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Gold/Mining/Energy : Strictly: Drilling and oil-field services -- Ignore unavailable to you. Want to Upgrade?

To: isopatch who wrote (90516)	5/2/2001 8:30:04 AM
From: Arik T.G.	Respond to of 95453

Thanks, isopatch. What I meant in leverage is if production cost is relatively high, and therefore the leverage on any rise (or fall) in POG is big, since current results reflect low margin. I see this is not quite the case with Glamis <quote from their Q1 report> Glamis produced 49,089 ounces of gold at an average total cash cost of $174 per ounce during the quarter <end quote> That's mediocre cash cost, giving them almost 50% gross margin. My favorite, NEM, had similar cash cost: In 2000 an average total cash cost of $171, down from $175 in '99, and they expect 2001 cash cost to rise to $180-184/oz. So in this respect they have medium leverage. They're not hedged (and take pride in that) but balance sheet financial leverage is 2.3. On their $2.16B total debt they pay net only $20M quarterly interest expenses. I think they have great exposure to POG, and they say so themselves: for a $10 rise in POG they expect a $50M rise in cashflow and $30M rise in net income. Looks like ~$270 is their break even point. At $300 they'll make $100M net and a massive $600M cash flow from operations. I think current valuation ($3.7B) is rich for POG $265/oz but is cheap for $300/oz. Looks like gold miners valuation already includes a little rise in POG ATG