Morning, Claude. I would appreciate your comments about the value of proven and probable reserves in the ground.
see reference below. Thanks to Rod Steel on RB for the tip.
Doody was quoted as saying that some are up around $400 per ounce. Note that he says this is equivalent to gold at over $500 and ounce. But, then he proceeds to say Iamgold at near $200 an ounce needs to catch up.
What is your current thinking on value of gold in the ground in terms of proven and probable reserves, at today's gold price of say $370? What would your numbers be at $500 gold? The numbers quoted in the article are way higher than the $25 I heard from some posters just a few months ago. And, is it appropriate to use probable reserves? I thought you should only use proven reserves?
TIA,
gerald
By Thom Calandra, CBS.MarketWatch.com
Last Update: 10:55 AM ET Feb. 5, 2003
SAN FRANCISCO (CBS.MW) - Financial markets are exhibiting serious signs of stress.
...............................
......................On the gold front
As the price of gold posts six-year highs, some wonder why gold-mining stocks as a group have yet to notch new highs.
In part, Wall Street shares the blame - for repeatedly downgrading mining stocks based solely on their rising prices. Wall Street, as Bernie Schaeffer of Schaeffer's Investment Research points out, has downgraded shares of Canada's Goldcorp (GG: news, chart, profile), perhaps the most profitable gold miner in the world, at least four times since December.
The hedging challenge hits another sour note. Some of the largest producers, namely Barrick Gold (ABX: news, chart, profile) and Placer Dome (PDG: news, chart, profile), have hedged their future success by selling forward part of their production. The practice, in which producers sell tons of gold to investment banks at slightly higher prices for future delivery, allows miners to reap more profits when gold prices are falling.
When gold prices are rising, as they have been for almost two years, hedged producers put their balance sheets at risk. John C. Doody, editor of Gold Stock Analyst, estimates Barrick's hedge-book alone may be $1 billion "negative" if gold's price stays where it is or goes higher.
Doody says Barrick's earning release and conference call on Feb. 13 "should be interesting." Shareholders surely will want to know why they own a stock that is trailing the returns of its peer group, as measured by the Philadelphia Gold & Silver Index, by almost 25 percent in the past 12 months.
The antithesis of hedged producer is Goldcorp's top executive, Robert McEwen. He considers gold a form of currency. McEwen hoards as much as 10 percent of the company's production from its lucrative Red Lake Mine in Canada - a mine that produced 140,000 ounces of gold in the most recently reported quarter at a cash cost of $63 per ounce. The gold price Wednesday morning, before the Colin Powell presentation at the United Nations, was $382.
Doody, editor of Gold Stock Analyst and one of the very few bullion researchers with consistently profitable findings, says there's more to the gold-stock story than meets the eye. Many of the mid-tier miners, those producing half-a-million or so ounces of bullion a year, are enjoying share prices just 10 percent below their all-time highs. Goldcorp, whose New York Stock Exchange-listed shares sport a $2.4 billion market worth, has seen its shares quadruple in the past 24 months.
"The intermediates, in my opinion, need the gold price to catch up with them," says Doody, who measures the worth of a gold company based on ounces it expects to pull from the ground, estimated reserves and special situations. "They now trade as though gold is over $500 an ounce. Priced for perfection, they are all vulnerable."
All except one, says Doody. "Iamgold (IAG: news, chart, profile) deserves to be in the club -- to catch up to the four amigos, Goldcorp, Glamis Gold (GLG: news, chart, profile), Agnico-Eagle Mines (AEM: news, chart, profile) and Meridian Gold (MDG: news, chart, profile)," he says, using metrics that measure both production of actual ounces and proven and probable gold reserves.
"The four members of this group have seen their stock prices bid up to the point where, on average, the market values an ounce of their proven and probable reserves at $434 and an ounce of their production at $4,817," Doody says.
Iamgold, which produces in western Africa's Mali and in Ghana, sports a $410 million market worth on its freshly listed AMEX shares. The market values the Canadian company's proven and probable reserves at just $211 an ounce and its actual produced gold at $1,573 an ounce, Doody says.
Doody sees Iamgold's shares going as high as $12.82, or more than double their $5.25 price. "Based on market-cap-per-ounce valuations, Iamgold will double from here, in my opinion," says Doody, whose forecasts over two decades of gold reporting rank among the most prescient in the mining business. |
