As banks eat dirt, miners rule the world
There may be some penny stocks in the world's 100 top-performing mining stocks, but the aggregate value of the grouping is a respectable $43bn.
Author: Barry Sergeant
Posted: Wednesday , 25 Mar 2009
JOHANNESBURG -
mineweb.co.za
Measured from low points in stock prices seen over the past 12 months, a selection of 100 of the world's best-performing mining stocks have "bounced" by an average of 342%. The MSCI Barra dollar index for all global equities, as a broad global benchmark has, by comparison, bounced by a much more modest 21%.
This selection of the world's top performing mining stocks is heavily peppered with gold stocks, supported by gold bullion, which retains its place as the world's best performing commodity, relatively. Strictly speaking, primary silver miners head the mining subsector performance list, but the investible value of primary silver diggers is a relatively modest $13bn, compared to the $226bn offered by primary gold diggers.
The world's top 100 mining stocks, measured by value, currently offer an aggregate investible market value of $938bn, of which 46% is offered by the top ten, led by BHP Billiton, with a current individual market value of $123bn.
The very best stock price performances have come mainly from a mixture of gold and silver companies. Spectacular performances have been put in by La Mancha Resources, Central Sun Mining, Greystar, Tanami Gold, Golden Odyssey, Novagold, and Zhaojin.
There are normally good reasons for why these stocks have risen by between 500% and 900% from recent stock price lows.
In some cases top-performing stocks rank as such due to being sold down to "priced to go bust levels", and then somehow finding a way to emerge from the murk. In most cases, however, top performances are linked to meeting production and other targets, delivering on time, and growing production or forwarding development, and keeping costs under control. Smaller stocks offer the most flexibility, or "leverage", in most of these departments.
Looking at the top ten or so stocks, La Mancha operates three gold mines, with production distributed between Africa and Australia, and is actively developing an advanced project in Australia. Central Sun appears to be the beneficiary of corporate action with B2Gold; Tanami has literally risen from the ashes; so too Golden Odyssey, which has completed a number of financings in recent months. Zhaojin, a Chinese gold miner, reflects not only the good demand for gold stocks, but also the resurgence of Asian mining stocks in general over the past few months.
Greystar ranks for special mention, on the basis of its positive prefeasibility study for Colombia's Angostura project, released on Wednesday. Using a base case gold price of $700/oz in the first three years of operation and $650/oz after that, the study envisions average annual production of 511,000 ounces of gold and 2.3m ounces of silver over a 15 year mine life. The average cash operating costs for life of mine (LOM), excluding by-product credits, is $391/oz.
Start-up capital costs are $638m, with additional sustaining capital of $307m, including the construction of a concentrator. The study envisions the start of construction in 2010, with production commencing in 2012. Greystar carries a dirt-cheap market value of $139m, making it highly improbable that the mine can be developed without a major partner. AngloGold Ashanti lies in the clearest line of sight, as a Tier I global gold producer that has also made a world-class gold discovery in Colombia.
The inclusion of JSC Polymetal among the world's very top performing mining stocks reflects not only the underlying themes of silver (first for Polymetal) and gold, but also the brutal selloff of Russian stocks generally during the latter parts of 2008. The reversal of that sell off has underpinned some spectacular stock price recoveries, seen in the likes of Russian potash miner Uralkali, nearly 300% above its low prices (but also currently 80% off its highs); VorkutauGol, a Russian coal miner, has risen by more than 600% from its low points. Russia's biggest gold name, Polyus, has risen by nearly 400% from its lows.
Novagold is also a very top performer; following the easing of liquidity concerns, on raising $75m and clarifying its joint financing arrangements at the 50:50 Galore Creek project with Teck, which labours under a $12.05bn mountain of debt. There has probably also been increasing recognition of Novagold's 50:50 partner in the massive Donlin Creek project in Alaska, in the form of Barrick, the world's biggest gold miner by production and value.
For some months, Fresnillo, the world's biggest primary silver miner, has ranked as the top performing stock in its subsector, but has recently been solidly taken over by Silverstone, which has now bounced up by more than 400% from its lows. Silverstone reported 2008 silver sales of some 1.7m ounces and by its own forecast this should increase to up to 4.6m "silver equivalent ounces" (which include gold by-product credits) in 2009.
Given more than 1,000 mining stocks listed around the world, there are almost certainly going to be surprise top performers at any given time. While diamonds miners generally rank as the least-wanted mining subsector among listed stocks, Tsodilo Resources, a "penny stock" with interests in Botswana, has put in a spectacular stock price performance.
Similarly, Mano River, with a market value of $15m, and which seeks gold, diamond and iron ore deposits in the West African Mano River Union countries of Sierra Leone, Liberia and Guinea and the Democratic Republic of Congo. Top performing stocks from lesser favoured subsectors include Peregrine Diamonds, Pan Palladium, and Pangea Diamondfields.
Uranium stocks as a class have done well, led by First Uranium. Relative newcomer Niger Uranium disclosed earlier this year that NWT Uranium holds 34% of Niger Uranium, a company formed on 17 July 2007, when UraMin and NWT Uranium vended their Niger uranium properties into Niger Uranium. A month after Niger Uranium was established, Areva, a big uranium miner and integrated energy company, paid $2.5bn for Uramin, where John "Ian" Stalker was CEO.
UraMin was incorporated in 2005 to acquire and develop mineral properties, predominantly uranium in Namibia, the Central African Republic and South Africa. Some investors, no doubt, are trusting that Niger Uranium CEO Stalker can sniff out another uranium elephant. Niger Uranium recently published encouraging drilling results from its Henkries project in South Africa.
There are also top performing mining stocks benefiting from corporate action, real or potential or imagined, as seen in Central Sun Mining. Further names include Kalahari Minerals, which holds 39.8% in Namibian uranium play Extract Resources; mining major Rio Tinto has taken a bite of both companies. Aricom, an iron ore name, has also performed strongly on the back of its proposed business combination with Peter Hambro, which currently ranks as Russia's No 2 gold digger, with 2009 production guidance at 460-510,000 ounces of gold, with one of the lowest cash costs gold worldwide, at $215/oz. In the odd proposed combination, Aricom provides "significant iron ore assets on China's doorstep".
After gold and silver stocks, copper names currently rank as the most popular mining subsector. Here, individual stock price performances have been less impressive than the more general wave of positive price performances. Leading larger copper names include Northern Dynasty, which is 50:50 with Anglo American in the giant Alaskan pebble project. Solid performances in the copper stock space have also come from Pan Australian, Jiangxi Copper, and First Quantum.
In terms of absolute, rather than composite 12-month, stock price performance, there is no question that gold stocks dominate. Current names trading with 10% of 12-month highs include AngloGold Ashanti, Iamgold, Randgold Resources, Eldorado, DRDGold, Int'l Tower Hill, Richmont Mines, Seabridge, Aurizon, Osisko, Semafo, Medusa, and Franco-Nevada, a gold royalty company.
See link above for table |
