There are going to be a few folks who are frustrated with the navigator of the good ship Gumshoe today, because we’re again looking at an Australian newsletter teaser — and I’m guessing the stock will be tough to trade for US investors, if our past reveals of Diggers and Drillers picks are any indication. But we’ve got a lot of beloved readers Down Under, so bear with me if you’re sick of hearing about stocks from the lucky country.
Today we’re following up on the other picks teased by Alex Cowie in his recent ad for Diggers and Drillers — the first one was a potash explorer that’s Australia-listed but is actually trying to develop a resource in Utah, but he also teased a gold company and a silver company. So what are they?
The headline of this article comes from Cowie’s tease, saying that this is the one to buy if you buy only one gold stock this year — and he thinks it will at least double in 2012. Here are the clues:
“Firstly, its deposit has a very high grade at 12.5 grams per tonne. It’s unusual for any company to get gold deposits with grades in the double figures. Most gold miners are very happy to be looking at 3 grams per tonne.
“But this stock’s high grade means it can get away with mining and processing less ore. And that massively reduces its operating costs making its profit margins bigger.
“Secondly, as well as the gold, it also has 161 grams of silver per tonne. This silver grade would give most silver producers a run for their money on its own! But to have this high-grade silver ALONGSIDE the high-grade gold is a real bonus.
“The result? This stock’s production costs are 75% less than the average gold mine, making it the lowest operating cost gold producer on the Aussie market right now.”
Hoodat? Well, we toss it into the ol’ Thinkolator, turn it upside down to make sure we can get the right Aussie spin on things, and our result comes tumbling out the other end: This is Kingsrose Mining (KRM in Australia, no US pink sheets listing).
Kingsose is a small, profitable, producing gold and silver miner — they have two projects, a tailings pile in Sardinia and a high-grade gold and silver mine in Sumatra called Way Linggo. Way Linggo is producing now, and they’re targeting 45,000 ounces of gold and 500,000 ounces of silver per year and believe they can significantly ramp that up with processing improvements to handle the newest high-grade discoveries they’ve made. This is an underground high-grade mine, they’re targeting pretty narrow seams of very high gold concentration (that’s where the 12.5 grams/ton number comes in), and they have a high silver production so their effective net operating cost for gold production is very low if you include those silver byproduct “credits” (ie, you pretend you’re a gold miner, not a silver miner, so you net out silver sales before calculating the production cost per ounce of gold).
Interesting company, to be sure — they’re small but have a few analysts covering the stock in addition to Cowie’s coverage, you can see some of the (positive, of course) analyst reports on Kingsrose’s website. According to Yahoo Finance the forward PE on these shares is under eight, which is quite cheap — they started producing recently, so the trailing PE is quite a bit higher in the low-30s, but obviously all those estimates rely on whatever gold and silver prices are going to be over the next year.
I don’t know anything about this particular part of Indonesia in terms of political or mining risk (they’re in South Sumatra, which I think has historically been more of an agricultural area, but Indonesia overall certainly has its share of large mining projects). They seem to have a joint venture there (they own 85% of the project) and the project has been under long-term development with renewing permits, so I don’t imagine it’s particularly a concern. They don’t have any debt to worry about, and they don’t seem to be hedged, so this looks like a pretty pure play on low-cost gold and silver.
(Do note that low cost gold and silver producers enjoy some additional stability, but they also don’t get the same boost from risin