oil Company - 21st Mar 20
UK Coronavirus Infections Trend Trajectory Worse than Italy - Government PANICs! Sterling Crashes! - 20th Mar 20
UK Critical Care Nurse Cries at Empty SuperMarket Shelves, Coronavirus Panic Buying Stockpiling - 20th Mar 20
Coronavirus Is Not an Emergency. It’s a War - 20th Mar 20
Why You Should Invest in the $5 Gold Coin - 20th Mar 20
Four Key Stock Market Questions To This Coronavirus Crisis Everyone is Asking - 20th Mar 20
Gold to Silver Ratio’s Breakout – Like a Hot Knife Through Butter - 20th Mar 20
The Coronavirus Contraction - Only Cooperation Can Defeat Impending Global Crisis - 20th Mar 20
Is This What Peak Market Fear Looks Like? - 20th Mar 20
Alessandro De Dorides - Business Consultant - 20th Mar 20
Why a Second Depression is Possible but Not Likely - 20th Mar 20

Market Oracle FREE Newsletter

Coronavirus-bear-market-2020-analysis

Gold Mining Stocks to Weather the Storm

Commodities / Gold and Silver 2015 Jul 28, 2015 - 02:26 PM GMT

By: The_Gold_Report

Commodities

With ongoing volatility expected in the gold space, mostly owing to global economic weakness, investors should focus on quality gold names with three key attributes to weather the current metal price environment, explains Joseph Fazzini, vice president and senior analyst with Toronto-based Dundee Capital Markets. Fazzini says those attributes are low-cost, long-life assets; defensive balance sheets; and responsible management teams. In this interview with The Gold Report, Fazzini lists six Buy-rated names with those key attributes and more.

The Gold Report: Many of the people we interview have a theory about why gold is performing poorly this summer despite so much global uncertainty, especially in China and Greece. What's your theory?


Joseph Fazzini: Gold typically plays numerous roles, including being a hedge against inflation, devaluation and economic turmoil, but it's still a commodity. Most commodities typically come under pressure in a recessionary environment. Right now, the global economic landscape isn't all that promising, inflation remains minimal and investors prefer other safe-haven investments (i.e., U.S. dollar). As a result, we expect gold to continue performing in-line with most other commodities and remain under pressure.

TGR: How low can gold go?

JF: Recent events have shown that the price of gold can move without rhyme or reason. While some have suggested that opportunistic investors have conspired to drive down the price of gold, weakened investor sentiment has also played an important role. Rather than try to hedge inflation or economic uncertainty with gold, investors from around the world have sought refuge in safety assets like the strengthening U.S. dollar, which moves inversely with gold. With Chinese, European and North American equity markets on precarious financial footing, gold remains out of favor and the bottom is tough to call.

TGR: What about sub-$1000/ounce (sub-$1,000/oz) gold?

JF: With the price of gold recently declining to a five-year low of US$1,088/oz, sub-$1,000 is certainly a near-term possibility. While we hope for the best, we continue to advise caution.

TGR: Is it Dundee Capital Markets' view that gold could rebound in 2016 or possibly 2017?

JF: We have a constructive long-term view of gold, but in the near term we still see a lot of risk. We're not ready to call a gold rebound. We would need to see some serious developments in the global economy that would support a rebound in gold.

TGR: What would some supportive measures be?

JF: Further quantitative easing would be probably the most encouraging thing we could see for the gold price. As this scenario would entail more money being pumped into the global economy, we expect this could drive investors out of fiat currencies and into hard assets, including gold, which can't be printed. With indications of U.S. interest rates rising in the coming quarters, it's clear that the U.S. is unlikely to pursue that route, but we could see it happen in Europe and China. In addition, a weakening of the U.S. dollar would inherently be positive for gold as it would become more affordable for foreign nations, most notably China and India, which have been major buyers of bullion.

TGR: We have the situation in Europe with Greece and stock market weakness in China. Which is more likely to affect the gold price?

JF: In our opinion we consider the recent events in China to be of greater significance. Apart from China having one of the largest global economies, the Chinese also represented roughly 25% of global gold demand in Q1/15. If things were to materially worsen in China, we think that would have a far more pronounced effect on the price of gold than anything happening with Greece.

TGR: With such uncertainty surrounding the marketplace, what are three things that become more important in gold equities, especially the micro- and small-cap stocks?

JF: With continued volatility expected in the gold space, we consider the three prerequisites for investment to be ownership of quality low-cost assets, defensive balance sheets and responsible management teams.

You want to look for low-cost operations that continue to generate cash despite gold price fluctuations. Next, you want companies with defensive balance sheets. For the most part higher leverage will result in significantly higher risk, and so you want companies with good cash balances and limited debt. Those names are going to be better positioned to weather prolonged market weakness. Lastly, having a responsible, experienced management team is key. You really want to be in a position where the company is being responsibly managed in tough market conditions. Whether that means laying people off, shutting down an operation or selling the company you need to have the people willing to make the best decisions for shareholders.

