When you review the market you realise that there is surprisingly little exposure. We can look at 2 types of company:
1. Established producers: I like emerging small producers that are cashed up, debt-free, unhedged, offer significant leverage as well as having significant resource upside.
2. Advanced projects: There are a host of companies that have no production interests but will have them within 12-18months. The benefit of these companies is that they will receive a re-rating at a time when gold prices are much higher, and the technical risks have fallen somewhat. We need to appreciate that most funds are run by accountants or actuaries that are 'conceptually blind'. You cant convince them of the value of a 'concept' - they need a feasibility study at the least, and even then they might be sceptical until those forecasts are converted into earnings. The added benefit of these companies is that they are often take over targets (if their resources are significant - say PRU) and they are able to lock in much higher gold prices to finance their project.
In Australia, I like the following companies listed on the ASX:
1. Bendigo Mining (BDG): BDG has one of the largest gold inventories in Australia, and its project lies in one of the most proliferate gold producing provinces in the world. At its peak of activity in the 1850s this gold province produced 40% of the world's gold. BDG has proven that the ribbon-type reef structures extend over a wide area, and even though the grades (and thus resources) were downgraded, they are still compelling value. The company has a 600,000tpa plant and is unhedged with $70mil in cash reserves. The newly appointed MD has not disappointed either. At 31c the company is valued at $158mil. With $70mil in cash, that places just a $88mil value on its project which has the capacity to produce 600,000tpa x 10g/t of gold = 200,000 oz per annum of gold. Thats amazing! Fund managers might however be a little slow crawling back into this one given the losses they incurred on the issue a year ago. But that has not stopped the State Teachers Union Super Fund of Ohio (USA of all places) from increasing its holding in the last week.
2. Sub Sahara Resources (SBS): SBS has a huge tenure holding in Africa - including JV interests in Tanzania, Eritrea and Ghana with a number of companies including Barrack Mines. Its Zara & Koka projects are the most advanced, however it has a number of other advanced projects with a focus on gold. The compelling value of this company was highlighted when Anvil Mining took a 10% equity stake in the company several months ago. I think this company will do very well as it has a huge portfolio of interests to trade with, and a diverse exposure that could yield some attractive discoveries. The intention with companies this size is to expose oneself to exploration upside. Capitalised at $40mil (at 8.7c), we can say a significant discovery in itself would double the value of the company.
3. Alloy Resources (AYR): I jumped on this one at 11c, its now 13-15c. They are an explorer, but I like that they are a mouse of a company hunting elephants along strike from some significant deposits held by the heavyweights Oxiana Resources and Pan Australian Resources (PNA). I will be hoping for greater gold content as opposed to copper, but I wont complain. The company should be close to releasing some drilling results, so I see that lifting the market.
These are not gold, but I still have MRX and MKY:
4. Matrix Metals (MRX): I still like this company even if its copper. I cant see copper prices coming off too much given that China is still growing so fast. Their project in West Qld is a cash producer, and I still see benefits from expanded output, not to mention the exploration upside. Current price 13c.
5. MKY: They had some attractive uranium soil sampling results 6mths ago and are currently drilling them. Uranium spot prices have come off but they are still high, so I'm expected a phenomenable rally if drilling results are good because the anomaly is quite large. Current price 4.2c