The question arises as to where to find value in the gold market. Many of the largest companies are over-priced, so the question arises as to where to find value. I have several suggestions:
1. Ampella Mining (AMX.ASX) - This is an emerging gold miner in Africa.
2. Red 5 Ltd (RED.ASX) - This is one of my old favourite stocks. Finally Red is reaching a point of production after a lot of consternation with the enforceability of the mining code in the Philippines. Local opponents of mining projects in the Philippines have been using local governments to block mining. The national government has since enacted a law to ensure local law must be compatible with national law. You might be a brave person to believe that this will be the end of the issue though. RED might however factor into your investment portfolio.
3. North West Resources (NWR.ASX) - This company has struggled in the broader market for three reasons. The small resource base of just 380,000oz, the long exploration-development lead time. i.e. They have taken 10 years to prove up a small resource (i.e. suffered from a lack of market appeal, due largely to vertical ore trend) and market illiquidity. The company has however released a pre-feasibility study suggesting a NPV of $200mil from 4-5 year mine-life compared to a current market value of $21mil. The implication is that, if we allow for a $40mil development cost, they will need about a 1:1 issue to fund development. That gives a market value of $40mil, and we might also expect gold prices to rally, so giving at least a 5x upside. There is also upside from drilling ore deep extensions of ore zones. If we appreciate that this means $5mil/year off earnings, we might decide to discount future resources. Having said that, it makes more sense to drill these zones later, from development headings. Clearly some market pundits are taking to this stock, or is it the company executives, because suddenly there are buyers, and sellers being taken out. There is no question there is value here.....and a capital raising.
Wish I had more mining stocks to recommend but I'm not actively researching at the moment. If anyone has any stocks they want me to look at; by all means do so. Just Australian (ASX) market thanks.
PS: As it turned out sellers dumped on NWR...perhaps someone is acquiring a position or some shareholders are dumping before a forthcoming issue.
PS: As it turned out sellers dumped on NWR...perhaps someone is acquiring a position or some shareholders are dumping before a forthcoming issue.
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