Digging for Gold

By Travis Johnson, Stock Gumshoe, February 9, 2009

I’ve just opened up some small positions in a couple gold miners that have been teased a bit of late — Minefinders and Hill End Gold, both touted within the last couple weeks.

This remains a small part of my portfolio, and I consider it to be the speculative end of the “inflation fear” part of my holdings, along with a small amount of physical gold and a couple other commodity-related companies.

Both Minefinders and Hill End Gold are small and speculative, though the latter far more so (MFN has a market cap of about $230 million, Hill End of less than $50 million).  Both are also, however, in the very early stages of actual mining — they have promising mines that have begun to produce gold, which is a nice way of saying that they’re slightly less risky than similarly sized exploration companies that are not yet ready to produce gold. Hill End is focused on starting with a small, high grade operation that can be almost instantly cash flow positive, Minefinders is working on a much larger project that could potentially bring more complications, but also might allow for decades of profitable gold and silver production.

The last mining stock I owned was also a gold miner, Centamin Egypt.  I sold those shares last Summer when gold was at a considerably lower price and the shares of that firm were a hair below a dollar (they’re down to around 70 cents at the moment.  Centamin remains of interest to me, and as of their last announcement they say they’re still on target for gold production in the second quarter of this year, but I haven’t yet decided if I want to again make them a part of my small gold-related holdings.

Minefinders is primarily valued on the potential production of their massive Dolores mine in Mexico, and Hill End Gold, a significantly smaller company, is valued primarily on their nugget-rich holdings in southern Australia.  I will admit that part of my interest in these companies is political — I am not particularly worried about Mexico or Australia, countries with established mining industries and reasonable policies for mining companies.  Centamin Egypt requires a bit more of a margin of safety, in my opinion, simply due to their location — Egypt does not have a modern history of working with gold miners, and I think the potential for significant ...

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