Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21
CISCO 2020 Dot com Bubble Stock vs 2021 Bubble Tech Stocks Warning Analysis - 6th Oct 21
Precious Metals Complex Searching for a Bottom - 6th Oct 21
FB, AMZN, NFLX, GOOG, AAPL and FANG+ '5 Waves' Speaks Volumes - 6th Oct 21
Budgies Flying Ability 10 Weeks After wings Clipped, Flight Feathers Cut Grow Back - 6th Oct 21
Why Silver Price Could Crash by 20%! - 5th Oct 21
Will China's Crackdown Send Bitcoin's Price Tumbling? - 5th Oct 21
Natural Gas News: Europe Lacks Supply, So It Turns to Asia - 5th Oct 21
Stock Market Correction: One More Spark to Light the Fire? - 5th Oct 21
Fractal Design Meshify S2, Best PC Case Review, Build Quality, Airflow etc. - 5th Oct 21
Chasing Value with Five More Biotech Stocks for the Long-run - 4th Oct 21
Gold’s Century - While stocks dominated headlines, gold quietly performed - 4th Oct 21
NASDAQ Stock Market Head-n-Shoulders Warns Of Market Weakness – Critical Topping Pattern - 4th Oct 21
US Dollar on plan, attended by the Gold/Silver ratio - 4th Oct 21
Aptorum Group - APM - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 3rd Oct 21
US Close to Hitting the Debt Ceiling: Gold Doesn’t Care - 3rd Oct 21
Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
Original Oculus VR HeadSet Rift Dev Kit v1 Before Facebook Bought Oculus - 3rd Oct 21
Microsoft Stock Valuation 2021 vs 2000 Bubble - Buy Sell or Hold Invest Analysis - 1st Oct 21
How to profit off the Acquisition spree in Fintech Stocks - 1st Oct 21
�� Halloween 2021 TESCO Shopping Before the Next Big Panic Buying! �� - 1st Oct 2
The Guide to Building a Design Portfolio Online - 1st Oct 21
BioDelivery Sciences International - BDSI - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 30th Sep 21
America’s Revolving-Door Politics Behind the Fall of US-Sino Ties - 30th Sep 21
Dovish to Hawkish Fed: Sounds Bearish for Gold - 30th Sep 21
Stock Market Gauntlet to the Fed - 30th Sep 21
Should you include ESG investments in your portfolio? - 30th Sep 21
Takeda - TAK - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 29th Sep 21
Stock Market Wishing Away Inflation - 29th Sep 21
Why Workers Are NOT Returning to Work as Lockdown's End - Wage Slaves Rebellion - 29th Sep 21
UK Fuel PANIC! Fighting at the Petrol Pumps! As Lemmings Create a New Crisis - 29th Sep 21
Gold Could See Tapering as Soon as November! - 29th Sep 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold Stocks Upside Greater than Gold Bullion Price

Commodities / Gold and Silver 2010 Dec 20, 2010 - 03:38 PM GMT

By: The_Gold_Report


Best Financial Markets Analysis ArticleFrequently prospecting for new mining companies in natural resource-rich nations, Rodman & Renshaw Senior Analyst Alka Singh is just back from Argentina. The Gold Report caught up with her to sift through her thoughts on the precious metals industry. Her current objective is to seek out gold and silver producers with growth potential beyond the price appreciation of commodity metals.

The Gold Report: You follow both precious and base metals for Rodman & Renshaw. From the lay investor's perspective, what's the difference? What are the value drivers in precious versus base metals that investors should know?

Alka Singh: That's a great question because a lot of people think that precious metals (PMs), uranium and base metals are all metals and mining. What they don't understand is that there are different drivers for each sector. The supply and demand determine the price of gold, but the gold price also changes based on the fiat currencies. Gold, silver, platinum and palladium are viewed not only as commodities but also as a store of value. As the demand for precious metals (jewelry and ETFs) increases so does the price of these commodities. But as the precious metals are also a store of value, people consider these as good as cash and their prices increase as the U.S. dollar depreciates.

