2. The prospect of reserve (production) increases: This is important because greater production offers the prospect of higher earnings through more sales, lower costs (economies of scale) and maybe even greater resources (i.e. lower costs extends the boundaries of the mineralisation that is commercially viable, particularly if gold prices continue going up - as they will). Any incremental production expansion is also very cheap since a lot of the original plant does not need to be duplicated.
3. Unhedged gold output (or moving towards unhedging): This is important because you don't want to hold a stock that is getting only $US600/oz for its gold output when the market price is $1000/oz. The decision to hedge is often thrust upon projects by investment banks who don't understand the metals market. Hedging - contrary to popular opinion - can prove to be the death of a mining company. e.g. Highlands Pacific. As prices move up hedgers have to buy back gold at >$US1000/oz, to buy back their forward hedges at say $600/oz, in the hope that gold will go to $US2000/oz (as I expect).
4. Large tonnage resource - a lot of gold resources are messy, and thus small scale, selective and high cost. These types of resources are much more difficult to mine profitably. Incidentally the times of gold deposits which offer the most consistent gold grades tend to be 'porphyry copper-gold deposits' along former or current continental margins.
5. Grade & access: The grade of the gold and its depth underground are other important issues. We would prefer to see the gold at depths of <100m for easy ore body access.
6. Gold recovery: Metallurgical techniques tend to be well-proven these days making the gold recovery relatively less important. It is normall for gold recoveries to be >88%, and as high as 98%. The best possible resources allow treatment by solely cheap gravity methods, say if free, nuggetty gold, but in most cases this is just a portion of the recoverable gold, so both process circuits might be required for the optimal recovery.
7. Stage of development: Gold projects vary in their development lead time from 2 years to 10 years; even longer if there is a period of stagnant metal prices. We would be interested in gold projects which are close to financing. This is a very hard time to raise capital, so we would hope that the equity contribution has already been raised and not spent sustaining exploration in these hard times, notwithstanding the value of exploration.
These are the most important factors. If you want further information, please refer to the eBook on selecting mining stocks. It will give you a greater understanding of these topics, as well as identify other issues. View the table of contents and save $20 on this book by paying just $US19.95.
Andrew Sheldon www.sheldonthinks.com