Mining Stocks Hit New Highs

In our May 4th commentary, we told our readers that precious metals and mining stocks were due for a “breakout” and we were right on target. Yesterday, the price of gold and RBY climbed to $ 940 and $ 2.20+ respectively. Traders of RBY made in excess of 40% profits in a little more than 2 weeks. These fantastic results are a culmination of our continued efforts to improve our timing of price reversals.

This week, RBY and other mining stocks have set new 52-week highs. Unfortunately for gold traders, the vision of once again re-visiting that $ 1000 mark will have to wait–at least for now. Nonetheless, charts suggest gold will continue to climb over the long term, so we’ll have to wait until profit-taking subsides. Besides, the US Dollar Index is in “oversold” territory suggesting that a quick reversal is imminent.

The World’s Cheapest Gold

If you’re looking for cheap gold, look no further than our selected mining companies for a 55 to 80% discount off the current market price of gold. Yes, even with rising energy costs and the recent credit crunch, there are still some miners out there–both majors and juniors–that have been able to and will continue to squeeze out gold at total cash costs under $ 400 per ounce. Considering that analysts estimate that the industry average cash cost is about $ 600 per ounce, the following companies are doing rather well:

Gold Resource Corporation (GORO)

In its early stages of production, Gold Resource Corp is targeting an astonishing $100 in total cash costs per ounce of gold for 2009. Its resources are primarily situated in the prolific San Jose de Gracia of southern Mexico and includes El Aguila, El Aire, and La Arista mine which include significant high-grade gold zones. Production at El Aguila is due to begin later this year with 70,000 oz. of gold expected.

El Dorado Gold Corporation (EGO)

Last year, El Dorado produced over 300,000 ounces of gold at $ 257 per ounce. Most recently, the company’s reported total cash costs for the Q1 2009 remained low at $ 315 per ounce. The company projects total costs to average near $ 300 per ounce for the remainder of 2009.

Goldcorp (GG)

The world’s largest gold mining company prides itself on mining gold less expensively than any other major (Tier I) gold producer. Last year, the company produced a record amount of gold at an average cash cost of just $ 305 per ounce. Along with analysts’ estimates, cash costs increased slightly in 2009 to $ 353.

Agnico-Eagle Mines (AEM)

Agnico-Eagle has considerably reduced total cash costs from $ 399 in the first quarter of 2008 to $ 325 for the first quarter of 2009. The company has, however, revised previous production estimates and now expects costs to average $ 340 per ounce of gold this year.

Rusoro Mining (RMLFF)

At $ 315 per ounce of gold in the first quarter of 2009, Rusoro reported record production and declining cash costs through its Venezuelan Choco 10 mill. Last year, cash costs averaged about $ 360 per ounce with higher production and lower costs having occurred in the fourth quarter 2008. The company projects 2009 cash costs to follow a similar range between $ 315 – $ 375 per ounce.

Minera Andes (MNEAF)

Minera Andes recently announced first quarter cash costs of $ 357 per ounce of gold at its 49%-owned San Jose, Chile mine. This represents a 21% decline from 2008’s average cash cost of $ 375 per ounce. We expect costs to remain in the $ 350 to $ 375 range.

Yamana Gold (AUY)

After a tough third quarter 2008, Yamana has recently been able to increase production while lowering cash costs. At $ 384 per ounce of gold in 2008 and just $ 379 in the first quarter of 2009, Yamana is reaffirming itself as a low-cost producer. Based on trends, the company is targeting even lower cash costs.

Aurizon Mines (AZK)

First quarter 2009 results from its Casa Berardi, Quebec mine indicated total cash costs of $ 379 per ounce of gold. This represents a 10% decline from the first quarter 2008 and an 11% decline from the previous quarter. The company is targeting an average cost of $ 390 per ounce.

Northgate Minerals (NXG)

Although its first quarter total cash costs were considerably higher than last year’s, they are still 20% lower than expectations. At $ 392 per ounce of gold, Northgate has managed to increase production by over 20% and has yielded significant drilling results at its Young-Davidson, Ontario mine.

* The term “cash costs” represents “total cash costs” represent an unstandardized, non-GAAP measure as defined by the Gold Institute and takes the following costs into account: operating, administrative, inventory adjustment, processing, fees, transportation, taxes and royalties. All cash costs are priced in US dollars and calculated on a co-product basis or average cost to produce gold unless otherwise mentioned.

Junior Mining Acquisition Targets

Last week major miners Barrick Gold (ABX) and Newmont (NEM) announced that profits fell 28% and 48% respectively in the first quarter as metals prices and production declined. With all eyes on the mining sector, the majors may need juniors now more than ever.

We’ve sorted through some likely takeover targets–junior mining and exploration companies that have recently made huge discoveries and are located right next door to the majors.

