Click here to load reader
Upload
garic-moran
View
80
Download
1
Embed Size (px)
Citation preview
The last time the S&P 500 out performed Gold Miners (and Gold) by as much as it currently has, Gold miners became the best performing asset class for the next 12 years. At the 2000 credit cycle top, miners became a very
good hedge to long term financial portfolio’s returning 1,000% over the next credit cycle. In 2000 Gold was despised by Wall Street and politicians as much as they are today; indeed, Gordon Brown sold half of Great Britain’s Gold at what is still called the Brown bottom. At the 2008 credit cycle top Gold miners were heavily
owned and were a poor hedge; however, coming off the 2009 bottom the miners were one of the best performing asset classes. U.S. Treasuries proved to be the best hedge in 2008 making all weather funds the toast of the town. With $18T in debt outstanding and priced off of 0% T-Bills, it is not clear that Treasuries represent as good of a
hedge as in the past? Treasuries capital gain potential may be limited, or even worse could correlate with equities going forward. With many miners selling at a fraction of book value, cash flow positive and long life reserves, deep value investors need to at least analyze the sector. A 5% position in the miners at current depressed levels
could prove to be a solid diversification decision to long term financial portfolios.
S&P 500 performance vs. the HUI from summer of ‘00. The HUI returned 1,000% off of the 2000 lows (the last time Gold was as universally dismissed by
Wall Street as it is today)!
The structural set up in the Gold futures markets (swap dealers long, speculators record short) is more bullish than the 2008 bottom at $700 an ounce. On 7/24/2015 Bloomberg reported that Hedge Funds are net short
Gold for the first time since CFTC records have been published. Meanwhile, swap dealers (an important part of commercial positioning) have recently established their largest long positioning on record. The correlation
between hedge fund positioning in Gold futures and the performance of the HUI Gold stock index is unmistakable. When Gold and the HUI peaked in the fall of ‘11 Hedge Funds had their longest net exposure to Gold on record. At the bottom of the financial crisis in “08 Hedge Fund’s exposure to Gold was extremely low as
was the HUI Gold stock index.
While some investor’s agree global demand is deteriorating, global debt is too high and central banks are aggressive, few investors understand that the U.S. demand is also weak. The American Staffing Index
(temporary help) latest reading of -2.9% YOY is at similar readings to the summer of ‘08 and the summer of ’11, warning of volatility ahead. Meanwhile, the temporary help component of the BLS NFP payroll report
was plus 6.4% YOY in the June report. This is an incredibly large divergence and of extreme importance since temp help is considered one of the best leading indicators of employment. Other weak economic indicators
include Business Sales, Retail Sales, Rail Car Loadings, Industrial Production & Corporate Profits; the 2 bright spots currently are housing and healthcare. PCE is at levels consistent with previous recessions.
ASA staffing index currently -2.9 % YOY 7/12/15.
The financial markets are starting to figure this out. The divergence between credit as represented by the High Yield Index and the S&P 500 is as large as it has been at previous major tops in equity markets. Multinational earnings in the S&P 500 have been weak and guidance is weak. With emerging market currencies performing
poorly and commodities in free fall this trend is not likely to change if the Fed aggressively raises interest rates. Indeed, the Federal Reserve has never begun a period of tightening with corporate profits down,
business sales down, industrial production weakening and temporary staffing falling. Any move by the Fed to raise rates may prove to be a mistake not only from an economic perspective but also from a financial perspective. There is no evidence that the U.S. economy will benefit from a higher dollar. While a higher
dollar may continue to effect capital flows globally, it will only accelerate the current emerging trends. Thus, the IMF recommendation to the Fed to hold off on any interest rate increases. With Gold swap dealers going
long the first time in reported history, it is possible they share this view.
Common perception about monetary policy can change very rapidly. The bull market in the ‘80’s was driven by a massive fall in interest rates. Likewise, the current bull market has been driven by a massive increase
in global liquidity as well as Zero Interest Rate Policies. Throughout the year of 1987 bonds sold off as equity prices rallied. By September the divergence between bonds and stocks became quite large. During
September of ‘87 the bond market went into free fall as everyone prepared for Alan Greenspan’s first interest rate increase (back then the Federal Reserve moved the Fed Funds target frequently). Many bond houses
suffered significant losses and reduced liquidity to the market. The perception in the stock market was the economy was very strong (it was) and the economy and the markets could handle any interest rate increase.
Indeed, stocks had outperformed bonds by so much that this young broker moved his 401k from balanced to all equities in September (bad mistake). During September retail sales faltered and the high flying leadership
of the then darling specialty retailers Limited and Gap Stores plummeted. Montgomery Securities suffered enough losses that they stopped trading reducing liquidity to the momentum stock sector. Alan Greenspan did raise rates and one month later bonds had out performed stocks by historical percentages. In the end
the positioning of the crowd was more important than common perception; fortunes changed hands as the common perception of how the market would handle the first interest rate increase was wrong.