On the other hand, base metals are driven primarily by global economic activity and, particularly, by growth in the BRIC (Brazil, Russia, India and China) economies. Growth in these countries has a great impact on the base metals. To some degree, they are also driven by currency exchange rates. Because all these commodities are priced in U.S. dollars, they tend to appreciate as the dollar depreciates; however, you'll see precious metals appreciate more than base metals just because they are perceived as a store of value.

Investors realize the dollar is depreciating and wonder if they should just buy copper, nickel, zinc or lead. They're frustrated because the dollar keeps depreciating, and they see gold or silver appreciating while base metal prices remain the same. Part of that is because if the U.S. and other economies are not doing well—no buildings, bridges or hybrid cars being built; the demand for copper, nickel, zinc, lead—all of these base metals—actually goes down or stays flat. As governments keep printing more money, precious metals appreciate faster than the base metals when there is lack of economic growth. So, that's the key difference in the value drivers.

TGR: So, precious metals can be thought of as a currency, whereas base metals are simply raw materials.

AS: You got it, yes.

TGR: Alka, are we in an unusual situation where we see growth in the BRIC countries and pretty much worldwide devaluation of every nation's currencies? Have you seen this in the past where both base and precious metals can appreciate at a distinctive rate?

AS: I'm sure there have been situations like this in the past, but today it's more dramatic because every country is trying to out-print the other. China is keeping its currency low, while the U.S. is printing so much money in an effort to keep the dollar down. All I'm saying is the rate of change is different this time. More countries are depreciating their currencies due to slow economic development, which causes precious metals to go higher than base metals.

Back in 2008 during the financial crisis, when most of the world economies weren't doing well, we saw base metal prices going down every day. Gold prices also declined, but not as much and at a slower rate than the base metals.

TGR: What's your forecast for the PM sector in the coming year? Do you expect continued price appreciation in these commodities?

AS: For 2011, I see gold prices at $1,350 an ounce and silver at $28, which is close to where they're right now, but not a big increase. I'm not using higher-than-current prices because I believe, at some point, we'll see the U.S. economy starting to improve and all this quantitative easing (QE) will end. People have QE2 all priced in. While there is a good chance we'll see more QE, its impact shouldn’t be as great—or the quantitative easing wouldn't be as big—if we see the U.S. economy improving with more job creation. I'm keeping my fingers crossed, but I think gold, silver and other precious metals will stay where they are right now.

TGR: But the precious metals equities can be very profitable at these levels.

AS: Oh, of course. I think gold equities are still discounting $1,100–$1,150 gold, but they are not discounting a $1,400 gold price. Once we go into 2011 and see gold prices even at $1,400, the stocks could still go 20%, 30% higher from there.

TGR: So, you see precious metals stocks growing year-over-year based on earnings, not price appreciation in gold or other PMs.

AS: Yes, that is exactly correct. If gold stays at $1,400, I really think you'll see the margins improving next year even if gold prices don't go higher. Equities will perform because the markets will get used to $1,400 gold and not discount the stocks at $1,100 or $1,150, which is what they're doing right now. So it'll be more earnings and cash-flow growth. I cover only gold and some silver companies; I don't yet cover the platinum group metals (PGMs), which include platinum, palladium, rhodium, iridium, osmium and ruthenium. So what I'm telling you is based solely on gold and silver.

TGR: Given the price stability you're forecasting, what are you looking for in gold and silver mining companies now?

AS: Well, I'm looking for growth. That's what I'm looking for. Having this kind of a gold price and being in this kind of a gold-price environment, I think the market is going to pay for ounces in the ground. Investors are going to pay for development projects that a company can bring online over the next two to three years. I expect companies to come out with new projects to get more growth; that's the way they have to grow. They have to lower their cash costs or, at least, keep them constant, but growth must be imminent. Therefore, I think the focus will be more on growth.