Northern Dynasty Minerals (NAK)

Northern Dynasty presently controls the Pebble Mine project, in southwestern Alaska, one of the largest recent gold/copper discoveries in the US. This year, all eyes are on Pebble as drilling results estimate that it contains over 94 M oz. in estimated gold reserves and 72 B pounds of copper. It’s worth mentioning that the mine is still a distant 7 years from production.

Its location is on a relatively low plain just 65 miles from the coast should ease the development process. Moreover, Alaska is rather supportive of the mining industry and receiving the required permits should be a seamless process.

Perhaps it’s most important that Anglo American’s (AAUK) $ 1.4 B investment in the mine means that Northern Dynasty doesn’t have to spend much of its own money to bring Pebble up to production.

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Rubicon Minerals (RBY)

Rubicon is an exploration company with over $ 86 M in cash reserves and fully-controlled mineral-rich properties in Ontario (Red Lake), Alaska (near Pongo mine), and 225,000 acres in northeastern Nevada. The company is presently drilling at its 65,000-acre Phoenix property, located right next door to Goldcorp’s (GG) active Red Lake mine–the world’s most lucrative gold mine. The property already a shaft, hoist, mill and other existing infrastructure to complement its $ 25 M mine development program.

Last year, Goldcorp expanded its presence in the Red Lake region through the acquisition of Gold Eagle Mines and there’s speculation that Rubicon is next. Recent drilling results confirm an extension of the broad F2 zone, in which high grade gold from 3 to a mind-boggling 3,150 grams/ton has been found.

Right now, we can only guess how much gold is at Phoenix, but according to Rubicon CEO David Adamson, “grades and widths are, to date, better than what Gold eagle found in Bruce Channel.” If that’s even close to being true, then Rubicon would have over 11 M ounces of gold at the Phoenix property alone. That doesn’t include Rubicon’s adjacent properties at Red Lake.

Here’s what analysts have to say about Rubicon and its Phoenix project:

“As its high-grade gold discovery continues to take shape, it may only be a matter of time before Rubicon becomes a takeover target…Goldcorp Inc. appears to be a logical suitor” Timothy Lee, Dundee Securities

“Recent acquisitions in the Red Lake region, such as the takeover of Gold Eagle by Goldcorp, show the importance of making high-grade discoveries in established camps.” Barry Cooper, CIBC World Markets

“…F2 it is still [in its] early days and good additional drilling results are highly probable. We continue to recommend RMX (Rubicon’s TSX symbol) as a BUY, and believe that RMX’s discovery is in the early stages of being defined.” Barry Allan, Research Capital

Midway Gold (MDW)

Midway Gold’s Spring Valley property is Nevada’s largest new gold discovery. The company’s exploration program has already indicated more than 1.8 M ounces of gold at the property that has attracted interest from major miners Kinross and Barrick Gold. In January, Kinross completed initial drilling at Spring Valley, but in March, Barrick and Midway signed an exploration agreement with the option of a joint venture.

Barrick, which presently owns a 10% stake in the company, would be the most likely buyer. With the help of more than 50 Barrick geologists already stationed in Nevada, Midway is on its way to fast development of its mine.

In addition to Spring Valley, the company has other exploration programs:

- Pan property in the Battle Mountain-Eureka gold trend have roughly 500,000 ounces in estimated gold reserves
- Drilling at the Midway project, located near Round Mountain, Nevada indicates 12 high-grade gold veins. After permits are received, the company plans to reach the gold zone by October.

- Golden Eagle project is located in the historically mineral-rich Republic Gold Trend in Washington.

Keegan Resources (KGN)

Keegan operates two prolific properties in Ghana, West Africa. By the way, for centuries, the country has been known as the “Gold Coast” and is certainly no stranger when it comes to gold mining. The company’s 28 sq. mi Esaase property is estimated to have almost 3.4 M ounces in gold reserves.

Nonetheless, its second Ghanian mine under development takes the cake. Located close to Newmont’s (NEM) mine, Asumura is estimated to contain over 19 M ounces in gold reserves, making it one of the world’s largest gold discoveries this year.

Because the company paid a small sum for these mineral-rich properties and because of the lower costs of labor, supplies, etc., Keegan is beginning a very lucrative operation that has certainly grabbed the attention of not only Newmont but other majors as well.

Detour Gold (DRGDF)

Acquired from Goldcorp (GG), Detour Gold operates the Detour Lake project in the Abitibi Greenstone belt in Northeastern Ontario. At 242 sq. km, the 100%-owned property is enormous and surrounds a smaller 50%-owned TradeWinds mine.

Drilling results at Detour Lake revealed a nearly 13 M ounce resource. Grades have been mainly between 1 and 4 g/ton and includes a high grade gold zone of an astounding 51 g/tonne. Both Campbell and Placer Dome previously mined the property for a total of over 1.75 M ounces of gold from 1983-99.