“The time to buy is when there’s blood in the streets.”The HUI index is currently down 30% YTD and 82% off of it’s 2011 top. Meanwhile, miners have acted prudently to cut capital spending, streamline operations and are benefiting from plunging mining and energy costs. Many
miners are discounting bankruptcy even though they have positive net cash and or positive cash flow! Many experts predict that mine production has peaked since there has been very few high grade finds, almost no mine
construction and high cost mines are being closed.
(A major lesson to all investor’s should be learned from the recent carnage in the Mining ETF’s. ETF investor’s do not know what they own! This writer believes there is an opportunity developing for research oriented investors in paired trades inside ETF’s. My personal mining holdings have significantly outperformed
the index, because I do know what I own!)
Newmont Mining Corp. (NYSE: NEM), one of the world’s largest gold producers, Wednesday reported that adjusted earnings in the second quarter ROSE from a year ago as lower operating costs and the impact of foreign-exchange rates more than the offset lower prices received for metals. Adjusted net income was $131 million, or 26 cents per share, compared to $101 million, or 20 cents, in the second quarter of 2014, Newmont reported after the stock market closed. The all-in sustaining cost (AISC) fell to $909 per ounce of gold compared with $1,063 per ounce in the prior-year quarter, while the copper AISC fell to $1.61 per pound compared to $3.69 per pound. The cost applicable to sales (CAS) for gold was $638 per ounce, compared with $744 per ounce in the prior-year quarter. The comparable figure for copper was $1.20 per pound, compared to $2.53 in the second quarter of 2013, Newmont said.
“Favorable oil prices and exchange rates largely offset the impacts of lower metal prices,” said Gary Goldberg, president and chief executive officer. “Based on this performance, we are improving our full-year outlook for both production and costs. “We also strengthened our portfolio with the accretive acquisition of the Cripple Creek & Victor (CC&V) mine, while also continuing to divest certain non-core assets. Further, our strong operating performance allowed us to pay down an additional $75 million in debt and return cash to shareholders.”
Gold production totaled 1.24 million ounces for the April-June period, compared to 1.22 million in the second quarter of 2014, Newmont said. Copper output rose to 41,000 metric tons from 20,000.Attributable gold production is expected to increase 3% from previous guidance to between 4.7 million and 5.1 million ounces in 2015, with the outlook for further gains to between 5.2 million and 5.5 million ounces by 2017. In 2015, the higher outlook is primarily due to the inclusion of CC&V as well as improved productivity and mill utilization at Tanami and higher production at Batu Hijau, Newmont said. The acquisition of CC&V is expected to close in early August. The company projected AISC of between $920 and $980 per ounce for this year, and CAS of between $630 and $680 per ounce.
The average net realized gold and copper prices were $1,179 per ounce and $2.41 per pound, respectively, compared with $1,283 per ounce and $3.01 per pound, respectively, in the prior-year quarter. Revenue totaled $1.9 billion, up from $1.8 billion in the second quarter of 2014, primarily due to higher copper production and sales at Batu Hijau that helped offset lower metal prices and asset sales, Newmont said. During the second quarter of 2015, Batu Hijau mined higher-grade ore and operated and shipped at full capacity. Cash flow from continuing operations was $441 million in the second quarter, up from $378 in the same period a year ago. Free cash flow was $119 million, slightly below $124 million in the prior-year quarter. Capital expenditures for the second quarter were $322 million, including $170 million of sustaining capital.
Why SEMAFO’s Weak Stock Performance Is An Opportunity In Disguise
One of my 4 West African holdings all of which are performing well financially, I could not have written a better summation and agree with this author:
http://seekingalpha.com/article/3322455-why-semafos-weak-stock-performance-is-an-opportunity-in-disguise
Summary
• SEMFF is rapidly improving its production and reducing costs, achieving more than 50% reduction in AISC last quarter. • SEMFF’s should improve its performance further as it has replaced the shell of its semi autogenous grind-ing mill at the Mana mine, which will lead to higher ore processing. • SEMFF’s Orbis acquisition has strengthened its production profile further as low all-in sustaining costs, indicating a better margin performance going forward. • SEMFF carries low leverage on its balance sheet, while its operating cash flow has improved rapidly in the past year, indicating robust fundamentals.
Gold miner SEMAFO (OTCPK:SEMFF) has lost nearly 45% of its market capitalization in the past one year on account of weak gold pricing. But, in my opinion, this massive decline in its stock price is an opportunity in dis-guise for investors since SEMAFO’s financial performance is improving at a fast clip, driven by higher production and lower all-in sustaining costs. Additionally, the company has a robust balance sheet with low leverage, which will be another positive for the stock price in the long run.
