> If one were to look at the most beaten up gold mining stocks as
> stock options, with a 50% chance of losing everything (i.e.
> bankruptcy) and a 50% chance of making a large, long-term gain,
> which stocks would you recommend?
I look at all gold producers as call options on gold with a strike price equal to their cost of production (think about it). Miners with low production costs are profitable and are effectively "in-the-money" The more an option in in the money the less leverage you have. Likewise, if production costs are great than market price they are "out-of-the-money", with the most leverage but with a risk of going out of business.
Having said that, I'd look at firms with production costs around $250-275, proven management and ability to reduce costs, and a decent amount of reserves with growth potential, and the possibility of getting acquired if mergers start in gold mining. Mid-cap Companies like Cambior, Kinross, Agnico Eagle, Goldcorp, Glamis, Meridian, and TVX come to mind. I think Goldcorp has a lot more reserve potential at Red Lake, and Glamis seems very viable after the Rayrock merger. Bema Gold is risky, but might be acquired (Placer or Kinross ??) Echo Bay seems to be flirting with Chapter 11.
I'd also take a flyer on South Africa via ASA Limited. It's at a huge discount to NAV (15%), and its portfolio is 30% Anglogold, 20% Goldfields, 40% platinum and diamonds, and 10% Canadian. |