NovaGold (NG)

NovaGold and Barrick’s 50/50 Donlin Creek, Alaska mine recently added an estimated 14.5 M ounces of gold to total resources. A feasibility study puts total proven and probable reserves at nearly 29 M ounces of gold, mineable at an average cost of under $400/oz. The company expects that Donlin Creek will be able to produce over 1.6 M ounces of gold per year, making it one of the largest new discoveries in the world.

Donlin Creek is in its early development stages and Barrick’s expertise and resources will certainly ease the process; however, it won’t be an easy one. The mine requires a 75-mile access road that leads to the port, as well as an airstrip, pipeline, tailings facilities, and generators.

In addition, NovaGold gets $ 1-3 M in annual cash flow from its Nome Operations, an 89,000 acre property in northwestern Alaska that includes 3 mines with an estimated 3 M ounces in gold resources.

Andina Minerals

With over 13.8 M ounces in gold reserves at its Volcan mine in Chile, Andina stands as a viable takeover target. Last year, Kinross Gold Corp. (KGC)expressed interest in Andina, but it might not be the only contender. After all, the Volcan mine is located right next door (just 4 mi) to Yamana Gold’s (AUY) La Pepa mine, a bit closer than Kinross’ Maricunga mine (15 mi).

Also located in north-central Chile, Andina is drilling at Encrucijada and Pampa Buenos Aires. The former property has revealed high grade gold and silver at 8.4 and 100 grams per tonne respectively. The latter is 50%-owned by Rusoro Mining and is in its early stages of testing.

Great Basin Gold (GBG)

Great Basin controls the Hollister Gold project in Nevada’s mineral-rich Carlin Trend. With the exception of Rubicon’s Phoenix property, Hollister is one of a few projects to consistently hit bonanza grade gold over the past year. Its most recent drilling results found a very small zone with 1,700 grams of gold per ton.

In addition, Great Basin controls the 85,000-acre Burnstone property in Witwatersrand, a superb location in the historically mineral-rich mining region of South Africa. Burnstone is close to major gold miner Harmony Gold (HMY) gold mine as well as a highway, power lines, pipelines, and railways. With an estimated 13 M in gold resources, Great Basin Gold is certainly on the radar.

Claude Resources (CGR)

Claude Resources has its own slice of the mineral-rich Red Lake region at its 10,000 acre Madsen Deep project. Like Rubicon’s Phoenix project, Madsen Deep has infrastructure including a mill, shaft and tails pond. The project has historically produced over 2.4 M ounces of gold and new tests are promising. This year it has returned exceptional drill results that also indicate high-grade gold zones.

Located in Saskatchewan, Claude’s other property is already a few years into gold production. The 100%-controlled Seabee mine produces an average of about 45,000 ounces of gold per year at the Santoy 7 zone. The company believes that production will begin at the adjacent Santoy 9 zone towards the end of 2009.

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Gold Reserve Inc. (GRZ)

Although its location in socialist Venezuela is enough to deter many investors, Gold Reserve is one of the only junior miners that we’ve listed that has already received a bid from a major. Gold Reserve actually rejected Russia-based Rusoro Mining’s hostile takeover attempt saying that the company was undervalued. A Canadian court later issued interlocutory injunctions, preventing both Gold Reserve and implicated Endeavour from temporarily furthering takeover attempts.

Gold Reserve’s 1,200-acre flagship property, Las Brisas, has an estimated 13 M ounces in gold resources and nearly 2 B pounds of copper.

First Majestic Silver (FRMSF)

Our junior silver miner is expected to produce almost 7 million ounces of silver this year, mainly from its 3 Mexican mines–La Encantada, La Parrilla, and San Martin. Silver makes up almost 90% of First Majestic’s revenues and accounts for over 260 M ounces in reserves.

What’s unique about the company is that it sells silver bars and ingots directly to investors, often capturing a premium over silver market prices. Although the sales program is in its infancy, it’s a great addition to the company’s cash flow.

China, India Silently Accumulating Gold

After a dip to $ 880, the price of gold sent clear reversal signals today as it settled above $ 900. As we approach a full moon later this week, we expect precious metals and mining stocks prices to fully reverse and breakout into an uptrend. We’re looking for cyclical highs to occur between May 17th and 24th or the period between the last quarter and new moon.

A renewed interest in precious metals comes as investors begin to understand the significance of recent news from the world’s largest gold producer and consumer–China and India. China confirmed all rumors that it had been quietly exchanging dollars for gold. As it has recently become the world’s top producer, nearly all of its gold comes from chinese producers. Now, China’s reserves stand at 1,000 tons, still far less than US and European totals.

As we expected, lower gold prices in Indian rupees has contributed to a surge in buying. India recently reported that it imported 30 tons–25% higher than April 2008 imports. You’ll recall that we said in a February 28th commentary that India’s imports were set to rise, but we weren’t expecting such a sharp rise in such a short amount of time.