Investing in Miners – Mantra by Maund: ASX: RSG,SLR and OCG, EVN

Spock beat you to the game.
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In the early phase of the return to the gold bull market, whilst the gold price breaks above the falling 200 and 300 day moving averages (MA’s) and overcomes various inherited resistance levels around US$ 1,250 and 1,350 / ounce gold prices, it is wise to build portfolios in companies that have the following main characteristics:

Low debt exposure especially substantial longer term liabilities;
Carry a good cash balance of greater than C$ or A$ 20 million;
Have operating cash costs of between US$ 450 – 650 / ounce;
All in Sustaining Costs (AISC) per ounce of gold produced of between US$ 800 – 950 / ounce;
Gold reserves of > 8 years of current production;
Are valued at little more than the companies “Enterprise Value” and sometimes less than this. This is a clear buy signal in the emergent gold bull market;
Are leveraged to the US$ gold price and may have been seriously undervalued like RSG in Australia which operates its largest producing assets in West Africa;
Do not invest in gold producers operating in counties offering increasing Sovereign and business risks such as Turkey, Greece and China for example; and,
Have strong Board of Management with track records of success in the gold mining industry.

……. Of the Australian mid cap producers, there are two plays which are quite different. The 1stTier Mid – Caps which includes Northern Star Resources Ltd (ASX: NST), Evolution Mining Limited (ASX: EVN) and Oceana Gold Corporation Limited (ASX and TSX: OGC), have all recently advanced strongly and now represent safe investments to trade on the “dips” and sell on the “highs” or merely hold longer term. However, their upside profit potential as they are now already at an elevated level is in the order of 150 – 300% depending on how high gold goes in the coming resumption of its bull market. However, amongst this group, OGC could really appreciate given its low cost production profile and the eventual bringing on stream of the large, low cost, open pit Haile gold project in South Carolina, USA, which will bring OGC’s annual production up to > 500,000 ounces per annum and make it one of the lowest cost mid – cap gold producers in the world.
The real upside in the Australian mid-cap gold producers will come in those companies that have been largely ignored by the market for several reasons as follows:

Their gold producing mines are located outside Australia in a US$ dominated regime such as West Africa (Resolute Mining Limited ASX: RSG) and, therefore, they could not benefit from the onshore Australian $ gold price;

Their cash operating and AISC costs of gold production are at the higher end for the industry, such as Silver Lake Resources Ltd (ASX: SLR) and, therefore, profit margins are reduced;

In view of the recent ISIL (DAESH) terrorist actions in such countries as Mali (Bamako) that their gold assets are considered to be located in counties with high Sovereign and business risks (RSG whose flagship Syama gold mine is located in Western Mali).

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