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Gold stocks could double within weeks
I reckon that shares in a raft of mid cap and junior gold stocks could double within weeks. This is based on sober (okay I have had a pint and a quarter of beer tonight) analysis not on the basis of a bubble.
I am writing after a day in which a bevy of AIM listed gold juniors and midcaps which we own in the SF t1ps Gold Fund, including Vatukoula, Hambledon and Ortac Resources, have gained 10-15% – in just one session – so the force is with me. But this is not a one session wonder. The gains have continued overnight in Canada and there are three reasons for this.
The first reason is that even after this rally, companies such as Vatukoula and Ariana trade on 1 year out cashflow multiples of less than three based on $1500 gold. But gold is already at $1883. So that means that producers such as Vatukoula, Cluff, Hambledon, Minera, Orosur and Angel Mining are enjoying unexpected windfall cashflows right now. But it also means that if the cashflow multiples were ludicrous at $1500 gold they are even dafter now. You can still buy quality gold plays on sub two times cashflow (based on $1800 gold).
The second reason for the re-rating is that gold is set to head sharply higher – even from $1883. Faith in fiat currencies is collapsing. On Friday Ben Bernanke will clearly hint that QE3 ( currency debasement) is set to become official policy while the Euro is an unsustainable joke – as such the flight to gold should push it well past $2000 per oz by Christmas. It could go much higher still. Just yesterday Peter Hambro was talking about $2500 gold within just a few months. He could be right.
And thirdly, as predicted here, with the majors chucking off record cashflows and the midcaps and juniors on derisory ratings, bid action is picking up apace. I note Monday’s morning comment from broker Collins Stewart: On the corporate front, we note press reports that Anglo American are examining the PCI coal producer Macarthur Coal (+2.7%). Two West African junior gold producers, Endeavour Mining and Adamus Resources, announced plans to merge with Endevour taking 55% on a fully diluted basis. The new company is expecting gold production of 250k oz by 2013. Other gold juniors in the region that could become targets of possible M&A are Gryphon Mining, Cluff Gold & Aureus Mining
You can expect to read a lot more of the same in the coming weeks.
Rising gold prices will deliver windfall cash gains to companies such as Vatukoula which are in no way priced in & they will – via operational gearing – dramatically improve the value of all gold stocks in or near production. Belatedly investors are starting to see the incredible value in gold equities as are corporates who will highlight that value in a deluge of bids. Hence greed will drive gold equities sharply higher in the next days and weeks as bargain hunters feast. However when panic enters the building as those with no gold exposure realize the error of their ways then the party will really kick off- that could happen within weeks and should see prices of many quality gold juniors and mid caps double or more.
Phase one of the dramatic re-rating ahead is driven by solid fundamentals. Phase two might be described as more speculative but we are nowhere near phase two yet. Now is still a time to be buying aggressively.
Tom Winnifrith
Senior fund manager – www.t1psim.com
CEO – www.RivingtonStreetHoldings.com
Chairman – www.JPJShare.com
And why are we seeing relatively little interest in increasingly significant producers such as Medusa, Norseman, Cony Gold, Exterre Gold, et al?
— John Reid · Aug 23, 09:09 AM · #
Tom,
ANGM would enjoy unexpected windfall cashflows if it would ship some gold!
— Paul Sanders-Hewett · Aug 23, 02:19 PM · #