In this article, we will take a closer look at the reasons why investors should consider capitalizing on SEMAFO’s weak stock price performance in the past year by buying more shares. An improving cost and production pro-file will be a tailwind In the last reported quarter, SEMAFO’s average realized price of gold fell around 6% on an year-over-year basis. But, an 86% year-over-year growth in gold production, coupled with lower fuel prices, pos-itively impacted its financial performance. In fact, due to higher production and lower costs, SEMAFO’s revenue nearly doubled to $74 million, while adjusted earnings rose to $0.03 per share as compared to a loss of $0.04 per share in the same period last year.
Apart from a decline in fuel prices, a key factor behind the improvement in SEMAFO’s bottom line was a rapid fall in its all-in sustaining costs. In fact, the company’s all-in sustaining cost per ounce sold more than halved to $646 as compared to $1,410 last year. For 2015, SEMAFO expects its cost profile to improve further on the back of production growth and cost reductions, as shown in the chart below.
Garic
's Mini
ng Un
iverse
*this i
s not
a soli
citati
on to
buy o
r sell
secu
rities
since
Garic
is no
t regis
tered
; this i
s sim
ply pr
ovide
d for
inform
ation
al pu
rposes
.
Comp
any (
U.S. o
r CAN
)Pri
ce (U
.S.)
Enter
prise
Value
(MM)
Cash
(MM)
Debt
(MM)
All In
Cost
Reso
urces
(MM
OZ)
Produ
ction
EV
to Pr
oEV
/Res
Price
to Bo
okOF
F ATH
Off 5
2 WK
Agnic
o Eag
le (AE
M)23
.886,1
9816
613
7894
139
1,600
,000
3.52
14.45
%1.1
372
%43
%Ala
mos (
AGI)
3.32
816
403
313
1050
19.7
400,0
001.8
63.7
7%0.4
283
%70
%Arg
onau
t Gold
(AR)
0.95
107
445
883
15.5
140,0
000.7
00.6
3%0.1
591
%84
%AT
AC Re
sourc
es (AT
C)0.2
7516
190
Exp
Exp
Exp
Exp
Exp
0.34
97%
83%
B2 Go
ld (BT
G)1.1
61,3
9812
838
398
520
.952
0,000
2.44
6.08%
0.58
67%
67%
Ende
avor
Gold
(EDV)
0.36
386
3226
094
68.9
500,0
000.7
03.9
4%0.2
488
%60
%Fir
st Ma
jestic
Silve
r (AG)
3.59
417
500
13.88
395
16,20
0,000
1.74
7.15%
0.63
87%
71%
Goldc
orp (G
G)13
.2814
,031
420
3442
900
108
3,400
,000
3.75
11.81
%0.5
176
%54
%Go
ldfiel
ds (G
FI)2.9
23,7
6344
419
4410
7418
12,2
00,00
01.5
51.8
9%0.7
584
%35
%I A
m Go
ld (IA
G)1.3
829
288
963
611
1328
.479
0,000
0.34
0.94%
0.20
94%
68%
Kirkla
nd La
ke (K
GI)3.4
936
180
120
1070
4.516
0,000
2.05
7.29%
0.94
83%
37%
Lakesh
ore (L
SG)
0.897
410
7796
810
5.217
5,000
2.13
7.17%
0.82
78%
28%
Mc Ew
en M
ining
(MUX
)0.7
820
533
011
2515
145,0
001.2
81.2
4%0.5
291
%78
%Ne
w Go
ld (N
GD)
2.19
1,716
365
876
876
4560
0,000
2.60
3.47%
0.50
85%
67%
Newm
ont (N
EM)
17.8
13,77
717
7866
7399
517
45,2
00,00
02.4
17.2
0%0.8
775
%35
%Pa
n Ame
rican
Silve
r (PAA
S)6.4
474
829
265
14.25
1866
38,60
0,000
1.31
2.72%
0.49
59%
28%
Perse
us (PR
U)0.2
541
930
1100
8.420
0,000
0.18
0.44%
0.24
94%
50%
Seab
ridge
(SA)
3.55
163
250
Dev
114
Dev
Dev
0.13%
0.89
91%
69%
Sema
fo (SM
F)2.1
159
111
590
730
8.726
0,000
2.07
6.18%
0.88
85%
57%
Silve
r Cres
t (SVL
)0.7
374
3515
12.5
186
4,900
,000
1.03
2.71%
0.49
76%
74%
Silve
r Stan
dard
(SSRI)
5.58
434
295
204
14.6
1467
23,90
0,000
1.23
2.01%
0.60
85%
53%
Teren
ga (T
GZ)
0.425
121
390
1075
8.422
0,000
0.50
1.31%
0.25
86%
61%
Timmi
ns Go
ld (TM
M)0.3
2287
2510
1162
6.412
0,000
0.66
1.24%
0.21
90%
83%
Yama
na (A
UY)
2.05
3,452
360
2000
830
501,4
50,00
02.1
66.2
8%0.3
190
%77
%