TGR: Would you tell us about consolidation in the industry?

JF: Dundee Corp. (DC.A:TSX) Chairman Ned Goodman is about to become co-chairman of Oban Mining Corp (OBM:TSX), the banner under which several small- and micro-cap gold names are being consolidated. The emergence of Oban reflects a changing environment for the juniors. There was a time when these companies could advance independently and get access to capital. The reality today is that access to capital is limited to companies with cash and credibility. In our view, the Oban strategy is the right approach as it consolidates a couple of cash-rich micro-caps with attractive, yet underfunded development projects. When you add in a reputable and experienced management team and board of directors, we think that these assets are far better positioned to advance within Oban than they would have been independently. We think investors should want to see more deals like this.

TGR: Should investors expect mergers and acquisitions (M&A) activity to gain momentum throughout the remainder of 2015 and into 2016?

JF: I think so. As I said, access to capital will remain limited. The consolidation of juniors and mergers among larger players are, in our opinion, essential to longer-term survival in this industry. When companies join together, we see potential for significant synergies through economies of scale and streamlined management structures. If we continue to see a challenging metal price environment, M&A is inevitable. Companies will have little choice but to get together or they simply won't survive.

TGR: Would you talk about some of the companies that you cover?

JF: Continental Gold Inc. (CNL:TSX; CGOOF:OTCQX) is one that I cover. The company just announced an updated mineral resource on its flagship Buriticá project; the new resource provides a basis for the company's upcoming Feasibility study in 2016. With significant conversion of Inferred resources into Measured and Indicated, the new resource also provides a greater degree of confidence in the deposit.

The next catalyst is obviously the permit. A lot of people are waiting to see Continental get its final operating permit. The permit would allow the company to build-out and expand Buriticá from its current small-scale production. Recognizing the importance of the permit from a derisking perspective, our expectation is that Continental will receive the permit in the coming months. The Feasibility study will also play a key role as it will provide a better indication of potential project parameters and economics.

TGR: What does Buriticá look like to you at this stage?

JF: It's quite clear this is a high-grade underground mining scenario. The question is how big will it be? And what will it cost to develop Buriticá? The preliminary economic assessment (PEA) gives us a rough sense of what that project will look like, but the differences between the PEA and the Feasibility will be significant due to the additional amount of drilling and technical studies that will be completed.

TGR: If Continental receives its final operating permit, do you see it as a takeover target?

JF: Yes. Given the size of the deposit, the likelihood of an extensive mine life and the potential for potent project economics, we think Buriticá is a project that a lot of companies would be interested in.

TGR: What is your target on Continental?

JF: My target is $4.75, with a Buy, Speculative risk rating.

TGR: What are some companies you cover with low-cost assets, strong balance and responsible management teams?

JF: Among the names that we like, B2Gold Corp. (BTG:NYSE; BTO:TSX; B2G:NSX)remains a favorite. It offers the combination of production growth, attractive cash costs, a defensive balance sheet and a compelling valuation. The company recently commissioned the Otjikoto gold mine in Namibia and it's performing well. The mine has further improved B2Gold's cash cost profile, and it should help the company drive consolidated production well in excess of 500,000 ounces (500 Koz) this year. The company still has further growth ahead with the Fekola gold project in Mali, which is expected to start production in 2018.

TGR: B2Gold is thumping its chest about Fekola. Should investors buy the hype?

JF: We think so. We like the project. It offers both high grade in an open pit and the potential for robust project economics once it is up and running. Given the limited amount of exploration in the past, we see potential for the deposit to get bigger through extension along strike and at depth.

TGR: What's your target on B2Gold?

JF: $2.75 and a Buy rating.

TGR: What else does Dundee like?

JF: Detour Gold Corp. (DGC:TSX) is another favorite. We consider the company's Detour Lake mine to be a unique asset that supports a significant production profile of over 500 Koz a year. As production continues to ramp up, we expect to see further cost optimization, which will lead to meaningful cash flows over the next 20+ years. Detour Lake is located in northern Ontario, a jurisdiction with low geopolitical risk, which further enhances the company's appeal. We think it's one of the best single-asset producers out there.

TGR: What does Detour have to do to get a rerating?

JF: Generate free cash. People look at Detour and they still see it as a ramp-up story. It's still growing. The operations continue to show improvement every quarter but people want to see the company become a meaningful free cash flow generator.

TGR: The Street's consensus target on Detour is around $16. What's yours?

JF: Our target is $17 with a Buy rating.

TGR: What are some other companies that you like?