TGR: So, this makes management—good management—even more valuable.

AS: Exactly. It does raise the importance of companies' management teams, because they will decide mergers and acquisitions (M&A) activities. Companies that lack a growth pipeline will have problems, as they'll need to make decisions on what to, and what not to, buy. That is going to be very, very important. A good management team with a good understanding of what they should buy at these prices will make the difference.

TGR: Given the characteristics you look for, what companies do you follow that represent potential for growth? What stocks should investors look at now?

AS: I have a few favorite gold and silver names that I don't mind sharing with you. My top pick for 2011 is East Asia Minerals Corporation (TSX.V:EAS). They have one of the best gold deposits in Indonesia. I recently visited the company’s flagship Miwah Gold Project in Indonesia. The company has excellent geologists on the ground and has an equally good project. The company will come out with a maiden resource estimate in late Q1’11 or early Q2’11.

I think that East Asia will be one of the top performing gold stocks in 2011 because the market isn't valuing it fairly because they don’t yet have any 43-101 compliant resources. I think East Asia will outline 5 million ounces (Moz.) of gold at Miwah. Indonesia is a mining-friendly country and has one of the largest gold and copper deposits in the world. The Grasberg Mine, which is 60%-owned by Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) and 40%-owned by Rio Tinto (NYSE:RIO; ASX:RIO), is already in production. However, my top pick is East Asia Minerals, which benefits from its location in a mining-friendly country, a great management team that is run by two great geologists and a very good project, which ultimately will be a 15–20 Moz. gold deposit.

I also like Volta Resources (TSX:VTR), which came out with an NI 43-101-compliant resource estimate of 1.9 Moz. gold for its Kiaka project in Burkina Faso in June of this year. The company is going to come out with an updated resource estimate in mid-2011, which will be closer to 3 Moz. of gold. Burkina Faso is in West Africa and it is a very mining-friendly country. Volta will start a prefeasibility study on its Kiaka project next year. When Volta releases an updated resource estimate of 3 Moz. of gold, investors will start taking the company seriously.

I also like Valley High Ventures Ltd. (TSX.V:VHV) as a value play. The company is currently drilling a Peñasquito look-like project in Mexico. Valley High owns 49% of the project. The operator, Levon Resources Ltd. (TSX.V:LVN; Fkft:L09; OTC:LVNVF), owns 51% and it's trading at over 50%-higher market cap than Valley High. I think that gap will close soon. We believe Valley High shares should be at least 50% higher from their current value. So, East Asia Minerals, Volta and Valley High are my favorite gold names for 2011.

TGR: Interesting companies. Your top pick, East Asia, is up 152% over the past 52 weeks. And, over the same period, Volta is up 500% and Valley High is up 209%.

AS: That is true.

TGR: And you still love these companies?

AS: I still love these companies because they are still undervalued compared to their peer groups. Comparatively, Ventana Gold Corp. (TSX:VEN), which has a similar project in Colombia, just came out with its first resource estimate about three weeks ago. And Ventana's market cap is $1.6 billion versus East Asia's market cap of $600 million. That gap has to close. I don't think Ventana is going down, but East Asia is going up.

Similarly, Volta is still trading at $105/oz. while some of the other companies in West Africa are trading at over $500/oz. And don't forget Red Back Mining, which got taken out by Kinross Gold Corp. (TSX:K; NYSE:KGC) at $670/oz. There's still a lot of upside for these names. It's true, Valley High has gone up 200%; but Levon, its joint venture (JV) partner, is trading at a $183 million market cap versus Valley High's $122 million market cap—and they own the same project. There cannot be this valuation gap between them. They own the exact same project, right? So, I'm very confident that these companies will go up and be the best-performing equities in 2011 because some gold companies have gone up more than 1,000% this year.

TGR: Do you have a favorite silver play?

AS: Yes. My favorite silver companies are Hecla Mining Co. (NYSE:HL) and Golden Minerals Company (TSX:AUM; NYSE.A:AUMN). Golden Minerals is the one I just visited in Argentina, and I think that their El Quevar project is very interesting and has a lot of potential upside. The company's market cap is still under $400 million, and I think it has a long way to go. It is still drilling right now, and all the labs around the world are backlogged. It's already drilled 10 holes on the Carmen prospect and has been waiting for assays for roughly two weeks now. So, the investment thesis on Golden Minerals is this: The Yaxtché zone contains 100% of the company's resources, which is roughly 60.5 Moz. silver. Now based on recent drilling, the geologists on site believe they have two other sub-parallel zones to Yaxtché. One is the Carmen target and the other is Mani (500 m south of Yaxtché). They are parallel to Yaxtché, and if the geologists can prove they are sub-parallel veins to Yaxtché, the resource estimate could even triple. Right now, the company is completing a feasibility study on El Quevar. Once that's reported, we can model the mine very easily. We can build a financial model of the mine that will make us even more confident in the number of ounces, as well as the production and cost numbers. I see the market cap easily doubling once that happens.

TGR: How large can this Yaxtché deposit be?

AS: If the sub-parallel zones are as big as the Yaxtché, about 180 Mozs. of silver. Even if the zones turn out to be smaller, sub-parallel zones, I think Golden Minerals' El Quevar can easily come up with more than 100 Moz of silver.

TGR: You also mentioned Hecla.

AS: Yes, Hecla is the largest silver producer in the U.S. Annually, it produces 10–11 Moz. The funny part is, I picked up Hecla at $1.50 per share just about a year and a half ago. Today, it's a $10.60 stock. So it has already gone up 700%. But there are some other companies that produce much less silver than Hecla, and they're trading at a higher market cap. That includes Silvercorp Metals Inc. (TSX:SVM; NYSE:SVM), which has mines in China and is trading at a much, much larger market cap than Hecla while producing less than half of what Hecla produces. So, I really like Hecla based on a relative valuation; even though it's a large-cap company and the largest U.S. silver producer, I think it will go to my $13.50 target price.

TGR: Hecla is up 69% over the past 52 weeks with a current $2.8 billion market cap. Would you think of that as a more conservative play?

AS: It is a conservative play. It's more conservative because it's a very stable producer. Hecla is a less-risky play because the company’s assets are in the U.S. and are in production. Golden Minerals, on the other hand, is more risky—but the company's growth profile is tremendous. Silver production will grow from 0 ounces to 8 Mozs. in the next four years.

TGR: Alka, it's been a pleasure being with you. Thank you.

AS: Thank you so much.

Alka Singh is a managing director and senior metals & mining analyst at Rodman and Renshaw. Prior to joining Rodman, Ms. Singh was a Merrill Lynch VP covering Canada's metals & mining sector for two years. Before Merrill, she worked as an associate analyst covering gold and base metal companies at Orion Securities. Ms. Singh holds an MBA from Schulich School of Business, York University in Toronto, Canada, and a Bachelor of Science in geology from the University of Delhi in India.

Want to read more exclusive Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Expert Insights page.

1) Brian Sylvester of The Gold Report conducted this interview. He personally and/or his family own the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Gold Report: Timmins.
3) Ian Gordon: I personally and/or my family own shares of the following companies mentioned in this interview:Timmins Gold, Golden Goliath, Millrock and Lincoln. My company, Long Wave Analytics is receiving payment from the following companies mentioned in this interview, for receiving mention on my website, Golden Goliath, Millrock and Lincoln Gold.

The GOLD Report is Copyright © 2010 by Streetwise Inc. All rights are reserved. Streetwise Inc. hereby grants an unrestricted license to use or disseminate this copyrighted material only in whole (and always including this disclaimer), but never in part. The GOLD Report does not render investment advice and does not endorse or recommend the business, products, services or securities of any company mentioned in this report. From time to time, Streetwise Inc. directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in