Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With Fincrew.my - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Why BITCOIN NEW ALL TIME HIGH Changes EVERYTHING! - 22nd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21
UK Covid-19 Booster Jabs Moderna, Pfizer Are They Worth the Risk of Side effects, Illness? - 22nd Nov 21
US Dollar vs Yields vs Stock Market Trends - 20th Nov 21
Inflation Risk: Milton Friedman Would Buy Gold Right Now - 20th Nov 21
How to Determine if It’s Time for You to Outsource Your Packaging Requirements to a Contract Packer - 20th Nov 21
2 easy ways to play Facebook’s Metaverse Spending Spree - 20th Nov 21
Stock Market Margin Debt WARNING! - 19th Nov 21
Gold Mid-Tier Stocks Q3’21 Fundamentals - 19th Nov 21
Protect Your Wealth From PERMANENT Transitory Inflation - 19th Nov 21
Investors Expect High Inflation. Golden Inquisition Ahead? - 19th Nov 21
Will the Senate Confirm a Marxist to Oversee the U.S. Currency System? - 19th Nov 21
When Even Stock Market Bears Act Bullishly (What It May Mean) - 19th Nov 21
Chinese People do NOT Eat Dogs Newspeak - 18th Nov 21
CHINOBLE! Evergrande Reality Exposes China Fiction! - 18th Nov 21
Kondratieff Full-Season Stock Market Sector Rotation - 18th Nov 21
What Stock Market Trends Will Drive Through To 2022? - 18th Nov 21
How to Jump Start Your Motherboard Without a Power Button With Just a Screwdriver - 18th Nov 21
Bitcoin & Ethereum 2021 Trend - 18th Nov 21
FREE TRADE How to Get 2 FREE SHARES Fractional Investing Platform and ISA Specs - 18th Nov 21
Inflation Ain’t Transitory – But the Fed’s Credibility Is - 18th Nov 21
The real reason Facebook just went “all in” on the metaverse - 18th Nov 21
Biden Signs a Bill to Revive Infrastructure… and Gold! - 18th Nov 21
Silver vs US Dollar - 17th Nov 21
Silver Supply and Demand Balance - 17th Nov 21
Sentiment Speaks: This Stock Market Makes Absolutely No Sense - 17th Nov 21
Biden Spending to Build Back Stagflation - 17th Nov 21
Meshing Cryptocurrency Wealth Generation With Global Fiat Money Demise - 17th Nov 21
Dow Stock Market Trend Forecast Into Mid 2022 - 16th Nov 21
Stock Market Minor Cycle Correcting - 16th Nov 21
The INFLATION MEGA-TREND - Ripples of Deflation on an Ocean of Inflation! - 16th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold Junior Miners Latin Fever

Commodities / Gold & Silver Stocks Nov 09, 2010 - 03:15 AM GMT

By: The_Gold_Report

Commodities

Best Financial Markets Analysis ArticlePI Financial's David Goguen is vice president of Institutional Mining Sales, specializing in the mining sector. As part of his service to Canadian and U.S. resource-focused institutional investors, David evaluates and screens junior gold companies by initially dividing their enterprise values by total ounces. The result acts as a filter that either encourages David and his team to ask more questions about the company or to find other dance partners. In this exclusive interview with The Gold Report, David discusses PI Financial's recent institutional sales desk report titled Select Golds: Latin Focus and his methods of analysis.


The Gold Report: David, you recently published a report titled Select Golds: Latin Focus. Tell us about your report.

David Goguen: With the Select Golds piece we're tracking advanced explorers, emerging producers and junior producers in Latin America as they move through the development cycle.

One objective of our report is to look for ounces in the ground that are being undervalued by the marketplace. Among the junior producers, the market focuses less on enterprise value per total ounces and more on the basis of their ability to generate cash flow and earnings.

TGR: Can you define advanced explorer?

DG: Typically, advanced explorers have published a National Instrument 43-101 resource estimate that to some extent outlines the quantity and quality of the resource that is under consideration in the report. They generally have a sufficient number of drill holes into the resource that we're able to adequately define what it is and what its potential could be. As these projects become better defined, they move up the curve to become emerging producers and eventually junior producers.

TGR: How can an investor differentiate an explorer with good chances of success from an explorer that's unlikely to succeed?

DG: There are a number of factors that define a quality project. One should look at explorers seeking deposits in world-class districts. They should have a strategic land position with district scale potential and the possibility to host multiple deposits. Perhaps most important is whether or not these newly defined resources are on productive faults and large structures. Without these structures you're limiting your potential to find world-class deposits. The structures are very, very important.

TGR: You rank all of the companies in each category by dividing each company's "enterprise value" by each company's total ounces. How do you determine enterprise value?

DG: We calculate enterprise value by taking the company's market cap plus debt and minority interest, less its cash and cash equivalents. Enterprise value provides a more accurate reflection of the total value of the company. By then dividing the enterprise value by its gold ounces we are able to get a measure of what the market is currently paying for gold in the ground

TGR: That's a fairly simple calculation.

DG: It is. In situations where a company has a market cap that is significantly comprised of cash, our method tries to take the cash out of the equation so that we can look at what the market is currently valuing it at for its gold ounces.

The enterprise-value-per-ounce calculation is really a preliminary filter that gets us to ask additional questions and conduct additional due diligence. In the case of junior producers, it's going to lead to further analysis, including absolute and relative cash flow multiples and net asset values. With emerging producers, it's going to lead to greater definition in the various resource categories.

TGR: You manage to quantify quite a few things, but how do you quantify management, exploration upside, jurisdiction and things like that?

DG: Again, this report represents a screening process that leads us to ask additional questions and get into some of the qualitative elements. There a long list of factors we consider in our analysis. For example, we would evaluate the quality, diversity, geological background and experience of the management team. We would also research their track record in finding deposits and successfully raising equity. Of course, we would evaluate the corporate and financial structure of the company and where its properties are located to ascertain country and mining development risks.

TGR: Are there factors that these companies being taken over have in common?

DG: Certainly there's a theme within Mexico and elsewhere in Latin America at the moment, and what's being consolidated is the 70 to 100 thousand ounces-per-annum (Kozpa) producer.

We're coming out of an era where a company that was looking to grow through acquisitions was really not looking at companies producing less than 100 Kozpa. Now, with the gold price moving from $800 to $1,300, we're seeing that 70 to 100 Kozpa producer generating some $40 to $60 million in operating cash flow, depending on cash costs. These companies have now become much more attractive to anybody looking to consolidate through acquisitions.

TGR: From the other side, which companies are typically seeking these takeover targets? Is it the majors? Is it mid tiers? Is it both?

DG: No, it's the 100 to 150 Kozpa producer today that is recognizing the challenge of discovering another 150 Kozpa ore body and seeing the relative value in existing companies that have either just finished building or are in the process of building a 100 Kozpa mine.

TGR: Among these various groups—junior explorers, advanced explorers and junior producers—which group has the greatest potential for share price appreciation?

DG: I think as a group we've seen that the advanced explorers have probably the lowest valuation on a per-ounce basis. But the continued expansion of the existing resource by 50%, 100% or even 200% through drilling generally brings a lot of additional value to shareholders. By expanding a resource into something in the 1–3 Moz. range, these companies are going to become potential acquisition targets.

A number of these companies with a dynamic enough resource may not make it to a junior producer but may get taken over in the advanced explorer stage.

TGR: How about some parting thoughts on this particular report and these kinds of companies?

DG: The Metals Economic Group recently published a report that said $11.5 billion will be spent on exploration in 2010—that's a 44% increase from 2009. That work, coupled with the work that's taken place since 2005 when we had a large number of junior company financings, and even more financings in '06 and '07, is starting to bear fruit five years later—after we've had second, third, fourth passes at understanding these new discoveries. That money has allowed junior companies to have their "Eureka" moments in terms of doubling and even tripling the size of their resources through a better understanding of the geological controls on those resources.

That's a powerful theme that's taking place and that is going to feed Select Golds' advanced explorer category. A lot of those discoveries are happening in Latin America. They're happening in countries like Argentina. They're happening in Peru. They're happening in Colombia. They're happening in Ecuador. They're certainly happening in Mexico. Those are the areas where we're going to see a new breed of advanced explorers come in and continue to populate our Select Golds list.

TGR: David, sounds like some exciting opportunities ahead. Thanks for your time.

David Goguen, CFA, vice president, Institutional Mining Sales, has been focused on the mining sector at PI Financial for 17 years. David has 20 years of investment experience servicing institutional and private client portfolios.

David's focus includes
Select Golds— advanced, exploration, emerging producers and junior producers. David earned a BA in economics from Carleton University and holds the Chartered Financial Analyst designation. David services Canadian, U.S. and international institutional clients.

Want to read more exclusive 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 Expert Insights page.

DISCLOSURE:
1) Brian Sylvester of The Gold Report conducted this interview. He personally and/or his family own the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Gold Report: Timmins.
3) Ian Gordon: I personally and/or my family own shares of the following companies mentioned in this interview:Timmins Gold, Golden Goliath, Millrock and Lincoln. My company, Long Wave Analytics is receiving payment from the following companies mentioned in this interview, for receiving mention on my website, Golden Goliath, Millrock and Lincoln Gold.

The GOLD Report is Copyright © 2010 by Streetwise Inc. All rights are reserved. Streetwise Inc. hereby grants an unrestricted license to use or disseminate this copyrighted material only in whole (and always including this disclaimer), but never in part. The GOLD Report does not render investment advice and does not endorse or recommend the business, products, services or securities of any company mentioned in this report. From time to time, Streetwise Inc. directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.


© 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