JF: Kirkland Lake Gold Inc. (KGI:TSX) is another one that we like. The company has been a strong performer through the past 12 months on the back of an operational turnaround at its Macassa mine in northern Ontario. It has a very high-grade ore body with extensive mine life and a vastly improved balance sheet. Given the operational results we've seen, Kirkland is well positioned to continue generating robust cash flows through growing production over the next few years.

TGR: Kirkland Lake reported earnings of $19.8 million ($19.8M) in fiscal 2015 versus a loss of $11.08M in 2014. Was that in line with your estimates?

JF: Indeed. Production was pre-released so there weren't really any surprises. There has been such a big difference in that company over the past 12 months, predominantly due to management changes and a focus on mining higher grades rather than moving marginal tonnes.

TGR: What's the next catalyst for Kirkland?

JF: The next quarter's results. The operational results are going to be a key catalyst, along with ongoing exploration work.

TGR: What is your target there?

JF: $7.75 with a Buy rating.

TGR: What company did you recently initiate coverage on?

JF: SEMAFO Inc. (SMF:TSX; SMF:OMX). The company is another name that we really like for a variety of reasons, but predominantly because it has a track record of under-promising and over-delivering. It has delivered on its guidance six out of the past seven years, which is excellent. In addition, it has a meaningful production profile, with almost 250 Koz a year coming from its Mana mine in Burkina Faso. Mana is a low-cost mine with good grades and an extensive mine life ahead of it. The other attraction is the Natougou project that SEMAFO is advancing in Burkina Faso. A Feasibility study is expected in 2016 and Natougou has all the indications of a world-class mine.

TGR: About 16 analysts cover SEMAFO. They seem mostly torn between Buy and Hold. What's your view?

JF: I think the disparity between the different views is that some people look at the valuation and think that SEMAFO is expensive. We believe the company deserves a premium given the quality of its assets, the track record of its management team and the growth profile that the company offers. All those things together suggest that this is a company worth owning in a portfolio.

TGR: What's your target on SEMAFO?

JF: $5 with a Buy rating.

TGR: Are there other names you would like to discuss?

JF: Claude Resources Inc. (CRJ:TSX) has performed very well on the back of a turnaround at its Seabee mine in Saskatchewan. The company began generating meaningful cash flows after it changed its mining methods and focused on higher-grade portions of the deposit. As a result, Claude has been able to pay down debt while repeatedly beating its own production and cost guidance.

TGR: The company recently increased 2015 guidance to 68–72 Koz a year, an increase of roughly 4 Koz. Is that meaningful?

JF: We consider the increase in guidance to be meaningful and totally achievable.

TGR: Claude recently added 3,000 hectares to its land position in Saskatchewan. What's the thinking behind that move?

JF: The ground around the Santoy mine complex is important for Claude. Santoy has good grade and from an exploration perspective, it's quite prospective ground. The company wanted to lock up those claims and given it acquired the land for very little money, we think the move was prudent.

TGR: And your target on Claude?

JF: $1 with a Buy rating.

TGR: What's your advice to retail gold investors during this summer of global economic discontent?

JF: Everything comes back to quality. Investors should focus on quality. Don't buy the high-risk names in the hopes of outsized returns. Buy companies with strong balance sheets, solid production assets and responsible management teams.

TGR: Thank you for talking with us today, Joe.

Joe Fazzini is a senior mining analyst with Dundee Capital Markets in Toronto. Joe's research is predominantly focused on junior mining companies in both the production and preproduction stage. Prior to joining Dundee, Joe articled at PricewaterhouseCoopers LLP in the firm's global metals and mining assurance practice. He is a registered Chartered Accountant (CA) as well as a CFA charter holder. Joe holds a Bachelor of Commerce degree, majoring in economics and finance from the University of Toronto.

Want to read more Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Interviews page.Top of Form

Bottom of Form

DISCLOSURE:
1) Brian Sylvester conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report and The Life Sciences Report, and provides services to Streetwise Reports as an independent contractor. He owns, or his family owns, shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of Streetwise Reports: Continental Gold Ltd. The companies mentioned in this interview were not involved in any aspect of the interview preparation or post-interview editing so the expert could speak independently about the sector. Streetwise Reports does not accept stock in exchange for its services.
3) Joseph Fazzini: I own, or my family owns, shares of the following companies mentioned in this interview: SEMAFO Inc. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: Detour Gold Corp. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent.
5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer.
6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview until after it publishes.

Streetwise - The Gold Report is Copyright © 2014 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part.

Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

Participating companies provide the logos used in The Gold Report. These logos are trademarks and are the property of the individual companies.

101 Second St., Suite 110
Petaluma, CA 94952

Tel.: (707) 981-8999
Fax: (707) 981-8998


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules