3 Top Stocks for Gold

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    Gold Rush 2010:3 Top Stocks for Gold +$1,000

    Gold Rush 2010:3 Top Stocks

    for Gold +$1,000

    By Ian Wyatt, Chief Investment Strategist, Jason Cimpl,

    Equities Research Analyst

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    Fellow Investor,

    Since gold is a value store, it will inversely track the value of the dollar. In other

    words, as the US dollar loses value, the price of gold in dollars rises.

    There will be exceptions to this rule. Gold prices dropped along with everythingelse during the height of the financial crisis in Fall 2008, as we can see from thischart of the price of spot gold over the past two years.

    It should be noted, however, that the price of gold recovered along with the valueof the dollar as investors around the world turned to safe haven investments inlat 2008 and early 2009.

    The more natural relationship between the US dollar and gold resumed when thestocks began to rally on March 10, 2009. The reason for this is also pretty simple stocks began to rally as investors became more confident that governmentstimulus actions had averted a complete financial meltdown and also set the

    stage for the US economy to actually start to recover from recession. And aseconomic data improved, and more money was raised through Treasury auctions,the dollar resumed its slide and gold got stronger.

    The Next Move for the Dollar and Gold

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    To recap the recent action, youll recall that gold started its next move up in lateAugust as the US dollar began to slide downward against most other majorcurrencies.

    The initial moves, followed by consolidation and then another leg up indicate that

    nows the time to consider entering a gold stock

    Well, my answer is simple why invest when you believe the next move for theasset will have you showing a loss?

    I take my responsibility to W y a t t In v e s t m e n t R e se a r ch members seriously. Iam as committed to finding profitable investments for you as I am to keeping youout of losing ones. So while it seemed evident to me during the summer that itwas NOT the time to buy gold, I believe now is the time

    Here is an up-to-date chart of the US Dollar Index. The bounce off of 76 is clear.And the next move should be equally clear the US Dollar Index might rally to76, but a further drop to 74 or even 72 looks all but assured.

    Now is the Time for Go ld Stocks

    Yes, now is the time to buy gold stocks. But not just any gold stocks. For instance,I wont be recommending the Gold Trust ETF (GLD). Because while we couldcapture a decent move in the price of gold, I want to buy something that willmove more than the price of gold.

    Now, that doesnt mean Im going to recommend options or some kind of exoticleveraged asset. Fact is, gold mining companies are leveraged to the price of gold.

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    Once a miners fixed costs are met, the rest is gravy. And when the price of gold isrising, you get exponentially more gravy.

    So with my compliments, please enjoy new research on three great gold miners.

    Best Regards,

    Ian WyattChief Investment StrategistW y a t t In v e s t m e n t R e s ea r ch

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    Jagua r Mining (NYSE:JAG) PORTFOLIO ADDITIONConcord, NHRating: BuyPrice Target: $11.75

    52-week low/high: $1.85/$12.14Market Cap: $685 million

    Headquartered in New Hampshire, of all places, the companys mines areactually located in Brazil. Jaguar owns three operating mines with another underdevelopment within the Iron Quadrangle, a greenstone belt region (geologicalzones that often contain various ore deposits including gold) that has producedsignificant quantities of gold for centuries.

    The location of Jaguars assets in the politically stable Brazil is a big plus for thecompany, as its not likely to suffer from political unrest that could result indisastrous disruptions to operations. Additionally, the location of its propertiesclose to Belo Horizonte, a large city of 4 million people considered to be themining capital of Brazil, presents logistic efficiencies for the companynone of

    its four mines are more than 90 miles away from the city.

    Jaguars largest mine is Turmalina, an underground operation that commencedproduction in early 2007. The mine yielded about 73,000 ounces of gold lastyear, and should eclipse at least 75,000 ounces this year. Through expansion andexploration efforts in the area, Jaguar hopes to more than double that productionto as much as 185,000 ounces per year by 2013. Through the first half of 2009,cash costs at the mine were $377 an ounce.

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    Pacincia, the companys second underground mine, only began production lastyear but is expected to yield about 70,000 ounces this year. Looking ahead,production is projected to exceed 230,000 ounces per year by 2013. Cash costsstood at $490 per ounce through June, but costs are expected to significantly

    decline in the second half of the year to $400 an ounce as the mines feed gradethe ratio of gold to mined oreimprove. Over the next five years, Jaguar projectsextraction costs at the mine to stabilize between $425 and $470 an ounce.

    The companys third operation is an above-ground mine named Sabar. Thismine is small in comparison to the other two, with production expected to beabout 15,000 ounces this year. Cash costs currently exceed $600 per ounce atthis project as a result of low grade ore. Adding to difficulties, the mine was notoperational in the first quarter due to heavy seasonal rainfall. Jaguar is currentlyreviewing operations and may end up divesting this property before the end of2010. The mine is such a small part of Jaguars operations (only 10 percent oftotal production this year) that its divestiture wont have a significant impact onthe company one way or another. And Jaguars Caet project now underconstruction will pick up the slack, and then some.

    Construction is on schedule at the Caet project with production targeted for late2010. The mine is expected to produce about 100,000 ounces in its first full yearof operation in 2011 and increase to 230,000 ounces in 2014. Current companyprojections call for cash costs to be below $300 per ounce, which would make itone of the lowest-cost mines in the industry.

    In addition to the above projects, Jaguar is engaged in several exploration efforts.It entered into a joint venture agreement with Xstrata, the Anglo-Swiss mining

    giant to explore a site in northeastern Brazil. Preliminary study suggestssignificant gold mineralization in the area. Jaguar is also drilling holes at selectedzones on land that it owns near its existing mines in search of additional deposits.The Iron Quadrangle remains relatively under-explored compared to othergreenstone belts around the world, and major new discoveries are not out of thequestion.

    After acquiring its properties from senior miners, Jaguar is just now beginning tohit its stride as all its mines swing into full production. Production in the secondquarter jumped by 24% sequentially, and output for the year is expected to bebetween 165,000 to 175,000 ounces, an approximate 48% improvement over last

    year. At the end of 2008, the company has nearly 2 million ounces of proven andprobable gold reserves and more than 3.5 million ounces of measured andindicated gold resources. Excluding the Sabar project, management is looking toincrease its reserves by close to 100% and ramp up production to 600,000 to700,000 ounces annually by the end of 2014a fantastic compound annual growrate of about 33% since 2008.

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    While we would like to see a reduction of Jaguars cost levels from the current$466 per ounce that it averaged through the first half of 2009, theres no denyingthat the company has barely scratched the surface of its potential. Theres roomfor further expansion of its existing projects, and its exploration efforts look

    promising. Furthermore, the company has an excellent cash position. At the endof the second quarter, it had $79 million on hand and no debt due until 2012.This gives the company leeway to invest aggressively in organic growth andpossibly acquire additional assets.

    The stock sold off recently after the company was oversubscribed on a convertiblenote offering that netted $159.1 million which the company is using to reduce itsinterest expense and for an as yet unnamed acquisition. Investors in the commonstock were concerned that if the notes were fully converted it would result in a 16percent dilution in the companys shares. The move is a smart one, however, as itwill substantially lower the rate on its debt (from 10.5 percent to 4.5 percent),thereby improving its cash flow.

    We estimate Jaguar will earn $0.51 per share on $126 million in revenues for2009. With production increasing and gold prices rising it is reasonable toproject 2010 total revenues of $170 million on EPS of $0.76. These estimates areheavily reliant on gold prices and are subject to change should spot gold pricesdecline. That said, given the above growth, shares of Jaguar are fairly valued at$11.75, which results in a PE of 23 and price to sales of 5.5 using our 2009financial estimates.

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    Compan ia de Minas Buenaventur a (NYSE:BVN)Lima, PeruPrice Target: $3752-week low/high: $9/$35.08

    Market Cap: $8.5 billion

    Lima, Peru-based Compania de Minas Buenaventura (BVN) is a diversified

    mining company that so far has flown under the radar for most investors, but itslikely to become a familiar name in the years ahead. Peru, which has a stable,pro-U.S. government, is the worlds third-largest producer of copper, zinc andtin, the biggest miner of silver and the fifth-largest of gold. And Buenaventurahas the good fortune to be involved in each of these important markets.

    First and foremost Buenaventura is a precious metals play, ranking as one of theworlds top producers. This year, roughly 57 percent of the companys estimated$740 million in revenue will come from gold; another 13 percent from silver. Itderives the balance of its sales primarily from copper and zinc.

    The companys gold reserves currently stand at 11.9 million ounces, along withmore than 85 million ounces of silver. Of those reserves, production of 1.28million ounces of gold and 18 million ounces of silver are on tap for this year,none of which is hedged, giving the company leverage to rising prices.

    Not only is Buenaventura a low-cost producer, mining gold at an average cashcost of less than $350 an ounce and copper at 85 cents a pound, it also has plentyof room to expand operations. In addition to working with Newmont, the

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    company is participating in several mining exploration projects with Minera ABXExploraciones, Barrick Gold, Gold Fields and Southern Copper.

    The company should earn around $1.96 a share for 2009, using conservative

    assumptions for gold of $900 an ounce and copper of $1.75 a pound. Looking outover the next five years, those profits should climb at an annual rate in excess of20 percent. Financially, the company is quite strong, with a debt load thats a verymanageable $327 million and easily serviced by cash flow.

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    Randgold Resour ces (Nasdaq:GOLD)South AfricaPrice Target: $82.5052-week low/high: $22.28/$76.08

    Market Cap: $5.6 billion

    Gold miners are increasingly scouring remote regions of the globe for lode

    bearing rock or ore bodies suitable for profitable heap leaching. One companythat has achieved a good deal of success in this endeavor and which has a brightfuture is Randgold Resour ces (GOLD).

    This gold mining and exploration company was incorporated in 1995 and isheadquartered in the Channel Islands, of all places. It has two operating mines inMali (Morila and Loulo), another mine in Cote DIvoire (Tongon) thatsscheduled to begin production in 2010, and a portfolio of exploration projects inWest and East Africa.

    Randgolds assets include about 11.5 million ounces of gold reserves (proven and

    probable) and about 18 million ounces in gold resources (potential reserves thathavent been fully drilled or explored), of which 8 million ounces of gold reservesand 14 million ounces of gold resources are attributable to Randgold due topartial ownership.

    As a pure gold player, Randgold is leveraged to what we see as a strong goldmarket for the upcoming years. World gold production has been in decline for thelast seven years and by some estimates is forecasted to decline by an average of 3

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    percent per year over the next five years. But Randgold is operating on largelyuntrampled ground in West Africa; its average annual production growth for thenext three years is projected to be north of 20 percent as it continues to expandoperations. Randgold expects its share of the gold production to exceed 750,000

    by 2011, up from about 425,000 ounces in 2008. This strong production growthat a time when the industrys yield is declining should make the stock stand abovethe crowd in the coming years.

    The company has a healthy balance sheet with a strong cash position and verylittle debt. At the end of June 2009, Randgold had about $220 million in cashand cash equivalents and less than $1 million in debt, giving it plenty of capital todeliver growth of production and the development of its various projects. So farthe company has grown organically, but acquiring smaller miners in distress is afuture possibility, too, given its strong cash position.

    For 2008 Randgold had earnings of $0.54 per share, in line with most estimates.Its cash costs was about $460 per ounce, but with low energy costs for 2009, itscash cost is expected to decrease to about $447 per ounce this year. This year theRandgold is expected to earn $1.04 on $421 million in revenue. Next yearanalysts are looking for EPS of $1.89 on a 32% increase in revenues to $550million. With a market cap of about $5.6 billion, Randgold is still a mid-tieredgold miner, but we think its on its way to becoming a major player.

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